APOLLO TYRES LTD V. COMMISSIONER OF INCOME TAX

WP/31738/2016

AI Insights

Apollo Tyres Ltd. filed writ petitions against the Commissioner of Income Tax (International Taxation), challenging the taxability of payments made to ATGBV under the India-Finland Treaty. The petitioner argued that these payments, made for technical services, should not be taxed in India as per the applicable Double Taxation Avoidance Agreements (DTAAs). The Commissioner had upheld the taxability based on a previous ruling and the absence of a specific government notification to apply the more beneficial terms of a subsequent treaty. The High Court, referencing a Delhi High Court decision that set aside a similar ruling, found that the Commissioner erred in requiring a separate notification and restored the matter for a detailed examination of the factual circumstances.

• Counselvise Citation: [2017] 140 COUNSELVISE.COM (IT) 765922 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 28-11-2017
• Assessment Year: misc
• Other Referred Cases: Steria (India) Ltd. vs. Commissioner of Income-tax, ISRO Case
• Laws Referred To: Articles 226 & 227 of the Constitution of India, Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: AJAY VOHRA
• Keywords: Double Taxation Avoidance Agreement; MFN Clause; Tax refund; Technical Services; Withholding Tax
• Section: 195; 264

Judgement Text

" 1/16 IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 28TH DAY OF NOVEMBER 2017 BEFORE THE HON'BLE Dr.JUSTICE VINEET KOTHARI W.P.No.31738 OF 2016 (T-IT) & W.P.No.32301 OF 2016 c/w W.P.No.31737 OF 2016 & W.P.No.32300 OF 2016 W.P.No.31738/2016 & W.P.No.32301/2016 BETWEEN: APOLLO TYRES LTD. 3RD FLOOR, AREEKAL MANSION, PANAMPILLY NAGAR, KOCHI – 682 036, REPRESENTED BY ITS CHIEF FINANCIAL OFFICER MR.GAURAV KUMAR S/O.GYANENDRA KUMAR AGED ABOUT 47 YEARS, HOUSE NO.K-41, RIDGEWOOD ESTATE DLF PHASE – IV, GURGAON – 122 002. …PETITIONER (BY:MR. AJAY VOHRA, SENIOR ADVOCATE FOR MR.K.L.RAMESH, ADVOCATE) AND: COMMISSIONER OF INCOME-TAX (INTERNATIONAL TAXATION) ROOM NO.710, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BANGALORE – 95. …RESPONDENT (BY:MR.K.V.ARAVIND, ADVOCATE) Date of Order 28-11-2017 W.P.No.31738/2016 & W.P.No.32301/2016 c/.w W.P.No.31737/2016 & W.P.No.32300/2016 Apollo Tyres Ltd. Vs. Commissioner of Income-tax 2/16 THESE WRIT PETITIONS ARE FILED UNDER ARTICLES 226 & 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE IMPUGNED ORDER DATED 30.03.2016 PASSED BY THE RESPONDENT VIDE ANNEXURE-A AND TO DIRECT THE RESPONDENT TO REFUND TO THE PETITIONER THE TAXES DEPOSITED BY THE PETITIONER AND TO DIRECT THAT PAYMNETS MADE BY THE PETITIONER TO ATGBV IS NOT LIABLE TO TAX IN INDIA AND CONSEQUENTLY THERE IS NO REQUIREMENT TO WITHHOLD/DEPOSIT TAX WITH RESPECT OF SUCH PAYMENTS AND ETC. W.P.No.31737/2016 & W.P.No.32300/2016 BETWEEN: APOLLO TYRES LTD. 3RD FLOOR, AREEKAL MANSION, PANAMPILLY NAGAR, KOCHI – 682 036, REPRESENTED BY ITS CHIEF FINANCIAL OFFICER MR.GAURAV KUMAR S/O.GYANENDRA KUMAR AGED ABOUT 47 YEARS, HOUSE NO.K-41, RIDGEWOOD ESTATE DLF PHASE – IV, GURGAON – 122 002. …PETITIONER (BY:MR. AJAY VOHRA, SENIOR ADVOCATE FOR MR.K.L.RAMESH, ADVOCATE) AND: COMMISSIONER OF INCOME-TAX (INTERNATIONAL TAXATION) ROOM NO.710, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BANGALORE – 95. …RESPONDENT (BY:MR.K.V.ARAVIND, ADVOCATE) THESE WRIT PETITIONS ARE FILED UNDER ARTICLES 226 & 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE IMPUGNED ORDER DATED 30.03.2016 PASSED BY Date of Order 28-11-2017 W.P.No.31738/2016 & W.P.No.32301/2016 c/.w W.P.No.31737/2016 & W.P.No.32300/2016 Apollo Tyres Ltd. Vs. Commissioner of Income-tax 3/16 THE RESPONDENT VIDE ANNEXURE-A AND TO DIRECT THE RESPONDENT TO REFUND TO THE PETITIONER THE TAXES DEPOSITED BY THE PETITIONER AND TO DIRECT THAT PAYMNETS MADE BY THE PETITIONER TO ATGBV IS NOT LIABLE TO TAX IN INDIA AND CONSEQUENTLY THERE IS NO REQUIREMENT TO WITHHOLD/DEPOSIT TAX WITH RESPECT OF SUCH PAYMENTS AND ETC. THESE W.Ps. COMING ON FOR PRELIMINARY HEARING ‘B’ GROUP THIS DAY, THE COURT MADE THE FOLLOWING:- ORDER Mr.Ajay Vohra, Senior Advocate for Mr.K.L.Ramesh, Advocate for Petitioner Mr.K.V.Aravind, Advocate for Respondent The petitioner M/s.Apollo Tyres Ltd. is aggrieved by the order passed by the Respondent-Commissioner of Income Tax (International Taxation) [CIT (IT)], Bangalore, vide Annexure-A dated 30.3.2016 for the Assessment Year(s) 2015-2016 and 2016-2017 holding that without a separate notification issued by Central Government for enforcing the subsequent Treaty (DTAA) between India–Finland in the present case, where the petitioner Company is