Imerys Asia Pacific Private Ltd., Pune V. Joint Director of Income-tax,

ITA 1205/PUN/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9260 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 01-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief; Permanent establishment; Wholly owned subsidiary; Competent authority
• Section: 143(3); 148

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NOS.1205 TO 1207/PUN/2015 / ASSESSMENT YEARS : 2007-08 TO 2009-10 IMERYS ASIA PACIFIC PTE LTD., C/O.IMERYS NEW QUEST (INDIA) PVT. LTD., UNIT 403, 4 TH FLOOR, SAI CAPITAL, SENAPATI BAPAT ROAD, PUNE 411016. PAN NO.AABC12170F. . / APPELLANT V/S JOINT DIRECTOR OF INCOME TAX, (JOINT DIT), INTERNATIONAL TAXATION, B.O. BHAVAN, PUNE SATARA ROAD, PARVATI, PUNE 411009. . / RESPONDENT / APPELLANT BY : SHRI RAJENDRA AGIWAL / RESPONDENT BY : SHRI AJAY MODI / ORDER PER ANIL CHATURVEDI, AM : THESE 3 APPEALS OF THE ASSESSEE ARE EMANATING OUT OF A CONSOLIDATED ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) -13, PUNE DT.30.06.2015 FOR THE ASSESSMENT YEARS 2007-08 TO 2009- 10. 2. BEFORE US, AT THE OUTSET LD.A.R. SUBMITTED THAT THOUGH THE APPEALS FILED BY THE ASSESSEE ARE FOR DIFFERENT ASSESSMENT YEARS BUT / DATE OF HEARING : 29.06.2017 / DATE OF PRONOUNCEMENT: 07.07.2017 2 THE FACTS AND ISSUES INVOLVED IN ALL THE APPEALS ARE IDENTICA L EXCEPT FOR THE ASSESSMENT YEAR AND THE AMOUNTS INVOLVED AND T HEREFORE THE SUBMISSIONS MADE BY HIM WHILE ARGUING ONE APPEAL WOULD BE EQUALLY APPLICABLE TO OTHER APPEALS ALSO AND THEREFORE, ALL T HE APPEALS CAN BE HEARD TOGETHER. THE AFORESAID SUBMISSION OF THE LD.A.R. HAS NOT BEEN OBJECTED TO BY LD.D.R. WE THEREFORE FOR THE SAKE OF CONVENIENCE PROCEED TO DISPOSE OF ALL THE APPEALS BY A CONSOLIDATED ORDER. HOWEVER, WE PROCEED WITH NARRATING T HE FACTS FOR ASSESSMENT YEAR 2007-08. 3. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER: 3.1 ASSESSEE IS COMPANY INCORPORATED IN SINGAPORE AND IS A NON- RESIDENT INDIAN COMPANY. IT IS A 100% SUBSIDIARY OF MIRCA L SA, FRANCE AND IMERYS SA, FRANCE IS ITS ULTIMATE HOLDING COM PANY. THE PRINCIPLE ACTIVITIES OF THE ASSESSEE ARE THOSE RELATING TO A CTIVITY AS HEADQUARTERS FOR THE ASIA PACIFIC REGION, RENDERING ADMINISTR ATIVE, MARKETING AND SALES SERVICES TO THE GROUP AND AFFILIATED CO MPANIES, TRADING OF PAPER AND PERFORMANCE MINERALS AND OTHER RELA TED BUSINESS ACTIVITIES INCLUDING PROJECT WORK. ASSESSEE ELEC TRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 2007-08 ON 24.10.2007 DE CLARING TOTAL INCOME OF RS.77,05,688/-. IN THE RETURN OF INCOME, ASS ESSEE HAD OFFERED THE GROSS AMOUNT OF ROYALTY FOR TAX AT 10% UNDER THE PROVISIONS OF ARTICLE 12 OF THE DOUBLE TAXATION AVOIDANCE AG REEMENT (DTAA) BETWEEN INDIA AND SINGAPORE AS IT WAS ASSESSEE S SUBMISSION THAT IT DID NOT HAVE PERMANENT ESTABLISHMENT (PE) IN INDIA. 3 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS OF ASSES SEE FOR A.Y. 2010-11, IT WAS FOUND THAT ASSESSEE HAD RAISED INVOICE S FOR ROYALTY ON IMERYS NEWQUEST (INDIA) PVT. LTD FOR THE PERIOD JANUARY- 2005 TO DECEMBER 2009 ON 19.02.2010 AND FOR THE PERIO D JANUARY 2010 TO SEPTEMBER 2010 ON 11.10.2010 AND IMERYS NEWQUEST (INDIA) PVT. LTD HAD REMITTED THE AMOUNT OF ROYALTY FOR TH E PERIOD JANUARY 2005 TO DECEMBER 2009 ON 14.07.2010 AND FO R THE PERIOD JANUARY 2010 TO SEPTEMBER 2010 ON 06.12.201 0. IT WAS REVENUES OBSERVATION THAT THE BENEFICIAL OWNER OF THE R OYALTY WAS NOT IMERYS SINGAPORE BUT IMREYS MINERALS LIMITED, UK. ACCORDINGLY FOR A.Y. 2010-11 AO CONCLUDED THAT