Perfetti Van Melle ICT & BV, Gurgaon V. ACIT Interantional Taxation, Gurgaon

ITA 139/DEL/2021

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 7853 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2017-2018
• Appeal Filed On: 23-02-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA ANAND
• Keywords: Double taxation relief; Permanent establishment; Advance ruling; TDS; Set aside
• Section: 6; 2; 143(3); 234B; 195; 9(1); 9(1); 9(1); 72; 13

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘D’, NEW DELHI Before Sh. Saktijit Dey, Judicial Member Dr. B. R. R. Kumar, Accountant Member ITA No. 139/Del/2021 : Asstt. Year : 2017-18 Perfetti Van Melle ICT & BV, C/o Perfetti Van Melle India Pvt. Ltd., Global Business Park, Tower-A, FF, Mehrauli, Gurgaon-122002 Vs ACIT, International Taxation, Gurgaon-122001 (APPELLANT) (RESPONDENT) PAN No. AAICP1554F Assessee by : Sh. Deepak Chopra, Adv. Revenue by : Mrs. Anupama Anand, CIT DR Date of Hearing: 01.12.2021 Date of Pronouncement: 28.02.2022 ORDER Per Dr. B. R. R. Kumar, Accountant Member: The present appeal has been filed by the assessee against the order dated 02.02.2021 passed by the AO u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961. 2. Following grounds have been raised by the assessee: “1. That the Ld. AO erred in assessing the income of the Appellant at INR 5,54,28,352/- as against NIL returned income declared by the Appellant. 2. That on the facts and in the circumstances of the case and in law, the orders passed by the Ld. AO/Hon’ble DRP is bad in law. Re: Reimbursement of INR 1,83.92,376/-. received on account of SAP software and Microsoft license fees taxed as Royalty under section 9(1)(vi) of the Act as well as Article 13 of the India- Netherlands DTAA. ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 2 3. That the Ld. AO/Hon’ble DRP has erred on the facts and circumstances of the case and in law by concluding that software license fees, i.e., fees paid in lieu of SAP Software License and Microsoft License, received by the Appellant during the subject year is taxable as Royalty under clause (iii) to Explanation 2 to section 9(1 )(vi) of the Act as well as under Article 12 of the India-Netherlands Double Taxation Avoidance Agreement (“India - Netherlands DTAA”). 4. That the order of the AO/DRP is patently perverse because they failed to appreciate that only the owner of a Copyright can grant a license to use the same. 5. That the AO/DRP failed to appreciate that in the absence of any right of ownership in the software, the Appellant was not competent to grant any license. 6. That the AO/DRP also erred in not appreciating that in order to partake the character of royalty the payment necessarily has to be for the “use” or “right to use” of a Copyright and in the absence of any such right being granted, the payment cannot partake the character of royalty. 7. Without prejudice, the AO/DRP failed to appreciate that in the cases of license of software, the license is given in the “Copyrighted Article” and not in the “copyright” per se and hence the reimbursement received by the Appellant cannot be characterized as royalty. 8. Without prejudice, the AO/DRP also failed to appreciate that the provisions of Explanation 4 to section 9(1)(vi) as inserted in the Act (domestic law), cannot be applied to the DTAA in the absence of any specific reference to it. 9. That the AO/DRP also erred in not applying their mind and in relying on the issues relating to infringement of the copyright while failing to appreciate that the infringement can only be qua the owner of the copyright. 10. That the AO/DRP also failed to appreciate that the Appellant was only a facilitator for procurement of SAP and Microsoft licenses and there was no ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 3 reproduction right given by the Appellant qua the said licenses. 11. That the AO/DRP also failed to appreciate that SAP is an accounting ERP software and based on the number of users, licenses have to be procured to enable use of the ERP software. 12. That the AO/DRP also failed to appreciate that the Appellant was only a facilitator for the procurement of SAP & Microsoft licenses and had not granted any such license(s) so as the characterize the reimbursement received by it as royalty. 13. Without prejudice, the Ld. AO/ Hon’ble DRP failed to appreciate that there was no element of “income” in the payment received of the Appellant in lieu of software license fee and therefore, the question of classifying and taxing it as “Royalty” did not arise. 14. That the AO/DRP completely erred in relying on judicial decisions which have been subsequently overruled. 15. That the AO/DRP also failed to erred in law and favorable decisions of other High Court on the subject matter in the absence of any jurisdictional High Court decisions. Re: Payment of INR 3.70,35,976/- received on account Information & Communication Technology (ICT) service charges from Perfetti Van Melle India Private Ltd., taxed as “Fees for Technical Services” under Article 12 of the India-Netherlands DTAA. 16. That the Ld. AO/Hon’ble DRP has erred on the facts and circumstances of the case and in law by concluding that “ICT services” and “Regional Support services” rendered by the Appellant falls within the definition of “Fees for Technical Services” as defined under section 9(1)(vii) of the Act, as well as under Article 12 of the India-Netherlands DTAA. 17. That the Ld. AO/Hon’ble DRP erred on the fact and circumstances of the case and in law in not appreciating the fact that the Appellant did not make ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 4 available any technical knowledge, know-how or skill and therefore, payment received in lieu of these services does not fall within the ambit of Article 12 of India-Netherlands DTAA. 18. That the Ld. AO/Hon’ble DRP has erred on the fact and circumstances of the case and in law in holding that the benefit of restrictive definition of “Fees for Technical Services” as provided under Article 12(4)(b) of India-Portugal DTAA could not be availed by the Appellant despite of “Most Favored Nation” clause in the India- Netherlands DTAA. 19. That the Ld. AO/DRP has erred on the fact and circumstances of the case and in law, by holding that the services rendered by the Appellant were ancillary and subsidiary to the application or enjoyment of the right to use copyright and therefore, were covered within the ambit of Article 12(5)(a) of the India- Netherlands DTAA. 20. That the Ld. AO / Hon’ble DRP erred in alleging that the services rendered by the Appellant to its Indian affiliate were in the nature of “management consultancy services”. 21. The Ld. AO/Hon’ble DRP has erred in not following the High Court rulings relied upon by the Appellant, wherein on the basis of similar facts, it was held that payment received in lieu of ICT Services and Regional Support services were not taxable as Fees for Technical Services. 22. That the Ld. AO has grossly erred in charging interest under section 234B of the Act. 23. That the Ld. AO grossly erred in initiating penalty proceedings under section 270A of the Act.” 3. The assessee filed its return of income on 28.11.2017 declaring Nil and claimed a refund of Rs.37,03,599/-. PVM ICT BV is a company incorporated in Netherlands on 25.10.2014 having its registered office at ZoeteInval 20, 4815 HK Breda. The company is actively engaged in the business of rendering services in confectionery industry. ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 5 4. The assessee has earned income amounting to Rs.5,54,27,472/- from Perfetti Van Mele India Pvt. Ltd. (“PVM, India”) in relation to the agreement entered with the Indian customer for providing services to PVM India under the following broad heads as outlined: • SAP functional services • SAP technical services • SAP improvement projects • SAP support services • Office automation and network infrastructure related to SA • P 5. The assessee company has its subsidiary in India namely M/s Perfetti Van Meille India Pvt. Ltd. During the year consideration, the assessee has earned following incomes from India: S. No . N atu re of R e c ei p t Amo un t (i n Rs.) W he th e r of f e r ed to i n re t u rn o f in c om e o r n ot 1 SAP Software license fees 91,80,403 No 2 Regional Support Office (RSO) cross charges 2,78,68,003 No 3 Information & Communication Technology (ICT) service charges 91,67,973 No 4 Microsoft Licensing Fees 92,11,973 No Tot al 5,54 ,2 7,47 2 6. The assessee was issued a show cause notice dated 27.11.2019 wherein it was asked that the SAP software License fees and Microsoft license fees should not be taxed as Royalty and the RSO cross charges and ICT Services should not be taxed as Fees for Technical Services (FTS). ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 6 7. During the year the assessee has submitted that it had received an amount of Rs.91,80,403/- and Rs. 92,11,973/-, i.e. total of Rs.1,83,92,376/- on account of software. The assessee submitted that, a) the said amount is cross-charged at actual cost, without any markup. b) The assessee has got a limited use of software licenses. c) These amounts do not qualify as Royalty under the India- Netherlands DTAA. 8. The AO invoking the judgment of ITAT Delhi in the case of Microsoft held that the payment falls under the term “Royalty” within the meaning of clause (iii) of explanation to Section 9(1) of the Income Tax Act, 1961 within the meaning of royalty as defined under Article 13 between India-Netherland treaty and taxed the receipt of Rs.1.83 crores @ 10%. 9. The ld. DRP confirmed the addition holding as under: “3.4 The submissions have been perused along with the relevant materials on record. This issue of copyright vs copyrighted article as regards software has been considered in various cases. In this regard, the Hon'ble Karnataka High Court has decided the issue of software royalty, both before and after the insertion of Explanations 4, 5 and 6 in Section 9(1)(vi) of the I.T. Act by the Finance Act 2012 in various decisions namely, CIT vs. Synopsis International Old Ltd. [2012] 28 Taxmann.com 162 (Kar), Samsung Electronics Co. Ltd. (supra), CIT (IT) v. Wipro Ltd. [2013] 355 ITR 0284 (Kar) and CIT v. CGI information Systems & Management consultants (P.) Ltd. [2014] 226 Taxmann 319 (Kar). The basic conclusions in all these decisions are as follows: ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 7 (i) that the consideration paid is for the rights in respect of copyright and the user of the confidential information embedded in the software/computer programme amounts to royalty both under the Act and under the DTAA. (para 45 of Synopsis, supra) (ii) that what is transferred is right to use the software, an exclusive right, which the owner of the copyright i.e., the respondent-supplier owns and what is transferred is only right to use copy of the software for the internal business as per the terms and conditions of the agreement (Para 24 of Samsung, supra) (iii) that right to make a copy of the software and use it for internal business by making copy of the same and storing the same in the hard disk of the designated computer and taking back up copy would itself amount to copyright work under s. 14(1) of the Act and licence is granted to use the software by making copies, which work, but for the licence granted would have constituted infringement of copyright and licensee is in possession of the legal copy of the software under the licence. (Para 24 of Samsung, supra) (iv) that what is supplied is the copy of the software of which the respondent supplier continues to be the owner of the copyright and what is granted under the licence is only right to copy the software as per the terms of the agreement, which, but for the licence would amount to infringement of copyright and in view of the licence granted, the same would not amount to infringement under s. 52 of the Copyright Act. ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 8 (v) In the case of CGI Information, supra, it has been held by the Karnataka High Court that the Explanations 4, 5 and 6 to S. 9(1)(vi) of the Act can be applied to DTAA. 3.5 The ratio laid above squarely applies to the facts of this case. Further, the term ‘copyright’ has-not been defined in Article 12(4) of the India-Netherlands DTAA, Hence, as per Article 2(3) of the DTAA, the term will have the meaning which it has under the domestic law of that State which in this case is the IT Act, 1961 containing section 9(1)(vi) and Explanations 3 and 4 thereto and the Copyright Act, 1957. The assessee has stated that the right to use the computer software cannot be treated as right to use for copyright u/s 14 of the Copyright Act, 1957. Section 14 of the Copyright Act defines copyright to mean the exclusive right to do or authorize the doing certain specified acts in respect of a work or any substantial part thereof, which includes a computer programme. In the present case, the user gets the exclusive right in lieu for consideration in the form of royalty to install and use the programme in its systems. To the extent that such consideration is paid, the right to use becomes exclusive within the meaning of section 14 of the Copyright Art, thus falling within the ambit of the Royalty Article in the India-Netherlands DTAA. 3.6 Besides, SAP / Microsoft software are ERR software requiring customization, installation and integration with the existing system and processes in the user’s machines so that the programs embedded therein can be used. These licensed software being highly specialized software enable the user to carry out different calculations, analysis, data capture, information presentation etc. Therefore, these software also made available a "process" to the customers who used the ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 9 embedded process while carrying out their business. Hence, in addition to software involving a copyright, these specialized software also represent a 'process’ which could be used in a particular industry specific core activity. The Panel therefore does not find any infirmity in the conclusions arrived at by the AO. As regards the cases relied upon by the assessee containing the abovementioned issues are before the Hon’ble Supreme Court, DRP being a part of the assessment process, the Panel sustains the addition made in the assessment order and rejects the objections of the assessee in Grounds 2 and 3.” 10. Aggrieved the assessee filed appeal before us. 11. The ld. AR relied on the judgment of Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. (CA No. 8733-8734 of 2018). 12. The ld. DR submitted written arguments which are as under: “The assessee submitted before the Hon'ble Bench in proceedings on 18.11.2021 that with reference to reimbursements received by the assessee on account of SAP software and Microsoft licenses cannot be taxed as Royalty u/s 9(1) (vi) of the Act as well as article 13 of India Netherlands DTAA as the issue is squarely covered vide Supreme Court decision in Engineering Analysis Centre of Excellence Pvt. Ltd. (CA No. 8733-8734 of 2018). It is submitted that the decision of the Apex Court is not applicable to the issue at hand due to the following reasons: 1. In the past decade the definition of the term 'software' has undergone tremendous change. What used to be a set of ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 10 instruction in the form of program/pre coded information written on a CD or a floppy disc and sold "off the shelf" about a decade back is now an integrated business processing solution. In the relevant year the assessee received licenses fees on account of the software like SAP and Microsoft. As far as SAP (Systems, Application, Products in Data Processing) software is concerned, it is not an off the shelf software as SAP solutions have to be customized for a large number of corporate functions which have to be defined and evaluated before its implementation. Various modifications at each module level can also be done by the users (like generation of various reports etc.) and instant cases help of IT teams is required as well. Users have to explain to the IT teams, what all structural modification etc. are being sought before any change is processed. Each changes documented as a separate version as well. This is nothing but a consideration for usage of a process as SAP is an enterprise resource planning process (SAP ERP). 2. The decision of the Hon'ble Court was with regard to those cases of software which do not create any interest of right in end users which would amount to use of or right to use any copy right. The facts in the relevant case are different. 