governed by a former India– Netherlands Double Taxation Avoidance Agreements Date of Order 28-11-2017 W.P.No.31738/2016 & W.P.No.32301/2016 c/.w W.P.No.31737/2016 & W.P.No.32300/2016 Apollo Tyres Ltd. Vs. Commissioner of Income-tax 4/16 (DTAA), the Protocol thereto itself provides that any subsequent Treaty of India with another OECD (Organisation for Economic Co-operation and Development) Country, if such subsequent Treaty provide for a more beneficial Clause, then, by virtue of Clause-12.4.2 of the Protocol, such subsequent Treaty will automatically apply to the present India- Netherlands DTAA also. 2. Further, the respondent – CIT (IT), relying upon the decision passed by the Authority for Advance Rulings (AAR) in the case of STERIA (INDIA) LTD reported in [(2014) 45 Taxman 281 (AAR- New Delhi)] held contrary to such Treaty Provisions otherwise while upholding the order passed by the Assessing Authority viz., Deputy Commissioner of Income Tax (International Taxation), Kochi. Date of Order 28-11-2017 W.P.No.31738/2016 & W.P.No.32301/2016 c/.w W.P.No.31737/2016 & W.P.No.32300/2016 Apollo Tyres Ltd. Vs. Commissioner of Income-tax 5/16 3. The relevant extract of the order passed by the respondent-Commissioner of Income Tax, which is impugned in the present petition Annexure-A dated 30.3.2016 is quoted below for ready reference:- “The rival arguments and submissions have been examined and the following conclusions are reached: 1. There is no final or binding ruling on the issue of the necessity of a notification to give effect to MFN clause whenever any subsequent treaty with more restricted scope is entered into by India. The Steria decision may have been stayed for the time being, but it is not reversed. The stay order of the Honourable High Court contains no discussion on the merits of the case. Also the decision of ITAT has not become final. 2. The Honourable Karnataka High Court in its decision on the ISRO Case [263 CTR 549 2013] has ruled that protocol is an integral part of a DTAA. But it has not considered or given any ruling on the necessity of a Date of Order 28-11-2017 W.P.No.31738/2016 & W.P.No.32301/2016 c/.w W.P.No.31737/2016 & W.P.No.32300/2016 Apollo Tyres Ltd. Vs. Commissioner of Income-tax 6/16 notification to give effect to the MFN clause included in a protocol in the event of any new DTAA with more beneficial provision is entered into by India. It may be noted that neither the AAR in the Steria case or ITAT in the Schell Global case makes any reference to the ISRO ruling. 3. There is a precedence of notification in the case of India- Netherlands DTAA itself. When the India- US DTAA was entered, a notification was issued to make its beneficial provisions applicable to the Netherlands DTAA. Therefore it cannot be said that the issue of notification is redundant. In the light of the above, I see no reason to intervene in the case and revise the order of the AO. As the question of tax treatment under the India-Finland DTAA no longer arises, the same is not discussed. Since the relevant payment is apparently taxable in India as per the provisions of the Income Tax Act as well as India- Netherlands DTAA, the ruling of Apex Court in GE India case is not applicable in the instant case.” Date of Order 28-11-2017 W.P.No.31738/2016 & W.P.No.32301/2016 c/.w W.P.No.31737/2016 & W.P.No.32300/2016 Apollo Tyres Ltd. Vs. Commissioner of Income-tax 7/16 4. Mr.Ajay Vohra, the learned Senior Counsel appearing on behalf of the petitioner submitted that the aforesaid decision of AAR in the case of Steria (India) Ltd., itself has since been set aside by the Division Bench of Delhi High Court in the case of Steria (India) Ltd. on 28.7.2016, reported in [2016] 386 ITR 390 (Delhi). The relevant extract of the said judgment is also quoted below for ready reference:- “16. The Authority for Advance Rulings appears to have failed to notice that wording of clause 7 of the Protocol makes it self- operational. It is not in dispute that the India- France Double Taxation Avoidance Agreement was itself notified by the Central Government by issuing a notification under section 90 of the Act. It is also not in dispute the separate Protocol signed between India and France simultaneously forms an integral part of the Convention itself. The preamble in the Protocol, which states “the undersigned have agreed on the following provisions which shall form an integral part of the Convention”, makes this position clear. Once the Double Taxation Avoidance Agreement has itself been notified, and Date of Order 28-11-2017 W.P.No.31738/2016 & W.P.No.32301/2016 c/.w W.P.No.31737/2016 & W.P.No.32300/2016 Apollo Tyres Ltd. Vs. Commissioner of Income-tax 8/16 contains the Protocol including para 7 thereof, there is no need for the Protocol itself to be separately notified or for the beneficial provisions in some other Convention between India and another OECD country to be separately notified to form part of the Indo-France Double Taxation Avoidance Agreement. 