ASSESSE E WAS NOT THE BENEFICIAL OWNER OF ROYALTY INCOME FROM INDIA AND IT ALSO DID NOT SATISFY LIMITATION OF BENEFIT CLAUSE AS PER ARTICLE 24 OF THE DTAA BETWEEN INDIA AND SINGAPORE. THE ASSESSEE WAS THEREFOR E HELD TO BE NOT ELIGIBLE TO CLAIM LOWER RATE OF TAX FOR ROYALTY AS PER DT AA AND THE ROYALTY INCOME WAS PROPOSED TO BE TAXED @ 20% PLUS A PPLICABLE SURCHARGE AND EDUCATION CESS AS PER SEC.115A(1)(B)(B) OF THE ACT. FOR A.Y. 2007-08 IT WAS AOS CONTENTION THAT SINCE THE A SSESSEE WAS NOT THE BENEFICIAL OWNER OF THE ROYALTY, THE ASSESSEE WAS THEREFORE NOT ELIGIBLE TO CLAIM LOWER RATE OF TAX FOR ROYALTY AS PER DT AA. HE WAS OF THE VIEW THAT THE REDUCED RATE OF TAX AT 10% FOR ROYALTY AS PER DTAA WAS NOT APPLICABLE TO ASSESSEE AND AS PER SEC.115 A, RATE OF TAX FOR ROYALTY APPLICABLE TO ASSESSEE WAS 20% PLUS TAX ABLE SURCHARGE AND EDUCATION CESS. ACCORDINGLY, NOTICE U/S 148 OF THE ACT WAS ISSUED TO THE ASSESSEE ON 22.07.2013 AND SERV ED ON THE ASSESSEE. THEREAFTER THE ASSESSMENT WAS FRAMED U/S 14 4(C)(1) R.W.S. 143(3) AND 147 OF THE ACT VIDE ORDER DT.21.05.2014 A ND THE TOTAL INCOME WAS DETERMINED AT RS.77,05,700/-. AGGRIEVED B Y THE 4 ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO BY A CONSOLIDATED ORDER FOR A.Y.S.2007-08, 2008-09 AND 2009-10 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD. CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE F OLLOWING GROUNDS : 1. THE LD.CIT(A) HAS ERRED IN UPHOLDING THE ACTIO N OF THE LEARNED ASSESSING OFFICER (LEARNED AO) IN DENYING TREATY BENEFIT TO THE APPELLANT ON THE INCORRECT BASIS THAT THE APPELLANT IS NOT THE BENEFICIAL OWNER OF THE ROYALTY INCOME OF RS.77,05,688/- EARNE D FROM OR IMERYS NEWQUEST (INDIA) PVT. LTD. 2. THE LD.CIT(A) HAS ERRED IN UPHOLDING THE ACTION OF THE AO IN APPLYING THE PROVISIONS OF ARTICLE 24 LIMITATION OF RELIEF OF THE TREATY AND IN DENYING THE APPLICATION OF CONCESSIONAL RATE OF TAX AS PER THE TREATY TO THE ROYALTY INCOME EARNED BY THE APPELLAN T. 3. THE LD.CIT(A) HAS ERRED IN NOT CANCELLING THE IN ITIATION OF PENALTY PROCEEDINGS BY THE LEARNED AO. 5. ALL THE GROUNDS BEING INTER-CONNECTED ARE CONSIDERED TOGETHE R. 6. BEFORE US, AT THE OUTSET, LD.A.R. SUBMITTED THAT IDENTICAL ISSUE AROSE IN ASSESSEES OWN CASE IN A.YS. 2006-07 AND 2010 -11. WHEN THE MATTER WAS CARRIED BEFORE THE CO-ORDINATE BENCH O F THE TRIBUNAL, THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSES SEE. HE PLACED ON RECORD THE COPY OF THE ORDERS FOR A.Y. 2010-11 DT.15.04.2016 AND A.Y. 2006-07 DT.22.07.2016. HE THEREFORE SUBMITTED THAT SINCE THE ISSUE IN THE GROUNDS RAISED IN T HE PRESENT APPEALS ARE IDENTICAL TO THAT OF A.YS.2006-07 AND 2010- 11 AND SINCE THERE ARE NO CHANGES IN THE FACTS, THE ISSUE BE DECIDED IN FAVOUR OF THE ASSESSEE. LD.D.R. ON THE OTHER HAND, DID NOT CONTROV ERT THE SUBMISSIONS MADE BY THE ASSESSEE, BUT HOWEVER SUPPORTE D THE ORDER OF LOWER AUTHORITIES. 5 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUNDS IS WITH RE SPECT TO RATE OF TAX APPLICABLE TO ROYALTY RECEIPTS. AO NOTICED THAT AS SESSEE HAD APPLIED THE REDUCED RATE OF TAX OF 10% FOR ROYALTY AS PER DTAA WHEREAS ACCORDING TO AO SINCE THE ASSESSEE WAS NOT TH E BENEFICIAL OWNER OF THE ROYALTY, ASSESSEE WAS NOT ELIGIBLE TO CLAIM LOW ER RATE OF ROYALTY AS PER DTAA AND THAT THE ROYALTY INCOME WAS TA XABLE AT 20% AS PER THE PROVISIONS OF SEC.115(1)(B)(B) OF THE ACT AND AC CORDINGLY IT WAS SO TAXED. THE ORDER OF AO WAS CONFIRMED BY LD.CI T(A). WE FIND THAT IDENTICAL ISSUE AROSE IN ASSESSEES OWN CASE FOR A.YS. 2006- 07 AND 