3. The provisions of section 14 of the Copyright Act 1957 shows that transfer or use of a copyright in a computer program manifests itself in (i) allowing it to be stored in medium by electronic means, (ii) issuing copies to public not already in circulation, (iii) to communicate it to public or (iv) to sell or give on commercial rental or offer for sale any copy of the computer program. In the present case the appellant has given the access and user rights in the software purchased from third parties. Such grant of access in the software to its ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 11 group entities is possible only when assessee has transferred the rights to its group entities to commercially exploit. It is akin to licensing by appellant to its group entities for access to the software. Every time the assessee allows its group entity to access and use of the software, the appellant is in a way issuing copies to public not already being in circulation as such software is not available not any public without allowing access by appellant for a fee. The appellant does not pass the ownership right and only gives limited access to use as the software always remains the property of assessee. Thus the grant of access to group entity for use is akin to allowing commercial rental of the copy of the software program, which is also one of the copyright privileges u/s 14 of the Copyright Art. Once the appellant allows this commercial use, it is a manifestation of transfer of some rights in copyright too. So even while retaining the ownership and copyright in case of a software, the copyright can be commercially exploited by owner by delivering the software to end user in multiple ways such as allowing the use of software given on a media, copied to hard disc, downloaded from internet, access to cloud servers where the software is located etc. Since no other title or interest in the software is transferred to the payer, it can only be considered that users are getting licenses to use the software. It is this interpretation which has been subsequently endorsed by the parliament by inserting Explanation 4 and 5 w.e.f. 2012. This amendment seeks to cover the transfer of all or any right for use or right to use computer software including grant of license as 'Royalty' under the Act even in cases where there no transfer of any right in a copyright to the exclusion of others in so far as it pertains to computer software. Thus there remains no controversy after the amendment that in case of computer software, the transfer of right in a copyright to exclusion of ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 12 others is not a precondition at all to hold the consideration for use thereof in any manner as Royalty u/s 9(1)(vi) of the Act. 4. A SAP ERP System is commonly structured in a three tier client/server architecture as it enables high scalability and flexibility. SAP can also be deployed on two and one tier architectures. In three tier structure, the presentation tier provides the interface to the user, the application tier processes the business logic and the data base tier stores the business data. There can be situations where three tiers can be reduced to one or two. The possibility of these situations depends on available processing power and number of business users. For example it is to install all three SAP tiers on a single computer. On the other hand large SAP productive installations require multiple powerful servers for each of the tiers in order to ensure good performance of the SAP system. Thus the aforementioned software can easily be classified as a "process" or plan and the consideration for the same is certainly consideration for a process as included in the definition of the Royalty in the DTAA. The term process used in the DTAA is not in the context of the manner of writing a computer program. SAP implementation in an entity is a business solution and lays down a specific manner of execution of activities. The consideration for such implementation is not a consideration for software programs. These processes also result in sharing of an information concerning industrial, commercial or scientific experience which is a part of definition of Royalty under the Act. Moreover Explanation 6 to section 9(l)(vi) has made the meaning of word 'process' in domestic law at par with that of DTAA. Hence the consideration for SAP licenses is a process Royalty as well. ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 13 5. In the relevant case the appellant has not given exact details of licenses purchase from Microsoft. However, it is understood that since the assessee has deployed SAP ERP, the same must have been Microsoft platform. For example SAP might have been run on Microsoft Azure. Thus purchases of licenses from SAP and Microsoft are related and interlinked for deployment in the premises of AES of the assessee. Thus customization and configuration of SAP and Microsoft are related. In the relevant case, PVM ICT BV, has got the license configured/customized for meeting specific needs of PVM group which includes customization of SAP ERP software run on Microsoft software. Thus what is transferred in this case is copyright as covered u/s 14(a) & 14 (b) of the Copyright Act 1957 and hence payments received against transfer of copyright is Royalty as defined under the Act and the tax treaty.” Sd/- Anupama Anand CIT DR 13. Heard the arguments of both the parties and perused the material available on record. 14. We find that this issue stands covered by the order of the Hon’ble Supreme Court decision in Engineering Analysis Centre of Excellence Pvt. Ltd. (CA No. 8733-8734 of 2018) and the effort of the ld. DR as reproduced above to distinguish the judgment holds no good. 15. For the sake of ready reference, the relevant part of the order of the said judgment is reproduced as under: ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 14 “CONCLUSION 168. Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 of this judgment, it is clear that there is no obligation on the persons mentioned in section 195 of the Income Tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end- users, which would amount to the use of or right to use any copyright. The provisions contained in the Income Tax Act (section 9(1)(vi), along with explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases. 169. Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non- resident computer software manufacturers/suppliers, as consideration for the resale/use 226 of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income Tax Act were not liable to deduct any TDS under section 195 of the Income Tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment. 170. The appeals from the impugned judgments of the High Court of Karnataka are allowed, and the aforesaid judgments are set aside. The ruling of the AAR in Citrix Systems (AAR) (supra) is set aside. The appeals from the impugned judgments of the High Court of Delhi are dismissed.” ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 15 16. Hence, the appeal of the assessee on this ground is allowed. Payment of INR 3,70,35,976/- received on account of Information & Communication Technology (ICT) service charges from Perfetti Van Melle India Pvt. Ltd. taxed as “Fees for Technical Services” under Article 12 of the India-Netherlands DTAA 17. The issue as dealt by the ld. DRP is as under: “Ground 4 - That the Ld, AO has erred on the facts and circumstances of the case and in law by concluding that ICT sen/ice charges received by the assessee as Fees for Technical Services (“FTS’) as per the treaty. Ground 4.1 - That the Learned AO has erred on the fact and circumstances of the case and in law in not appreciating the fact that the assessee does not make available any technical knowledge, know-how or skill and do not fail within the ambit of Article 12 of India- Netherlands OTA A read with India- Portugal DTAA. Ground 4.2 - That the Learned AO has erred on the facts and circumstances of the case and in law, by holding that the assessee cannot apply the provisions of India and Portugal Double Taxation Avoidance Agreement which is an OECD country inspite of ‘Most Favored Nation' clause in India- Netherland DTAA. Under this Ground, the assessee has objected to the treatment by the AO of id service charges as FTS under section 9(1)(vii) of the Act and Article 12 of the India- Netherlands DTAA. The assessee submitted that as per the DTAA, the amount earned as ICT charges does not relate to transfer of any technical ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 16 knowledge, experience skill, know-how or processes or transfer of any technical plan or design. In this context, the assessee also invoked the Most Favoured Nation (MFN) clause in the DTAA for FTS as per the India-Portugal DTAA and stated that the scope of FTS is restricted in the India-Portugal DTAA as it requires that the services should enable the person acquiring the services to apply the technology contained therein. Hence, routine advisory and consultancy services cannot be covered under the definition of FTS in the India-Netherlands DTAA. The submissions have been perused along with relevant materials on record. The definition of FTS contained in paragraph 5 of Article 12 of the India-Netherlands DTAA reads as under: 5. For purposes of this Article, "fees for technical services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 4 of this