17. Reliance is rightly placed by the petitioner on the following passage at page 32 in the commentary by Klaus Vogel on “Double Taxation Conventions.”: “As previously mentioned, (final) Protocols and in some cases other completing documents are frequently attached to treaties. Such documents elaborate and complete the text of a treaty, sometimes even altering the text. Legally they are part of the treaty, and their binding force is equal to that of the principal treaty text. When applying a tax treaty, therefore, it is necessary carefully to examine these additional documents.”. 18. The court is, therefore, unable to agree with the conclusion of the Authority for Advance Rulings that the clause 7 of the Protocol, which forms part of the Double Taxation Avoidance Date of Order 28-11-2017 W.P.No.31738/2016 & W.P.No.32301/2016 c/.w W.P.No.31737/2016 & W.P.No.32300/2016 Apollo Tyres Ltd. Vs. Commissioner of Income-tax 9/16 Agreement between India and France, does not automatically become applicable and that there has to be a separate notification incorporating the beneficial provisions of the Double Taxation Avoidance Agreement between India and UK as forming part of the India-France Double Taxation Avoidance Agreement.” 5. Mr.Ajay Vora also drew the attention of the Court towards Ad Article 12 of the said India – Netherlands Treaty, which, by its Protocol, provide as under:- “V. Ad Article 12 It is understood that in case India applies a levy, not being a levy covered by Article 2, such as the Research and Development Cess, on payments meant in Article 12, and if after the signature of this Convention under any Convention or Agreement between India and a third State which is a member of the OECD India should give relief from such levy, directly, by reducing the rate or the scope of the levy, either in full or in part, or, indirectly, by reducing the rate or the scope of the Indian tax Date of Order 28-11-2017 W.P.No.31738/2016 & W.P.No.32301/2016 c/.w W.P.No.31737/2016 & W.P.No.32300/2016 Apollo Tyres Ltd. Vs. Commissioner of Income-tax 10/16 allowed under the Convention or Agreement in question on payments as meant in Article 12 of this Convention with the levy, either in full or in part, then, as from the date on which the relevant Indian Convention or Agreement enters into force, such relief as provided for in that Convention or Agreement shall also apply under this Convention.” 6. He therefore submitted that on its own force and per se the provision made in India-Finland Treaty, which was entered into between India-Finland on 19.4.2010, which was made effective from 1.4.2011, vide its Article 12.5, provide that the fees for technical services, if such services are rendered and paid in a Contracting State, viz., in Netherlands as in the present case, the same cannot be taxed in India, and in view of its non-taxability, the provisions with regard to withdrawing of Tax or TDS under Section 195 of the Income Tax Act (‘Act’) would not apply the Article 12.5 of India-Finland, as aforesaid, read as under:- Date of Order 28-11-2017 W.P.No.31738/2016 & W.P.No.32301/2016 c/.w W.P.No.31737/2016 & W.P.No.32300/2016 Apollo Tyres Ltd. Vs. Commissioner of Income-tax 11/16 “5. Royalties or fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub- division, a local authority, or a resident of that State. Where, however, the right or property for which the royalties are paid is used within a Contracting State or the fees for technical services relate to services performed, within a Contracting State, then such royalties or fees for technical services shall be deemed to arise in the State in which the right or property is used or the services are performed. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical services was incurred, and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.” 