2010-11 WHEREIN THE CO-ORDINATE BENCH OF THE TR IBUNAL WHILE DECIDING THE ISSUE FOR A.Y. 2006-07 HAD FOLLOWED THE OR DER OF CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CAS E FOR A.Y. 2010-11 AND HAD HELD THAT THE ROYALTY AND INTEREST INCO ME EARNED BY THE ASSESSEE WAS SUBJECT TO TAX AT CONCESSIONAL RA TE OF 10% BY OBSERVING AS UNDER : 11. I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. I HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE ME. I FIND AN IDENTICAL ISS UE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 201 0-11 AND THE TRIBUNAL IN THE SAID ORDER HAS HELD THAT THE ROYALT Y AND INTEREST INCOME EARNED BY THE ASSESSEE IS TO BE SUBJECT TO T AX ON CONCESSIONAL TAX RATE AT 10%. THE RELEVANT OBSERVATION OF THE T RIBUNAL FROM PARA 10 ONWARDS READ AS UNDER : 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE ASSESSEE BEFORE US IS A COMPANY INCORPO RATED IN SINGAPORE AND IS TAX RESIDENT OF SINGAPORE. THE ASS ESSEE WAS 100% SUBSIDIARY OF THE FRENCH COMPANY MIRCALS SA FRANCE AND IMERYS SA, FRANCE WAS ITS ULTIMATE HOLDING COMP ANY. THE ASSESSEE WAS ENGAGED IN VARIOUS ACTIVITIES OF MARKE TING AND SALES SERVICES TO THE GROUP AND AFFILIATED COMPANIE S, IN ADDITION TO THE TRADING OF PAPER AND PERFORMANCE MI NERALS AND OTHER RELATED BUSINESS ACTIVITIES INCLUDING PROJECT WORK. THE ASSESSEE ENTERED INTO A TECHNOLOGY LICENSE AGREEMEN T WITH IMERYS NEWQUEST (INDIA) PVT. LTD. (INPL), WHICH IN TURN, MAKES ROYALTY PAYMENT TO THE ASSESSEE. UNDER THE TECHNOLO GY AGREEMENT , NON-EXCLUSIVE, NONTRANSFERABLE, NON-ASS IGNABLE AND REVOCABLE LICENSE WAS GRANTED TO INPL TO USE TH E 6 TECHNOLOGY AND KNOW-HOW IN CONNECTION WITH DEVELOPM ENT, MANUFACTURE, USE AND SALE OF CALCIUM CARBONATE AND CALCIUM CARBONATE PRODUCTS IN GEOGRAPHICAL TERRITORY OF IND IA. INPL WAS TO PAY ROYALTY EQUIVALENT TO AN AMOUNT OF 5% OF ANN UAL NET SALES FOR PERIOD OF SEVEN YEARS COMMENCING FROM 18. 11.2004, AS PER THE TECHNOLOGY AGREEMENT PLACED AT PAGE S 51 TO 68 OF PAPER BOOK. FURTHER, IMPL HAD OBTAINED ECB LOANS FR OM THE ASSESSEE FOR PURCHASE OF CAPITAL GOODS SINCE IT WAS IN THE PROCESS OF SETTING UP OF PLANTS AT BADHRACHALAM, NE AR HYDERABAD AND AMRITSAR, PUNJAB. THE INTEREST ON THE LOANS OBTAINED WAS THREE MONTHS SIBOR + MARGIN OF 0.5% PE R ANNUM. THE INTEREST ACCRUED WAS TO BE PAID ON LOANS ON QUARTERLY BASIS. FURTHER, THESE LOANS WERE GRANTED BY THE ASSESSEE IN ACCORDANCE WITH EXTERNAL COMMERCIAL BOR ROWING (ECB) GUIDELINES ISSUED BY THE RESERVE BANK OF INDI A. THE ASSESSEE HAS FURNISHED ON RECORD THE TAX RESIDENCY CERTIFICATE FROM ITS HEAD OFFICE IN SINGAPORE. THE ASSESSEE CLAIMS THAT IT HAS NO PERMANENT ESTABLISHMENT / PE IN INDIA. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AD RECEIVED ROYALTY FROM INPL AT RS.48,88,234/- AND IN TEREST OF RS.20,73,846/- FROM IMPL. THE ASSESSEE CLAIMED THAT THE RATE OF TAX ON SUCH RECEIPTS WAS TO BE APPLIED AS PER DT AA BETWEEN INDIA AND SINGAPORE. 11. THE FACTUAL ASPECT OF THE ROYALTY PAYMENT WAS TH AT THE ASSESSEE HAD RAISED INVOICES RELATING TO ROYALTY FO R THE PERIOD JANUARY, 2005 TO DECEMBER, 2009 ON 19.10.2010 AND F OR THE PERIOD JANUARY 2010 TO SEPTEMBER, 2010 ON 11.10.201 0. INPL HAD REMITTED THE AMOUNT OF ROYALTY FOR THE PERIOD J ANUARY, 2005 TO DECEMBER, 2009 ON 14.07.2010 AND FOR THE PE RIOD JANUARY, 2010 TO SEPTEMBER, 2010 ON 06.12.2010. SIN CE THE ASSESSEE HAD NOT RECEIVED INCOME IN SINGAPORE FROM INDIA DURING THE FINANCIAL YEAR 2009-10, THE ASSESSING OF FICER SHOW CAUSED THE ASSESSEE AS TO THE APPLICABILITY