Article is received; or (b) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. The definition of FTS contained in paragraph 4 of Article 12 of the India-Portugal DTAA reads as under: ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 17 4. For the purposes of this Article, "fees for included services” means payments of any kind, other than those mentioned in Articles 14 and 15 of this Convention, to any person in consideration of the rendering of any technical or consultancy services (including through the provisions of services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received, or (b) make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or technical design which enables the person acquiring the services to apply the technology contained therein. (Emphasis supplied) In this regard, it is noted that the absence of a comma after the word design in the India-Portugal DTAA implies that the phrase ’to apply the technology contained therein’ applies only to the second limb of the provision, namely development and transfer of a technical plan or technical design. The phrase ‘technology contained thereon’ would have meaning only in respect of the technical plan / design containing the same. Attributing the phrase to the first limb of the provision which includes diverse aspects such as experience/ skill would lead to an absurd interpretation. There cannot be an interpretation that technology is contained in a technical experience or skill. Considering the same, the assessee’s contention that India- Portugal DTAA be applied under the Most Favoured Nation ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 18 clause in place of the India-Netherlands DTAA on account of a narrower scope becomes infructuous. Coming to the nature of services provided, the AO refuted the claim of the assessee that the services provided by it were routine administrative functions and held that they were of the nature of specialized management consultancy and hence taxable as FTS under the DTAA, On perusal of the relevant Agreement between the assessee and Perfetti Van Melle India Private ltd. dated 28.04.2015, it is seen that through various inter-connected services, the assessee made available technical knowledge, skill, know-how and process to the Indian entity. Such services as contained in Exhibit A of the said Agreement are as follows: TYPE COMPONENTS DESCRIPTION SAP Functional Services SAP customizations/ SAP Implementation Projects • SAP setting or parameters that need to be configured one-time per business process setup or business process change. • it can range from a simple SAP change request to a major and big SAP Implementation project. ABAP/Dialog Programming • Refers to the development of programs for customized reports, online screens, user exits etc. Interfaces with SAP • Refers to the setup of the interface links between Refers to the and an external software (e.g. Electronic Banking interface, data migration) SAP Technical Services User Authorization • Definition of user profiles and access rights of a SAP user. ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 19 System Maintenance/ Basis Administration • Covers management of day- to- day SAP operational activities (e.g. systems monitoring, backup activities), transporting of objects from SAP development to production, data recovery activities and the like. • It also covers projects like SAP upgrades, coordination of audit activities with SAP Singapore (e.g. Early Watch Sessions), SAP patches installation, Basis training and the like. Technical/ Basis Audit • Refers to the audit of the existing SAP technical setup of the OC which includes both the HW, SLV and maintenance activities. SAP Improvement Projects Post-Implementation Reviews • Audit review of SAP implementation Business re- engineering • Simplify, streamline and improve the business process of the organization thru the use of IT tools and cost-effective manual controls SAP Training • Training can either be on a SAP functional or technical or technical (Basis) level. Development of Standard User Procedures • Documentation of user procedures Review/Audit or User Procedures • Review/audit of the documentation of end-user business process including its interfaces to SAP SAP Support Services Support and Maintenance • Provide support and maintenance services to the SAP key users • This includes the access to the SAP software and compliance with the software guidelines • Coordination with SAP to provide the SAP Enterprise Support services ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 20 Office Automation (OA) and Network Infrastructure Office Automation • This includes the mail server administration, file/print services and PC support (both SW and HW) • Coverage of support can range from planning to design to implementation and support. LAN / WAN services • This refers to the management of the data communication lines (including internet access and internet security). Improvement Projects • Refers to any OA/Network project that the OC would like RSO to do for them (e.g. IT Audit, Exchange 2000 implementation etc.) It is seen from the services provided above that they relate to a wide spectrum of technical services (setup, configurations, customizations, trouble shooting etc.) management services (Business process re-engineering and streamlining) and consultancy services (planning, design, support etc). In this regard, the following extract from the Commentary to the UN Model Double Tax Convention on FTS is instructive - 66. The ordinary meaning of “consultancy’’ involves the provision of advice or services of a specialized nature... 67. The terms "management“, “technical" and "consultancy” do not have precise meanings and may overlap. Thus, for example, services of a technical nature may also be services of a consultancy nature and management services may also be considered to be services of a consultancy nature. The principle underlined in the UN Commentary is that where the services involve the application of knowledge, skill or expertise by the service provider, the consideration for such services would clearly fall within the scope of FTS. The Commentary specifically states that where an entity uses its ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 21 knowledge, skill and expertise to provide research, analysis or advice to another entity related to the latter entity's specific requirements I circumstances, the payments received in lieu of such services would be FTS, In the present case, it is seen from the description of services that they clearly involve making available of knowledge, skill and experience by the assessee to the Indian entity, The said payments for the rendering of any technical / management /consultancy services are also ancillary and subsidiary to the application or enjoyment of the right in respect of copyright as discussed in paragraphs 3.4 to 3.6 above, thus attracting sub-paragraph (a) of paragraph 5 of Article 12 of the India-Netherlands DTAA. In view of the above, the consideration in respect of the said services squarely falls within the scope of FTS in Article 12 of the India-Netherlands DTAA. The objections of the assessee under Ground 4 therefore stand dismissed.” 18. We find the similar matter has been adjudicated by the Co-ordinate Bench of ITAT Mumbai in the case of SCA Hygiene Products AB Vs. DCIT in ITA No. 7315/Mum/2018 vide order dated 08.01.2021. For the sake of ready reference, the relevant part of the order is reproduced as under: “11. Yet another receipt by the assessee, under the said agreement, was for Information Technology Services. These payments aggregated to Rs 57,47,684 during the relevant financial period. The nature of these services, as set out in Annexure B to the said agreement, is as follows: 1. Object and Term of the Services - SCA Sweden shall perform the following Services for SCA India; - Providing hard and software for various ERP systems, CRM systems and other business systems ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 22 - Providing hard and software for various internet services - Providing data communication services - Providing management of workplace environment - Providing data processing of above systems - Providing operations, support and consulting services for the above - Providing support for implementation of ERP system [SAP 81) for project Vindaloo which includes support for • Pre implementation work i.e. applying per-sets for Template (all changes not impacting the productive Database), Cleansing current Database, finalizing target processes and preparing Infrastructure, • Assisting in Testing Phase i.e. testing upgrade, testing new integration scenarios, training users to new processes, testing