7. Therefore, the learned Senior Counsel for the petitioner urged that the orders passed by the Assessing Date of Order 28-11-2017 W.P.No.31738/2016 & W.P.No.32301/2016 c/.w W.P.No.31737/2016 & W.P.No.32300/2016 Apollo Tyres Ltd. Vs. Commissioner of Income-tax 12/16 Authority Deputy Commissioner of Income Tax (International Taxation), Kochi as well as the Commissioner of Income Tax (International Taxation), Bangalore under Section 264 of the Act, deserve to be quashed in the present case. 8. On the other hand, Mr.K.V.Aravind, the learned counsel appearing for the respondent – Income Tax Department submitted that a Notification was required to be issued by Central Government to give effect to the India – Finland Treaty in the present case, where the earlier India–Netherlands Treaty was applicable, and in the absence of any such Notification, CIT (IT) was justified in passing the impugned order. 9. Secondly, he has submitted that the questions of facts relating to rendering of the services in Netherlands and payment of such fees for technical services in Netherlands are the aspects which have not Date of Order 28-11-2017 W.P.No.31738/2016 & W.P.No.32301/2016 c/.w W.P.No.31737/2016 & W.P.No.32300/2016 Apollo Tyres Ltd. Vs. Commissioner of Income-tax 13/16 been considered by the CIT (IT) in detail. However, Mr.Aravind, despite the query from the Court as to whether the Revenue has preferred any Special Leave Petition or Regular Appeal against the Division Bench’s judgment of the Delhi High in the case of Steria (India) Ltd. (surpa), was unable to give any specific information about the same to the Court. 10. Having heard the learned counsels for the parties and in view of the Division Bench judgment of the Delhi High Court, respectfully following the same, this Court is of the view that the impugned order passed by the CIT (IT) under Section 264 of the Act on 30.3.2016 cannot hold the field and the same deserves to be set aside. 11. As far as the issue of there being a requirement of issuing a separate Notification for enforcing the later Treaty with another OECD country, Date of Order 28-11-2017 W.P.No.31738/2016 & W.P.No.32301/2016 c/.w W.P.No.31737/2016 & W.P.No.32300/2016 Apollo Tyres Ltd. Vs. Commissioner of Income-tax 14/16 viz., Finland, in the present case is concerned, this Court does not find any justification in the contentions raised on behalf of the Revenue, that such a Notification was required to be issued by the Government of India to enforce such later Treaty between India – Finland in the present case. The Protocol clause quoted above in the India- Netherlands DTAA itself provide for such automatic application of subsequent Treaty, to the India–Netherlands Treaty in hand and therefore, no such separate Notification was envisaged to be issued for enforcing such subsequent Treaty with another OECD country, viz., Finland, to be made applicable to the facts of the present case. 12. As far as the decision of AAR is concerned, in the case of Steria (India) Ltd. (surpa), that the decision having been set aside by the Division Bench of Delhi High Court, at a later point of time and after the said CIT (IT) passed the impugned order under Date of Order 28-11-2017 W.P.No.31738/2016 & W.P.No.32301/2016 c/.w W.P.No.31737/2016 & W.P.No.32300/2016 Apollo Tyres Ltd. Vs. Commissioner of Income-tax 15/16 Section 264 of the Act, dated 30.3.2016, even that reliance placed by CIT (IT) cannot now be sustained. 13. In view of the aforesaid, the two reasons assigned by CIT (IT) in the impugned order, are no longer sustainable and therefore, the impugned order cannot be sustained in the eye of law. However, since the factual aspects of the matter about the payment of fees for technical services for rendering such services and payments made therefor are the questions of facts, which in the impugned order, this Court does not find any detailed discussion on the said issues. Therefore, that aspect of the matter may be required to be looked into by the CIT (IT) again, who would re-decide the said Revision Petition filed by the petitioner-assessee under Section 264 of the Act de novo. Therefore, this Court need not give its own findings on these aspects of the matter. Date of Order 28-11-2017 W.P.No.31738/2016 & W.P.No.32301/2016 c/.w W.P.No.31737/2016 & W.P.No.32300/2016 Apollo Tyres Ltd. Vs. Commissioner of Income-tax 16/16 14. In view of the aforesaid, the present Writ Petitions are allowed and the impugned order passed by the respondent–Commissioner of Income Tax (International Taxation), Bangalore, vide Annexure-A, dated 30.3.2016 is set aside and the matter is restored back to the said Authority for passing fresh orders in accordance with law, as discussed above. 15. The parties may appear before the Commissioner of Income Tax (International Taxation) in the first instance on 20.12.2017 and a period of three months is allowed to the said Authority to pass fresh orders in accordance with law. No order as to costs. Sd/- JUDGE VGR "