OF ARTI CLE 24 OF DTAA I.E. LIMITATION OF RELIEF CLAUSE IN DTAA BETWEE N INDIA AND SINGAPORE. THE EXPLANATION OF THE ASSESSEE WAS THAT IT HAD OFFERED INCOME ON ACCRUAL BASIS AND HENCE, HAD APPL IED REDUCED RATE FOR ROYALTY AND INTEREST INCOME AS PER DTAA I.E. 10% FOR ROYALTY AND 15% FOR INTEREST. IT WAS FURTHE R POINTED OUT THAT THERE WAS NO CONDITION IN ARTICLE 24(1) OF DTA A BETWEEN INDIA AND SINGAPORE THAT THE MONEY OUGHT TO BE REMI TTED TO OR RECEIVED IN OTHER CONTRACTING STATE IN THE RELEVAN T FISCAL YEAR. IN THE ABSENCE OF THESE WORDS, THE ASSESSEE CONTEND ED THAT THIS COULD NOT BE READ INTO ARTICLE 24(1) OF DTAA. WHERE THE ROYALTY AND INTEREST INCOME FOR FINANCIAL YEAR 2009 -10 HAD BEEN REMITTED IN FINANCIAL YEAR 2010-11, THE REQUIR EMENT OF ARTICLE 24(1) OF DTAA AS PER THE ASSESSEE COULD BE CONSIDERED TO HAVE SATISFIED AND THE CONCESSIONAL TAX RATE IN INDIA SHOULD NOT BE DENIED BY APPLICATION OF LIMITATION OF RELIE F PROVISIONS. 12. THE KNOW-HOW LICENSE AGREEMENT WAS ENTERED INTO BETWEEN IMERYS MINERALS LTD., UK AND THE ASSESSEE. UNDER THIS AGREEMENT, IMERYS SINGAPORE COULD SUB-LICENSE THE KNOW- HOW TO OTHER IMERYS GROUP COMPANIES I.E. SUBLICENSE ES AND RECEIVE ROYALTY INCOME FROM THE SAID LICENSEES. AS PER THE AGREEMENT, IMERYS, SINGAPORE I.E. THE ASSESSEE WAS LIABLE TO PAY ROYALTY @2% OF THE NET SALES OF SUB-LICENSEE TO IMERYS MINERALS LTD., UK. ON THE OTHER HAND, THE ASSESSEE RECEIVED ROYALTY INCOME FROM SUB-LICENSEE @5% ON NET SALES O F SUB- LICENSEE. IN THIS REGARD, THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH INPL AND FOR THE YEAR UNDER CONSIDER ATION HAD RECEIVED RS.48,88,234/- AS ROYALTY. THE CASE OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW WAS THAT IT WAS NOT AN AGENT OR 7 NOMINEE OR CONDUIT COMPANY OF IMERYS MINERALS LTD., UK AND THE KNOW-HOW AGREEMENT BETWEEN IT AND IMERYS MINERLS LTD., UK WAS PRINCIPAL TO PRINCIPAL BASIS. THE CASE OF TH E ASSESSEE BEFORE US WAS THAT IT HAD EARNED ROYALTY ON ITS OWN RIGHT AND ON ITS OWN ACCOUNT AND HENCE, WAS THE BENEFICIAL OW NER OF ENTIRE ROYALTY INCOME RECEIVED FROM INPL UNDER ARTI CLE 12(2) OF DTAA. 13. THE FIRST CONDITION, IN ORDER TO BE ELIGIBLE TO THE PROVISIONS OF DTAA BETWEEN INDIA AND SINGAPORE, IS THAT THE EN TITY SHOULD BE TAX RESIDENT OF SINGAPORE. THE ASSESSEE H AS PLACED ON RECORD THE TAX RESIDENCY CERTIFICATE OF THE COMP ANY FROM ITS HEAD OFFICE IN SINGAPORE. FURTHER, THE ASSESSEE DOE S NOT HAVE ANY PE IN INDIA. HOWEVER, IN RESPECT OF ROYALTY INC OME AND INTEREST INCOME ACCRUED / RECEIVED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION, IT HAD FURNISHED THE RETURN OF INCOME AND HAD OFFERED THAT IT WAS LIABLE TO PAY TAXES AS PER THE PROVISIONS OF DTAA. ADMITTEDLY, THERE IS NO DISPUTE AS TO THE QUANTUM OF INCOME TO BE ASSESSED IN THE HANDS OF AS SESSEE. BOTH THE ASSESSEE AND THE ASSESSING OFFICER HAVE CO MPUTED INCOME AT RS.69,62,080/-. THE DISPUTE IS AS TO THE RATE OF TAX TO BE APPLIED ON SUCH INCOME. 14. THE RELEVANT ARTICLES FOR TAXABILITY OF INTERES T AND ROYALTY IN INDIA UNDER SINGAPORE TAX TREATY ARE REPRODUCED HER EUNDER FOR REFERENCE: ARTICLE 11: INTEREST 1. INTEREST ARISING IN A CO NTRACTING STATE AND PAID TO A RESIDENT OF THE OTHER CONTRACTI NG STATE MAY BE TAXED IN THAT OTHER STATE. 