business process on upgraded Database with users, • Post implementation work which includes upgrading Database, applying new integration scenarios and applying other part of templates. • Other tasks including creation and testing Fixed Assets module, additional reporting modules, retraining new users to ERP and onsite support post GO live 2. Details of the object of the Services Scope, type and purpose of the intended collections, processing, or use of data ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 23 Data managed is related to the operations of the SCA business and to the management of its workforce, and will only be used to that purpose. The processing and use of the date is restricted to the territory of a member state of the European Union or another state party to the Agreement of the European Economic Area. Relocation to other countries is subject to SCA India's prior approval. Type of Data The collection, processing and/or use of personal data refers to the following types/categories of data:- • Personal data • Communication data (e.g. Telephone/e-mail) • Contractual accounting and payment data • Financial and non-financial planning and control data • Information obtains from third parties, e.g. credit inquiry agencies or public directories • Statistical data The group of data subjects affected by the use of their personal data hereunder comprises: • Employees • Customers and Vendors • Interested parties • Consumers • Other contract persons 12. During the course of the scrutiny assessment proceedings, the Assessing Officer, noticed the above payments and required the assessee to show cause as to why these receipts not be ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 24 taxed in the hands of the assessee under article 12 of the Indo Swedish tax treaty, as also under the Income Tax Act. One of the arguments that was adopted by the assessee was that under the restricted meanings of the 'fees for technical services' under article 12 of the Indo Swedish tax treaty, as read with "most favoured nation (MFN) clause" in protocol thereto and read with India Portugal Double Taxation Avoidance Agreement [(2016) 244 ITR (Stat) 57; Indo Portuguese tax treaty, in short], unless a technical service "makes available" technical knowledge, experience, skill, knowhow or process, it cannot be brought to tax as fees for technical service. The Assessing Officer, however, did not accept this contention. When the matter travelled to the Dispute Resolution Panel, on objections being raised by the assessee, learned Dispute Resolution Panel did reject the invocation of MFN clause and observed that "with regard to automatic application of the MFN clause available in the India Sweden Treaty, the DRP has its own reservations and feels that both the states are required to invoke the MFN clause through issuance of notifications" and that "in the absence of such notifications, benefits of other treaties cannot be extended automatically to a third state". Without prejudice to this stand, on merits of applicability of "make available" clause, learned Dispute Resolution Panel observed as follows: 4.17 The relevant clause of the Article 12(4) relied on by the assessee is reproduced below: - -make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of technical plan or technical design. ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 25 4.18. There are two clear components in this clause – One which requires making available of technical knowledge, experience, skill, know how or process and the second which consists of the development and transfer of technical plan or technical design. The DRP finds that the case of the assessee is to be examined with reference to both these requirements. 4.19 It needs clarification that when third party consultants are operating on behalf of the assessee and the amount received by it include payments for these excerpts, the character of their service needs to be elaborated for purpose of deciding the character of fee received by the assessee. It is also noted that the assessee is operating in project monitoring and project scheduling and budgeting which require development of elaborate plans which are subsequently transferred to the Indian party for execution. 4.20. It is not the case of the assessee that these services are provided in isolation of the employees of SCA India who are involved in project execution, whether it is pre-development stage or subsequent stage. We are not convinced that the project execution service could be executed by the assessee without active involvement of project related employees of SCA India. It is not merely engineering or architectural designs which are contemplated under Article 12(4)(b) of the Treaty but also development and transfer of any technical plan or technical design, Technical does not mean technological. It only means specialized- the area may be finance, legal, commerce, arts, science or project implementation as in the case. This will include scheduling charts, time lines, bar charts which are contemplated in the case of the assessee under Project Administration. This also includes project and financing controls ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 26 including necessary charts and controls for implementation of project. The assessee is not executing the project but is rendering consultancy service to the AE. When project implementation tools are provide to the employees of the AE, they are enable to employ these tools in implementing their own project. 5.14. The nature of service rendered by the assessee as detailed by it has been reproduced above. Admittedly, these vacancies are effectively connected with the SAP system implemented by the Group as a whole and have been made towards effective utilisation and efficient working of the SAP system. The assessee admits that these services are required on an annual basis and are meant for maintenance and upkeep of the system. The procurement of licences for SAP system has been held to be in the nature of royalty. 5.15. The assessee is not correct in claiming that the services so rendered are covered by Article 12(4)(b) of the India Portugal Treaty, even if the claim of automatic application of MFN clause is allowed to the assessee. The services is found to be intrinsically linked with enjoyment of the SAP system and hence, would fall within the ambit of Article 12(4)(a) of the Article where there is no requirement of making available of any knowledge, skill or experience. 5.16. In light of the above discussion, the DRP is of the view that these services constitute. FTS under the Act as well as under India Sweden DTAA and are required to be taxed in India under Article 12 of the India Sweden DTAA. 13. Accordingly, the Assessing Officer proceeded to make the additions of Rs 1,97,94,209 as consultancy services taxable ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 27 under article 12 and Rs 57,47,684 as information technology support services taxable under article 12. The assessee is aggrieved and is in appeal before us. 14. We have heard the rival contentions, perused the material on record, and duly considered facts of the case in the light of the applicable legal position. 15. Let us first take a look at the provisions with respect to taxability of fees for technical services under the Indo Swedish tax treaty, the related protocol clause of the Indo Swedish tax treaty, and the provision for fees for technical services under the Indo Portuguese tax treaty. These provisions are set out below: ARTICLE 12 OF INDO-SWEDISH TAX TREATY ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. Notwithstanding the provisions of paragraph (1), such royalties and fees for technical services may also be taxed in the Contracting State in which they arise, and according to the laws of that State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties or fees for technical services. 3. (a) The term 'royalties' as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 28 mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. (b) The term 'fees for technical services' means payment of any kind in consideration for the rendering of any managerial, technical or consultancy services including the provisions of services by technical or other personnel but does not include payments for services mentioned in Articles 14 and 15 of this Convention. 4. The provisions of paragraphs (1) and (2) shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply. 5. Royalties or fees for technical services shall be deemed to arise in a Contracting State when the payer is a resident of that State. 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 ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 29 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. 