2. HOWEVER, SUCH INTEREST MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH IT ARISES, AND ACCORDING TO THE LAWS OF THAT STATE, BUT IF THE BENEFICIAL OWNER OF THE INTEREST IS A RESIDENT OF THE OTHER CONTRACTING STATE, THE TAX SO CHARGED SHA LL NOT EXCEED : (A) 10 PERCENT OF THE GROSS AMOUNT OF THE INTEREST IF SUCH INTEREST IS PAID ON A LOAN GRANTED BY A BANK CARRYI NG ON A BONA FIDE BANKING BUSINESS OR BY A SIMILAR FINANCIAL INSTITUTION (INCLUDING AN INSURANCE COMPANY) ; (B) 15 PERCENT OF THE GROSS AMOUNT OF THE INTEREST IN ALL OTHER CASES. 3... 4.. 5.. 6.. ARTICLE 12 : ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. ROYALTIES AND FEES FOR TECHNICAL SERV ICES ARISING IN A CONTRACTING STATE AND PAID TO A RESIDENT OF TH E OTHER CONTRACTING STATE MAY BE TAXED IN THAT OTHER STATE. 2. HOWEVER, SUCH ROYALTIES AND FEES FOR TECHNICAL S ERVICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THE Y ARISE AND ACCORDING TO THE LAWS OF THAT CONTRACTING STATE, BU T IF THE 8 RECIPIENT IS THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES, THE TAX SO CHARGED SHALL NOT EX CEED 10 PERCENT. . ARTICLE 24 : LIMITATION OF RELIEF 1. WHERE THIS AGREEMENT PROVIDES (WITH OR WITHOUT OTHER CONDITION S) THAT INCOME FROM SOURCES IN A CONTRACTING STATE SHALL BE EXEMPT FROM TAX, OR TAXES AT A REDUCED RATE IN THAT CONTRA CTING STATE AND UNDER THE LAWS IN FORCE IN THE OTHER CONTRACTIN G STATE THE SAID INCOME IS SUBJECT TO TAX BY REFERENCE TO THE A MOUNT THEREOF WHICH IS REMITTED TO OR RECEIVED IN THAT OTHER CONT RACTING STATE AND NOT BY REFERENCE TO THE FULL AMOUNT THEREOF, TH EN THE EXEMPTION OR REDUCTION OF TAX TO BE ALLOWED UNDER T HIS AGREEMENT IN THE FIRST-MENTIONED CONTRACTING STATE SHALL APPLY TO SO MUCH OF THE INCOME AS IS REMITTED TO OR RECEI VED IN THAT OTHER CONTRACTING STATE. 2. HOWEVER, THIS LIMITATION DOES NOT APPLY TO INCOM E DERIVED BY THE GOVERNMENT OF A CONTRACTING STATE OR ANY PERSON APPROVED BY THE COMPETENT AUTHORITY OF THAT STATE FOR THE PU RPOSE OF THIS PARAGRAPH. THE TERM GOVERNMENT' INCLUDES ITS AGENC IES AND STATUTORY BODIES. 15. IN ORDER TO TAKE THE BENEFIT OF REDUCED RATE OF TAX FOR INTEREST AND ROYALTY AS PER ARTICLES 11 AND 12 OF T HE DTAA, THE CONDITIONS TO BE SATISFIED THAT THE RECIPIENT SHALL BE THE BENEFICIAL OWNER OF INTEREST AND ROYALTY. IN OTHER WORDS, THE RECIPIENT SHOULD HAVE RECEIVED THE INTEREST AND ROY ALTY IN ITS OWN RIGHT. 16. AS PER ARTICLE 12 OF DTAA BETWEEN INDIA AND SIN GAPORE, THE ROYALTIES AND FEES FOR TECHNICAL SERVICES WHICH ARISES IN THE CONTRACTING STATE AND ARE PAID TO RESIDENT OF OTHER CONTRACTING STATE, THEN THE SAME IS TO BE TAXED IN THE OTHER ST ATES. IT IS FURTHER PROVIDED BY CLAUSE 12(2) OF DTAA THAT THE S AID ROYALTY AND EVEN FEES FOR TECHNICAL SERVICES MAY ALSO BE TA XED IN THE CONTRACTING STATE IN WHICH THEY ARISE AND AGREED TO THE LAWS OF CONTRACTING STATE, BUT IF THE RECIPIENT WAS THE BEN EFICIAL OWNER OF ROYALTIES OR FEES FOR TECHNICAL SERVICES, THE TA X SO CHARGED, WAS NOT TO EXCEED 10%. FURTHER UNDER ARTICLE 11 OF DTAA, SIMILAR PROVISIONS ARE LAID DOWN IN RESPECT OF INTE REST, EXCEPT RATES OF TAX I.E. IN RESPECT OF LOANS GRANTED BY A BANK OR A FINANCIAL INSTITUTION, IT WOULD BE TAXED @10% OF TH E GROSS AMOUNT OF INTEREST AND IN ALL OTHER CASES 15% OF TH E GROSS AMOUNT OF INTEREST. UNDER ARTICLE 24 OF DTAA, THE L IMITATION OF RELIEF IS PROVIDED THAT WHERE THE AGREEMENT PROVIDE S THAT THE INCOME FROM SOURCES IN A CONTRACTING STATE, SHALL B E EXEMPT FROM TAX, OR TAXED AT REDUCED RATE IN THAT CONTRACT ING STATE AND UNDER THE LAWS IN FORCE IN THE OTHER CONTRACTING ST ATE, THE SAID INCOME IS SUBJECTED TO TAX BY REFERENCE TO THE AMOU NT THERETO WHICH IS REMITTED TO OR RECEIVED IN THE OTHER CONTR ACTING STATE AND NOT BY REFERENCE TO THE FULL AMOUNT THEREOF. IT IS FURTHER PROVIDED THAT THE EXEMPTION OR REDUCTION OF TAX TO BE ALLOWED UNDER THIS AGREEMENT IN FIRST MENTIONED CONTRACTING STATE SHALL APPLY TO SO MUCH OF THE INCOME AS IS REMITTED TO OR RECEIVED IN THE OTHER CONTRACTING STATES. 