6. Where by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties or fees for technical services, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention. PROTOCOL TO INDO SWEDISH TAX TREATY At the signing of the Convention between the Government of the Republic of India and the Government of the Kingdom of Sweden for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, the undersigned have agreed that the following shall form an integral part of the Convention: ................................. With reference to Articles 10, 11 and 12 : In respect of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties and fees for technical services) if under any Convention. Agreement or Protocol between India and a third State which is a member of the OECD, India limits its taxation at source on dividends, interest, royalties, or ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 30 fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of income, the same rate or scope as provided for in that Convention, Agreement or Protocol on the said items of income shall also apply under this Convention. ............................ IN WITNESS whereof the undersigned being duly authorised thereto have signed this Protocol. DONE in duplicate at New Delhi, this 24th day of June, 1997, in the Swedish, Hindi and English languages, all three texts being equally authentic. In case of divergence between the texts the English text shall be the operative one. ARTICLE 12 OF INDO PORTUGESE TAX TREATY ROYALTIES AND FEES FOR INCLUDED SERVICES 1. Royalties and fees for included services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for included services may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the royalties and fees for included services is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation. ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 31 3. The term "royalties" as used in this article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films and films or tapes or any other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial, or scientific experience. 4. For the purposes of this article, "fees for included services" means payments of any kind, other than those mentioned in articles 14 and 15 of this Convention, to any person in consideration of the rendering of any technical or consultancy services (including through the provisions of services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or technical design which enables the person acquiring the services to apply the technology contained therein. 5. Notwithstanding paragraph 4, "fees for included services" does not include payments: (a) For services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property; ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 32 (b) For services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international craft; (c) For teaching in or by educational institutions; (d) For services for the personal use of the individual or individuals making the payment; (e) To an employee of the person making the payments or to any individual or firm of individuals (other than a company) for professional services as defined in article 14; (f) For services rendered in connection with an installation or structure used for the exploration or exploitation of natural resources referred to in paragraph 2, f), of article 5; (g) For services referred to in paragraph 3 of article 5. 6. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties and fees for included services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties and fees for included services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties and fees for included services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of article 7 or article 14, as the case may be, shall apply. 7. Royalties and fees for included services shall be deemed to arise in a Contracting State where the payer is that State itself, a political or administrative subdivision thereof, a local authority or a resident of that State. Where, however, the ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 33 person paying the royalties and fees for included services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or fixed base in connection with which the obligation to pay the royalties and fees for included services was incurred, and such royalties and fees for included services are borne by that permanent establishment or fixed base, then such royalties and fees for included services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. 8. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties and fees for included services, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention. [Emphasis, by underlining, supplied by us] 16. The question that we first need to deal with is as to what is the impact of the MFN clause in the Indo Swedish tax treaty, read with the Indo Portuguese tax treaty which was subsequently entered into between India and Portugal, an OCED member country. 17. Let us first understand as to what a most favoured nation clause, in the tax treaties, is. All it implies is that in case the tax jurisdictions entering into the tax treaty, or any of the treaty partner, extends a more generous tax treatment to any ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 34 other tax jurisdiction, or any other tax jurisdiction of a particular nature- e.g. OECD member jurisdiction, the same tax treatment will be due to the treaty partner in question. For example, if X jurisdiction provides for source taxation @ 15% for interest to Y jurisdiction, it also assures, by incorporating a MFN clause, that in case X jurisdiction enters into an agreement providing for a lower rate of source taxation, or more restricted scope for taxation of interest, with any other jurisdiction or any other OECD member tax jurisdiction, the same will be extended to Y jurisdiction as well. In a sense, terming this clause as a 'most favoured nation clause' is a misnomer because what this clause ensures is an equal treatment vis-à-vis other jurisdictions, or other jurisdictions of a specific category, rather than a favoured treatment for the treaty partner jurisdiction. 18. It is crucial to bear in mind that the implementation of a most favoured nation clause is not always in a homogenous manner. There are different ways in which such an MFN clause can be implemented. There can be situations like in India Switzerland Double Taxation Avoidance Agreement [(1995) 214 ITR Stat 223 @ 246; Indo Swiss tax treaty, in short] which only requires fresh negotiations to provide for giving effect to most favoured nation status in effect, as evident from the observations in the protocol to the effect that "If after the date of signing this Amending Protocol, India under any Convention, Agreement or Protocol with a third State which is a member of the OECD, restricts the scope in respect of royalties or fees for technical services than the scope for these items of income provided for in Article 12 of this Agreement, then Switzerland and India shall enter into negotiations without undue delay in order to provide the same treatment to Switzerland as that ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 35 provided to the third State" (Emphasis, by underlining, supplied by us). Similarly, in the case protocol to the India Philippines Double Taxation Avoidance Agreement [ (1996) 219 ITR Statutes 60 @ 83 ; Indo Philippines tax treaty, in short], all that provided is in the MFN clause is that the treaty partners inform the other party so that the matter is appropriately revied as is evident from the protocol observation to the effect that "With reference to Articles 8 and 9 if at any time after the date of signature of the Convention the Philippines agrees to a lower or nil rate of tax with a third State the Government of the Republic of the Philippines shall without undue delay inform the Government of India through diplomatic channels and the two Governments will undertake to review these Articles with a view to providing such lower or nil rate to profits of the same kind derived under similar circumstances by enterprises of both Contracting States (Emphasis, by underlining, supplied by us)". In the case of Indo Swedish tax treaty, however, the wordings are different inasmuch as it provides that "if under any Convention. Agreement or Protocol between India and a third State which is a member of the OECD, India limits its taxation at source on dividends, interest, royalties, or fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of income, the same rate or scope as provided for in that Convention, Agreement or Protocol on the said