17. IN ORDER TO ADJUDICATE THIS ISSUE, WE HAVE PERU SED THE AGREEMENT ENTERED INTO BETWEEN IMERYS, UK AND THE A SSESSEE AT SINGAPORE. AS PER THE RECITALS OF AGREEMENT PLAC ED AT PAGES 112 TO 118 OF THE PAPER BOOK, THE LICENSOR I.E. UK COMPANY HAD 9 DEVELOPED BODY OF SECRET, SUBSTANTIAL AND IDENTIFIA BLE KNOW- HOW IN CONNECTION WITH DESIGNING, BUILDING, OPERATI ON AND MAINTENANCE OF PLANTS FOR THE MANUFACTURE OF PRODUC TS LISTED IN SCHEDULE A. FURTHER THE LICENSOR WISHED TO DEVELOP SUB- LICENSING MARKET IN THE ASIA PACIFIC REGION FOR THI S KNOW-HOW AND WISHED THE LICENSEE TO ACT AS SUB-LICENSOR IN O RDER TO DEVELOP ITS MARKET. THE LICENSEE ON THE OTHER HAND, WISHED TO OBTAIN THE LICENSE OF KNOW-HOW, NOT TO USE THE KNOW -HOW ITSELF, BUT IN ORDER TO SUBLICENSE THE KNOW-HOW TO THIRD PA RTIES CUSTOMERS, SUBJECT TO TERMS OF THE AGREEMENT. THE L ICENSOR THUS, AGREED TO PERMIT THE LICENSEE TO SUB-LICENSE THE KNOW- HOW ON THE TERMS AND CONDITIONS OF THIS AGREEMENT. AS PER CLAUSE 2.1, THE LICENSOR GRANTED TO THE LICENSEE A NON-EXCLUSIVE, PERPETUAL, IRREVOCABLE LICENSE, SUBJECT TO TERMS AN D CONDITIONS OF THE AGREEMENT, TO USE THE KNOW-HOW FOR THE PURPO SE OF HAVING PRODUCTS MANUFACTURED AND SOLD ON ITS BEHALF BY AN AUTHORIZED CONTRACTOR OR BY SUB-LICENSEE IN THE TER RITORY AND OF SELLING THE PRODUCTS BY ITSELF OR ITS AGENTS OR DIS TRIBUTORS. THE LICENSE GRANTED BY THE LICENSOR SPECIFICALLY INCLUD ES THE RIGHT TO SUB-LICENSE. BY CLAUSE 4, IT WAS FURTHER PROVIDED T HAT THE LICENSEE SHALL NOT EXPLOIT THE KNOW-HOW, BUT SHALL BE ALLOWED TO GRANT SUB-LICENSE OF THE KNOW-HOW TO SUB-LICENSEE. THEREFORE, IT WAS AGREED THAT AS CONSIDERATION FOR THE KNOW-HOW L ICENSE, THE LICENSEE SHALL PAY TO THE LICENSOR A LICENSE FE ES EQUAL TO 2% OF THE SALES OF THE PRODUCT REALIZED BY SUBLICENSEE . 18. THE ASSESSEE IN LIEU OF THIS LICENSE GRANTED TO IT, ENTERED INTO A ROYALTY AGREEMENT WITH INPL, COPY OF WHICH I S PLACED AT PAGES 51 TO 68 OF THE PAPER BOOK, UNDER WHICH IT WA S AGREED THAT THE ASSESSEE UNDERTOOK TO PROVIDE TECHNOLOGY A ND KNOW- HOW GRANTED TO THE LICENSEE A NON-EXCLUSIVE, NONTRA NSFERABLE, NON-ASSIGNABLE AND REVOCABLE LICENSE TO USE THE TEC HNOLOGY AND KNOW-HOW IN THE TERRITORY IN CONNECTION WITH DE VELOPMENT, MANUFACTURE, USE AND SALE OF PRODUCTS. IT WAS AGREE D BETWEEN THE PARTIES THAT THE TECHNOLOGY AND KNOW-HOW LICENS E HEREUNDER SHALL BE USED SOLELY AND EXCLUSIVELY FOR MANUFACTURING THE PRODUCTS AND FOR NO OTHER PURPOSE WHATSOEVER AND SHALL NOT BE SUB-LICENSED BY THE LIC ENSEE TO ANY OTHER PERSON WITHOUT WRITTEN CONSENT OF THE LIC ENSOR. IN CONSIDERATION OF THE GRANT OF LICENSE, IT WAS AGREE D THAT ROYALTY EQUIVALENT TO AMOUNT OF 5% PER ANNUM OF ANNUL NET S ALES OF PRODUCTS REALIZED FOR A PARTICULAR YEAR SHALL BE PA ID BY THE LICENSEE TO THE LICENSOR. IN ORDER TO PROVIDE THE S ERVICES TO INPL, THE ASSESSEE CLAIMS THAT IT HAD PROVIDED SERVICES T O INPL THROUGH ITS EMPLOYEES, WHO HAD ALSO TRAVELLED TO IN DIA, AGAINST WHICH IT HAD RECEIVED ROYALTIES AND THE ASSESSEE WA S THE BENEFICIAL OWNER OF ROYALTY RECEIVED FROM INDIAN CO MPANY AND HENCE, WAS ELIGIBLE FOR CONCESSIONAL TAX RATE @10% UNDER ARTICLE 12(2) OF INDIA-SINGAPORE TAX TREATY. THE CO PIES OF INVOICES RAISED BY THE ASSESSEE ALONG WITH DOCUMENT S SUBMITTED WITH AUTHORIZED DEALER FOR REMITTANCE OF ROYALTY AND THE CERTIFICATE ISSUED BY THE AUDITOR FOR THE PAYME NT OF ROYALTY UNDER FOREIGN TECHNICAL COLLABORATION AND ALSO THE EXTRACTS OF SINGAPORE TAX RETURN FOR 2009 ARE PLACED AT PAGES 7 2 TO 92 OF THE PAPER BOOK. THE ROYALTY PAYMENTS PAID BY INPL W ERE SUBJECTED TO TAX DEDUCTION AT SOURCE AND THE ASSESS EE CLAIMED THE BENEFIT OF TDS AGAINST THE ROYALTY PAYMENT OF RS.48,88,234/-. IN THE TOTALITY OF THE ABOVE SAID F ACTS AND CIRCUMSTANCES, WE HOLD THAT THE ASSESSEE WAS THE BE NEFICIAL OWNER OF ROYALTY IN LINE WITH THE PROVISIONS OF ART ICLE 12 OF DTAA AND THE SAME WAS TO BE TAXED @10%. WE FIND SUP PORT FROM THE RATIO LAID DOWN BY THE AUTHORITY FOR ADVAN CE RULINGS, 10 NEW DELHI IN P.NO.13 OF 1995, IN RE (SUPRA), WHEREI N IT WAS HELD THAT THOUGH APPLICANT WOULD BE ACQUIRING EXPER TISE AND TECHNICAL KNOW-HOW FROM THIRD PARTIES FOR WHICH IT WAS TO PAY ROYALTIES AND TECHNICAL FEES, WOULD BE BELONGING TO APPLICANT. THE ASSESSEE HAD EARNED ROYALTY INCOME FROM OTHER C OUNTRIES ALSO. FURTHER, SIMILAR RATIO HAS BEEN LAID DOWN BY PUNE BENCH OF TRIBUNAL IN SHAAN MARINE SERVICES PVT. LTD. VS. DY. DIRECTOR OF INCOME TAX (SUPRA). 19. ANOTHER ASPECT OF THE ISSUE IS THAT THE BENEFIT S AVAILABLE UNDER THE TREATY SHOULD BE GRANTED TO THE ASSESSEE BASED ON VALID TRC WAS THE PROPOSITION APPROVED BY THE HONB LE SUPREME COURT IN UNION OF INDIA VS. AZADI BACHAO AN DOLAN (SUPRA) AND FURTHER THE HONBLE PUNJAB & HARYANA HI GH COURT IN SERCO BPO PVT. LTD. VS. AAR IN CIVIL WRIT PETITI ON NO.11037 OF 2014 (O&M), JUDGMENT DATED 26.08.2015, WHERE THE ASSESSEE BEFORE US IS TAX RESIDENT OF SINGAPORE AND THE SINGAPORE TAX RESIDENCY CERTIFICATE OF THE ASSESSEE FOR 2010 IS AVAILABLE AT PAGE 93 OF PAPER BOOK AND THE BENEF IT OF TREATY IS ALSO AVAILABLE TO THE ASSESSEE ON THIS GROUND. 20. FURTHER, WITH REGARD TO INTEREST INCOME RECEIVE D BY THE ASSESSEE, SINCE THE AMOUNT WAS ADVANCED BY THE ASSE SSEE AS ECB LOAN TO IMPL, THE INTEREST INCOME RECEIVED BY T HE ASSESSEE BEING THE BENEFICIAL OWNER OF IT, IS TAXABLE IN ITS HANDS @15% AS PER ARTICLE 11 OF DTAA. THE CASE OF AUTHORITIES BELOW WAS THAT THE ASSESSEE WOULD NOT BE ENTITLED TO THE BENE FIT OF CLAUSES UNDER DTAA BETWEEN INDIA AND SINGAPORE SINC E IT HAD NOT REMITTED THE SAID INCOME TO SINGAPORE WITHIN FI SCAL YEAR I.E. FINANCIAL YEAR 2009-10. IN THIS REGARD, THE FIRST P LEA RAISED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT THE TAX DEPARTMENT HAS ACCEPTED THE CONCESSIONAL TAX RATE I N THE CASE OF ASSESSMENT YEARS 2006-07, 2008-09 & 2009-10 AND HENCE THE SAME POSITION SHOULD BE ADOPTED FOR ASSESSMENT YEAR 2010-11. THE ASSESSING OFFICER REJECTED THE SAID PL EA OF THE ASSESSEE SINCE THE RETURNS FOR ALL THOSE YEARS WERE PROCESSED UNDER SECTION 143(1) OF THE ACT. HOWEVER, WHERE THE ASSESSEE WAS THE BENEFICIAL RECIPIENT OF THE INTEREST INCOME , THE SAME IS TO BE TAXED @ 15% AS PER THE DTAA 21. THE NEXT PLEA OF THE ASSESSEE BEFORE THE AUTHOR ITIES BELOW WAS THAT THE LIMITATION OF RELIEF PROVIDED IN ARTICL E 24 OF DTAA WOULD ARISE IN CASE WHERE THE INCOME IS SO MUCH OF INCOME AS IS REMITTED TO OR RECEIVED IN THE OTHER CONTRACTING STATE. IN OTHER WORDS, THE BENEFIT OF DTAA PROVISIONS IS REST RICTED TO THE AMOUNT OF INCOME WHICH IS THE SUBJECT MATTER OF TAX ATION IN THE OTHER CONTRACTING STATE. IN A SITUATION, WHERE THE NON-RESIDENT COMPANY CLAIMS TREATY PROTECTION, THEN THE SAME SHO ULD REMAIN CONFINED TO THE AMOUNT WHICH IS ACTUALLY SUB JECTED TO TAX IN THE SOURCE COUNTRY. THE ABOVE SAID PROVISION IS PROVIDED TO AVOID SITUATION, UNDER WHICH INCOME WHICH IS NOT SUBJECT TO TAX IN THE RESIDENCE JURISDICTION, WILL BE AVAILABL E FOR TREATY PROTECTION IN THE OTHER CONTRACTING STATES. 22. IN THE FACTS OF THE PRESENT CASE BEFORE US, IT IS NOT THE CASE OF REVENUE THAT THE AMOUNT HAS NOT BEEN REMITTED TO SINGAPORE, BUT THE BENEFIT OF TAX TREATY HAVE BEEN DENIED TO THE ASSESSEE SINCE THE SAID AMOUNT HAS NOT BEEN REM ITTED IN THE CURRENT FISCAL YEAR I.E. FINANCIAL YEAR 2009-10 . WHERE THE AMOUNT HAS BEEN REMITTED TO SINGAPORE AND HAS BEEN SUBJECT TO THE TAX, WE FIND NO MERIT IN THE ORDERS OF ASSES SING OFFICER / 11 DRP IN DENYING THE BENEFIT OF TREATY PROVISIONS TO THE ASSESSEE IN TAXING THE INCOME AT LOWER RATES. IN THIS REGARD , WE FIND SUPPORT FROM THE RATIO LAID DOWN BY RAJKOT BENCH OF TRIBUNAL IN ALABRA SHIPPING PTE LTD., SINGAPORE VS. ITO IN I TA NO.392/RJT/2014, RELATING TO ASSESSMENT YEAR 2011-1 2, ORDER DATED 09.10.2014. ACCORDINGLY, WE HOLD THAT WHERE T HE ASSESSEE WHO HAD ENTERED INTO AN AGREEMENT WITH ITS PRINCIPAL IN UK AND RECEIVED THE KNOW-HOW, WHICH IN TURN, IT COULD SUB- LICENSE AND HAD IN FURTHERANCE PROVIDED SERVICES TO ITS SUB- LICENSEE AND RECEIVED SUB-LICENSEE FEES FROM SUB-LI CENSEE I.E. INPL, THEN SUCH ROYALTY INCOME HAVING BEEN RECEIVED BY THE ASSESSEE NON-RESIDENT COMPANY ON ITS OWN RIGHT AS T HE BENEFICIAL OWNER OF THE SAME, SUCH ROYALTY INCOME I S TO BE SUBJECT TO TAX AT CONCESSIONAL TAX RATE AT 10%. SIM ILARLY, THE INTEREST INCOME EARNED BY THE ASSESSEE WAS ALSO REC EIVED BY IT BEING ITS BENEFICIAL OWNER AND WHICH IN TURN, HAS B EEN REMITTED THOUGH NOT IN THE INSTANT YEAR, IS TAXABLE AT CONCE SSIONAL RATE OF TAXES. ACCORDINGLY, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED. 12. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO MY NOTICE, I SET ASIDE THE ORDER OF THE CIT(A) A ND ALLOW THE GROUNDS RAISED BY THE ASSESSEE. 8. BEFORE US, REVENUE HAS NOT BROUGHT ANY MATERIAL ON R ECORD TO DEMONSTRATE THAT THE ORDER OF THE CO-ORDINATE BENCH O F THE TRIBUNAL FOR A.Y.S 2006-07 AND 2010-11 PASSED IN THE CASE OF ASSE SSEE HAS BEEN SET-ASIDE OR OVER-RULED IN ANY MANNER BY THE HIGH COURT NOR POINTED OUT ANY DISTINGUISHING FEATURE IN THE FACTS OF THE Y EAR UNDER APPEAL AND THAT OF EARLIER YEARS. WE THEREFORE FOLLOWING TH E SAME REASONING OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASS ESSEES OWN CASE FOR A.Y. 2006-07 AND FOR SIMILAR REASONS HOLD TH AT THE ROYALTY IS SUBJECT TO TAX AT CONCESSIONAL RATE OF 10% A ND THUS THE GROUNDS OF THE ASSESSEE IS ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR A.Y. 2007-08 IS ALLOWED. 10. AS FAR AS APPEALS FOR A.YS. 2008-09 AND 2009-10 ARE CONCERNED, SINCE BOTH THE PARTIES BEFORE US HAVE SUBMIT TED THAT THE 12 FACTS OF THE CASE FOR THE ASSESSMENT YEAR 2007-08 ARE ID ENTICAL TO THE FACTS OF THE CASES FOR A.YS. 2008-09 AND 2009-10, WE, THE REFORE, FOR THE REASONS STATED HEREIN WHILE DISPOSING OF THE APPEAL FOR A.Y. 2007-08 AND FOR SIMILAR REASONS, ALLOW THE APPEALS OF ASSE SSEE FOR A.YS. 2008-09 AND 2009-10 ALSO. 11 . IN THE RESULT, ALL THE APPEALS OF ASSESSEE ARE A LLOWED. ORDER PRONOUNCED ON 7 TH DAY OF JULY, 2017. SD/- S D/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) / JUDICIAL MEMBER ! / ACCOUNTANT MEMBER PUNE; ! DATED : 7 TH JULY, 2017. YAMINI '#$%&'&$ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A)-13, PUNE. 4. THE CIT(IT/TP), PUNE. 5. #$% &&'(, * '(, / DR, ITAT, B PUNE; 6. %+, - / GUARD FILE. / BY ORDER, // TRUE COPY // . /012 / ASSISTANT REGISTRAR, * '( , / ITAT, PUNE.