items of income shall also apply under this Convention (Emphasis, by underlining, supplied by us)". There are thus three different modes, in the illustrations that we discussed, in which the MFN clause can be implemented- first, as in Indo Swiss tax treaty, where all that the MFN clause ensures is that the negotiations take place, without any delay, to ensure that the same treatment is provided to the treaty partner; second, as in India ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 36 Philippines tax treaty, where the information, about a more generous treatment for any another tax jurisdiction, by one of the treaty partners is to be provided to the other treaty partner, through diplomatic channels, so that existing provisions can be brought in par with more generous tax treatment in the source jurisdiction; and, third- in which the treaty does not prescribe anything further that is required to be done, for giving effect to the MFN status, as the same rate or the same scope, as is extended to any other OECD country subsequently, "shall also apply" under this treaty. There can also be situations in which an MFN clause may require the treaty partner jurisdictions to issue notifications to the effect that the benefit extended to another jurisdiction is extended to the treaty partner jurisdiction as well. There can be several modes for implementation of the MFN clause, but its not really necessary to explore that aspect any further. Suffice to note that there are different methods in which MFN clause can be implemented, and there cannot, therefore, be a 'one size fits all' approach. As far as the situation that we are dealing with, i,e. MFN clause in Indo Swedish tax treaty, is concerned, it is a situation in which the action of limiting the source taxation, for dividends, interest, royalties or fees for technical services, to any other OECD member jurisdiction, by itself, is enough to trigger that the same provisions "shall also apply" under Indo Swedish tax treaty. No further actions on the part of India are envisaged in the Indo Swedish tax treaty to trigger the application of the same provisions in Indo Swedish tax treaty as well. 19. Elaborating upon the scope of this peculiar manner in which MFN clause operates in India France Double Taxation Avoidance Agreement [(1994) 209 ITR Statues 130 @ 159; Indo French ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 37 tax treaty, in short) the relevant portion of protocol clause in which is identically worded in effect as in the case of Indo Swedish tax treaty, a coordinate bench of this Tribunal, speaking through one of us (i.e. the Vice President), in the judgment reported as DCIT Vs ITC Ltd [(2002) 82 ITD 239 (Kol)] made following observations around two decades back, in late 2001, and these observations, as we will see a little later, hold good even today: ......in our considered view, the benefit of lower rate of or restricted scope of 'fees for technical services' under the Indo-French DTAA is not dependent on any further action by the respective Governments, unlike the situation envisaged in, for example, para 4 of protocol to Indo-Philippines DTAA or para 3 of protocol to Indo-Swiss.... 20. It is interesting to note that the coordinate bench did take note of the notification issued by the Government of India, giving effect to, what it perceived as, the impact of the protocol clause as a result of a subsequent tax treaty being entered into by India. The controversy about the Government notification was on account of the fact that it did implement the protocol clause, but it extended lesser effect to it than as visualized by a plain reading of the protocol clause- i.e., about the rate of taxation in the subsequent treaty provision only and not about the restricted scope of the related treaty provision. However, the coordinate bench was of the view that nothing turned on this notification and ignored the same. The plea that issuance of notification was at best done as a measure of abundant caution by the CBDT, and it did not have any legal effect on the implementation of the protocol clause, was, in effect, accepted. However, when an identical issue, in the case ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 38 of Indo French tax treaty itself, came up before the Authority for Advance Ruling, in the case of Steria India Ltd In Re [(2014) 72 taxmann.com 1 (AAR)], the approach adopted, on this issue, by the Authority for Advance Ruling was entirely different, as it held notification to be a crucial and legal source of the rights by the implementation of protocol, Hon'ble Authority for Advance Ruling observed as follows: ........What is stated by the Protocol is for India to limit its taxation at source for the detail items mentioned therein. The restrictions are on the rates and 'make available' clause cannot be read in the items. On the basis of the Protocol, notification No.9602 [F.No.501/16/80-FTD], dated 6.9.1994 as amended by Notification No. SO 650(E), dated 10.7.2000. was issued by Govt. of India. The said Notification does not include anything about the 'make available' provision. Had the intention of the Protocol or the Government is to include 'make available' clause in the Tax Treaty between India and France, it should have been done so in the said Notification. We have taken note of the Notification issued in the case of India Netherland Tax Treaty whereby the Protocol was given effect to. The changes in the Treaty on the basis of the Protocol were given effect by Notification only. We do not see any reason as to why different treatment will be given in the present case. 21. In other words, it was thus held, as has been held by the learned DRP in the impugned order, that the effect of the protocol clause is to be given by a formal notification, and unless that happens, the protocol is toothless. That legal position has, however, been reversed in the case of Steria India Ltd Vs CIT [(2016) 72 taxmann.com 1 (Del)] and Their ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 39 Lordships have, referred to, with approval, the decision of a coordinate bench in the case of ITC Ltd (supra) and concluded as follows: .........The Court is ........ unable to agree with the conclusion of the AAR that the Clause 7 of the Protocol, which forms part of the DTAA between India and France, does not automatically become applicable and that there has to be a separate notification incorporating the beneficial provisions of the DTAA between India and UK as forming part of the India- France DTAA ....................... ........... a reference to the decision of the ITAT in Dy. CIT v. ITC Ltd. [2002] 82 ITD 239 (Kol.), where the Protocol separately executed between the India and France which formed part of the DTAA between the two countries was interpreted. It was held by the ITAT, and in the view of this Court correctly, that the benefit of the lower rate or restricted scope of fee for technical services under the Indo- French DTAA was not dependent on any further action by the respective governments. It was held that the more restricted scope of fee for technical services as provided for in a DTAA entered into by India with another OECD member country shall also apply under the Indo-French DTAA with effect from the date on which the Indo-French DTAA or such other DTAA enters into force. 22. The views so expressed by Hon'ble Delhi High Court, in the absence of anything contrary thereto by Hon'ble jurisdictional High Court, or, for that purpose, even any other Hon'ble High Court, bind us. The AAR decisions, as is the well-settled legal position, do not constitute binding judicial precedents for us. It ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 40 is also not in dispute that Portugal is an OECD jurisdiction, that the Indo Portuguese tax treaty was entered into after the Indo Swedish tax treaty was entered into, and that the Indo Portuguese tax treaty provides far more restricted scope of 'fees for technical services' inasmuch as it adopts the 'make available' clause which restricts the taxation of fees for technical services only in such cases which "make available" technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or technical design which enables the person acquiring the services to apply the technology contained therein. Therefore, respectfully following the coordinate bench decision in the case of ITC Ltd (supra), which has been specifically approved by Hon'ble Delhi High Court in the case of Steria India Ltd (supra), we hold that the provisions of article 12 (4)(b) of the Indo Portuguese tax treaty, being more restricted in scope vis-à-vis article 12(3)(b) of Indo Swedish tax treaty, apply in the Indo Swedish tax treaty as well. 23. As for the connotations of 'make available' clause in the treaty, this issue is no longer res integra. There are at least two non-jurisdictional High Court decisions, namely Hon'ble ITA No. 7315/Mum/2018 Assessment year: 2015-16 Page 17 of 19 Delhi High Court in the case of DIT v. Guy Carpenter & Co Ltd. [(2012) 346 ITR 504 (Del)] and Hon'ble Karnataka High Court in the case of CIT v. De Beers India (P.) Ltd. [(2012) 346 ITR 467 (Kar)] in favour of the assessee, and there is no contrary decision by Hon'ble jurisdictional High Court or by Hon'ble Supreme Court. In De Beers India (P.) Ltd. case (supra), their Lordships posed the question, as to "what is meaning of 'make available'", to themselves, and proceeded to deal with it as follows: ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 41 '......The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology "making available", the technical knowledge, skill, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as "fee for technical/included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied.' ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 42 24. In order to decide whether or not the services rendered by the assessee fit the definition of 'fees for technical services', as applicable under the Indo Swedish tax treaty, the question that we must ask ourselves is not only whether the technical services are performed on the facts of this case, but whether "the technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider." In this light when we analyze the nature of services, which are set out in detail earlier in this order, we find that in none of the cases, these services enable the recipient of these services to perform the same services, in the future, without recourse to the assessee. The consultancy services are in the nature of leading the setting up of factory, including planning and steering execution of work, being responsible for managing project within budget constraints, leading the project team from different locations, coordination and follow up with the contractors, securing communication and good flow of information between those directly or indirectly involved with the project, preparing project progress report and updating all concerned with the project progress. Just because the assessee renders these services does not mean, and by no stretch can imply, that the recipient can next time do all this work without recourse to the assessee. As regards learned DRP's observations that the project leading work "will include scheduling charts, timelines, bar charts which are contemplated in the case of the assessee under Project Administration....project and financing controls including necessary charts and controls for implementation of the project", that "the assessee is not executing the project but is rendering consultancy service to the AE", and that "when project implementation tools are provided to the employees of ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 43 the AE, they are enabled to employ these tools in implementing their own project," these observations are factually incorrect inasmuch as the assessee's representative is executing the work and is the key person at the factory site who is doing all the needful and inasmuch as there is no mention anywhere of developing these tools and handing over the same to the recipient of services. In any case, just because the Indian entity is interacting with the project leader and getting inputs from him does not mean that the Indian entity is transferred the technology of being a project leader of this type and next time Indian entity can perform similar services without recourse to the same- which is the core test for the fulfilment of 'make available' clause. We are unable to approve the stand of the authorities below on this point. In our considered view, in the light of the discussions above, the make available clause is not satisfied, in the course of rendition of services by the assessee, and, as such, the consultancy fees of Rs 1,97,94,209 cannot be brought to tax, in the hands of the assessee, under article 12 of Indo Swedish tax treaty. 25. That leaves us with the taxability of Rs 57,47,684 on account of Information Technology Services. The main reason for its taxability by the DRP is stated to be that "the services is found to be intrinsically linked with enjoyment of the SAP system and hence, would fall within the ambit of Article 12(4)(a)". In the assessment order, there is also mention about "resulting in overall improvement in business and the income generating capacity of SCA India, which is a clear enduring benefit" and about the stand that the rendition of these services are "also providing a skill level and relevant training which will be readily available to personnel of SCA India and thereby a clear enduring benefit is provided". It is also ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 44 mentioned that "specific support in the form of implementation of SAP project amd Project Vinadalloin the form of pre- implementation, testing, post implementation is also provided which is clearly technical in nature and intended to increase the efficiency and improve the functioning of SCA India". It is to be noted that so far as the enduring benefit and increase of efficiency in the recipient entity is concerned, that has nothing to do with the satisfaction of "make available" clause. As we have seen in our analysis earlier, what is important is transfer of technology and not the incidental benefit. Unless the recipient of a service is not enabled to perform that service on his own, without recourse to the service provider, the requirements of the make available clause are not satisfied. The concept of enduring benefit, increase in efficiency, improvement in income generating capacity and incidental skill development is wholly irrelevant for this purpose. The authorities below have been thus swayed by considerations not germane in this context. So far as these services being incidental to SAP system being the reason for taxation under article 12(4)(a) is concerned, we have noted that providing support services for SAP implementation is a small part of the services and in any case what article 12(4)(a) covers is the services which "are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received" and the information technology services, as set out in Annexure B to the agreement, cannot be described as ancillary and subsidiary to the SAP system. At best, a small part of these services could fall in that category, but that payment is not even separately identified. These things apart, 12(4)(a) would come into play when the assessee receives a payment in the nature of royalties under article 12(3) and the services ancillary and ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 45 subsidiary to the ITA No. 7315/Mum/2018 Assessment year: 2015-16 Page 19 of 19 application or enjoyment of that right, payment for which is described in article 12(3). In other words, the person receiving the money as royalty, such as the actual seller of the software in this case, and the person providing service ancillary or subsidiary to the enjoyment of that right, must be the same. That's not the case here. In the present case, the payment received by the assessee has been held to be in the nature of reimbursement, which is outside the ambit of taxation. The person selling the SAP software is Be One Solution, Switzerland, whereas the person providing the services in question is the assessee. Article 12(4)(a) will not, therefore, come into play at all. In our considered view, therefore, the taxation under article 12 in the present case can come into play only when the "make available" clause is satisfied, but then the Assessing Officer's justification for the satisfaction of 'make available' clause, for the detailed reasons set out earlier in this paragraph, does not meet our judicial approval. In view of these discussions, as also bearing in mind the entirety of the case, we uphold the plea of the assessee on this point as well. Accordingly, we hold that the income of Rs 57,47,684 on account of Information Technology Services is also not taxable under article 12.” 19. Since, the issue has been squarely covered by the judgment of Co-ordinate Bench of ITAT as mentioned above, in the absence of any change in the material facts and legal proposition, the appeal of the assessee on this ground is hereby allowed. ITA No.139/Del/2021 Perfetti Van Melle ICT & BV 46 20. In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 28/02/2022. Sd/- Sd/- (Saktijit Dey) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 28/02/2022 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR