The ITO,(Intl.Taxn.)-II, Ahmedabad V. Dholera Port Ltd., Ahmedabad

ITA 1407/AHD/2009

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76812 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 01-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S C TIWARI; P L KUREEL
• Keywords: Residential status; Double taxation relief; Retrospective amendment; Advance ruling
• Section: 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ITA NO.1405/AHD/2009 A.Y. 2008-09 THE ITO (INTL. TAXN)-II, AHMEDABAD. VS ADANI PORT- INFRASTRUCTURE PVT. LTD. 8 TH FLOOR, SHIKHAR BLDG, NR. ADANI HOUSE, MITHAKAHALI SIX ROAD AHMEDABAD. (APPELLANT) (RESPONDENT) ITA NO.1407/AHD/2009 A.Y. 2008-09 THE ITO (INTL. TAXN)-II, AHMEDABAD. VS DHOLERA PORT LTD., ADANI HOUSE, MITHAKHALI SIX ROAD, AHMEDABAD. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI P.L. KUREEL, SR.D.R. AND SHRI S.C. TIWARI ASSESSEE(S) BY : SHRI S.N. SOPARKAR, MS URVASHI SHODHAN, MR VARTIK CHOKSI A.R. / DATE OF HEARING : 11/04/2014 / DATE OF PRONOUNCEMENT: /05/2014 / O R D E R PER SHRI MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER THESE TWO APPEALS OF TWO DIFFERENT APPELLANTS HAVIN G IDENTICAL LEGAL ISSUE FILED BY THE REVENUE ARISING FROM TWO S EPARATE ORDERS OF LD. CIT(A)-XXI AHMEDABAD RESPECTIVELY DATED 9/2/2009 AN D 6/2/2009. PARTIES APPEARING BEFORE US HAVE INFORMED AT THE OU TSET THAT THE CASE OF M/S.DHOLERA PORT LTD. (ITA NO.L407/AHD/2009) IS THE LEAD CASE, ITA NOS.1405 & 1407/AHD/2009 ITO AHMEDABAD VS. ADANI PORT INFRASTRUCTURE P. LTD. AND ITO AHMEDABAD VS. DHOLERA PORT LTD. A.Y.2008-09 - 2 - THEREFORE WE SHALL TAKE UP THE FACTS OF THAT CASE T O DECIDE THE IDENTICAL LEGAL POINTS RAISED IN THE GROUNDS OF APPEAL IN B OTH THE CASES. [A] ITA NO.L407/AHD/2009 (IN THE CASE OF DHOLERA PO RT LTD.) 2. GROUNDS RAISED ARE REPRODUCED BELOW: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE APPEAL OF THE ASSESSEE ON THE ORDER PASSED BY THE A.O. U/S.201(L) & U/S.201(LA) R.W.S. 195 OF THE I. T. ACT 1961 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT CONSIDERING THE REMITTANCE TO NON-RESIDENT AS FEES FOR TECHNICAL SE RVICES AS 'MAKE AVAILABLE' AS PER ARTICLE 13(C) OF INDIA - UKDTAA. 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N NOT ACCEPTING THE DEEMING PROVISIONS AS PER EXPLANATION TO SEC.9(L)(VII) INSE RTED BY FINANCE ACT, 2007 WITH RETROSPECTIVE EFFECT FROM 1.6.1976. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE LEARNED CIT(A)-XXI, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASS ESSING OFFICER. 2.1. FACTS IN BRIEF AS EMERGED FROM THE COR RESPONDING ORDER PASSED U/S.201(L) & 201(1 A) R.W.S. 195 OF THE I.T.ACT DAT ED 16.9.2008 WERE THAT THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSE E-COMPANY HAD MADE PAYMENT TO ONE M/S.HR JWALLINGFORD LTD., UNITED KIN GDOM, A NON- RESIDENT COMPANY OF 40,635 GBP ON 22.05.2007. IT WA S NOTED BY THE ASSESSING OFFICER THAT THE SAID PAYMENT WAS IN RESP ECT OF NAVIGATION STUDIES PHASE-3 AT PORT OF DHOLERA. FURTHER, IT WAS ALSO NOTED BY THE ASSESSING OFFICER THAT NO TAX WAS DEDUCTED WHILE MA KING THE SAID PAYMENT. THE ASSESSEE'S EXPLANATION WAS THAT THE SAID FEES W AS NOT IN THE NATURE OF 'MAKING AVAILABLE' OF TECHNICAL KNOWLEDGE TO THE A SSESSEE. ASSESSEE'S PLEA WAS THAT AS PER ARTICLE-13 OF DTAA BETWEEN INDIA AN D UK THE SAID TECHNICAL KNOWLEDGE, SKILL OR KNOW-HOW WAS NOT MAD E AVAILABLE TO THE SERVICE RECIPIENT, I.E. ASSESSEE. AS AGAINST THAT, THE ASSESSING OFFICER HAS SHOW-CAUSED AS TO WHY THE PAYMENT SHOULD NOT BE TREATED AS FEES FOR TECHNICAL SERVICES AND, THEREFORE, WHY THE TAX U/S. 195 WAS NOT DEDUCTED, ITA NOS.1405 & 1407/AHD/2009 ITO AHMEDABAD VS. ADANI PORT INFRASTRUCTURE P. LTD. AND ITO AHMEDABAD VS. DHOLERA PORT LTD. A.Y.2008-09 - 3 - CONSEQUENTLY TO BE RECOVERED FROM THE ASSESSEE IN T ERMS OF SECTION 201(1) & 201(1A) OF THE I.T. ACT. THE ASSESSEE'S REPLY WAS THAT THE SERVICES PROVIDED BY M/S.H.R. WALLINGFORD LTD., UK WAS NOT I N THE NATURE AS PRESCRIBED IN ARTICLE-13(4)(B) OF INDIA - UK DTAA. 2.2 THE ASSESSEE HAS FURNISHED AN EXPLANATION IN RE SPECT OF THE NATURE OF WORK CONDUCTED BY M/S. H.R. WALLINGFORD LTD., RE LEVANT PORTION IS REPRODUCED BELOW: 2.1 ASSESSEE VIDE REPLY DATED 27.03.2008 (RECEIVED ON 31.03.2008) THE COMPANY IS DEVELOPING DHOLERA PORT LOCATED IN THE S TATE OF GUJARAT IN THIS CONTEXT, IT AWARDED CONTRACT FOR NAVIGATION STUDIE S SEDIMENTATION STUDIES TO M/S. HR WALLINGFORD LTD, UNITED KINGDOM, COVERIN G RATE OF SEDIMENTATION, FREQUENCY OF DREDGING, THE IMPACT OF CAPITAL DREDGI NG WORK, SHORE PROTECTION ON THE HYDRODYNAMIC AND MORPHOLOGY OF THE AREA ETC. TO HAVING REQUISITE TECHNICAL KNOWLEDGE AND EXPERIENCE IN THE GIVEN FIE LD TO ASSESSEE THE VIABILITY OF DEVELOPMENT WORK OF THE DHOLERA PORT. 3. THE ASSESSEE HAS FURTHER PLEADED BEFORE THE AO T HAT EVEN IF THE SERVICE WOULD HAVE FALLEN UNDER THE PROVISIONS OF S ECTION 9(1)(VII) OF IT ACT BUT THE SAID SERVICES WOULD NOT BE TREATED AS FEES FOR TECHNICAL SERVICES UNDER ARTICLE 12 OF DOUBLE TAX AGREEMENT WITH UK. ASSESSEE HAS ALSO MENTIONED ARTICLE 13 OF DTAA BETWEEN INDIA AND UK WHEREIN IT IS PRESCRIBED THAT FEES FOR TECHNICAL SERVICES C AN BE TAXED IN SOURCE COUNTRY IF IT IS ESTABLISHED THAT THE FEES PAID FOR SERVICES ARISE IN THE SOURCE COUNTRY AND IT FALLS WITHIN THE MEANING OF FEES FOR TECHNICAL SERVICES AS DEFINED IN PARA 4 OF ARTICLE 13. RELEVA NT PORTION OF THE SAID ARTICLE WAS ALSO REPRODUCED BY THE AO. ARTICLE 13: ROYALTIES AND FEES FOR TECHNICAL SERVI CES 1. 2 3 4. FOR THE PURPOSES OF PARAGRAPH OF 2 OF THIS ARTIC LE, AND SUBJECT TO PARAGRAPH 5, OF THIS ARTICLE, THE TERM FEES FOR TECHNICAL SERVICES MEANS ITA NOS.1405 & 1407/AHD/2009 ITO AHMEDABAD VS. ADANI PORT INFRASTRUCTURE P. LTD. AND ITO AHMEDABAD VS. DHOLERA PORT LTD. A.Y.2008-09 - 4 - PAYMENT OF ANY KIND OF ANY PERSON IN CONSIDERATION FOR RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PR OVISION OF SERVICES OF A TECHNICAL OR OTHER PERSONNEL) WHICH: (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT DESCRIB ED IN PARAGRAPH 3(A) OF THIS ARTICLE IS RECEIVED; OR (B) ARE ANCILLARY AND SUBSIDIARY TO THE ENJOYMENT O F THE PROPERTY FOR WHICH A PAYMENT DESCRIBED IN PARAGRAPH 3(B) OF THIS ARTICLE IS RECEIVED; OR (C) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW O R PROCESSES, OR CONSIST OF THE DEVELOPMENT AND TRANSF ER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. 3.1 HENCE, IT WAS ARGUED THAT AS PER THE TERMS OF T HE ARTICLE 13 OF INDIA AND UK TREATY THE FEES FOR TECHNICAL SERVICES IS SU CH IF TECHNICAL KNOWLEDGE IS MADE AVAILABLE. SINCE, THE DEFINITION OF MAKE AVAILABLE IS NOT PRESCRIBED IN THE ACT OR IN ANY OF THE ARTICLES ; THEREFORE, THE ASSESSEE HAS PLACED RELIANCE ON AN ORDER OF MUMBAI TRIBUNAL PRONOUNCED IN THE CASE OF M/S. RAYMOND LTD., 86 ITD 791 . 3.2 THE ASSESSEE HAS ALSO FURNISHED A COPY OF ENGAG EMENT LETTER ENTERED INTO BETWEEN ASSESSEE-COMPANY ON ONE HAND A ND M/S. H.R. WALLINGFORD LTD., UK ON THE OTHER HAND, RELEVANT PO RTION IS REPRODUCED AS UNDER: DHOLERA PORT PHASE 2 SEDIMENTATION STUDIES PROPOSAL PREPARED FOR THE ADANI GROUP 1. INTRODUCTION 1.1 BACKGROUND THE ADANI GROUP IS CONTEMPLATING PARTICIPATING IN D EVELOPING DHOLERA PORT WHICH IS LOCATED BETWEEN AHMEDABAD AND BHAVNAGAR IN THE GULF OF KHAMBHAT. THE PROPOSED DEVELOPMENTS WILL INCLUDE A DEEPENED AND REALIGNED APPROACH CHANNEL, A BERTHING AREA AND ASSOCIATED SH ORE PROTECTION WORKS. INITIAL STUDIES TO BE CARRIED OUT ARE FOCUSED ON TH E MORPHOLOGICAL AND NAVIGATIONAL ASPECTS OF THE PROPOSED DEVELOPMENTS. ITA NOS.1405 & 1407/AHD/2009 ITO AHMEDABAD VS. ADANI PORT INFRASTRUCTURE P. LTD. AND ITO AHMEDABAD VS. DHOLERA PORT LTD. A.Y.2008-09 - 5 - PREVIOUS STUDIES UNDERTAKEN AT THIS SITE HAVE HIGHL IGHTED THE PREVAILING ENVIRONMENTAL CONDITIONS, WITH STRONG TIDAL ACTION (LARGE TIDE RANGE AND STRONG TIDAL CURRENTS) OCCASIONAL CYCLONE RAPID COA STAL EROSION WHICH IS LIKELY TO BE LINED TO THE CONFIGURATION OF THE LARGER BANK S (IN PARTICULAR MAL BANK AND RONLO ISLAND) AND CHANNELS (IN PARTICULAR MALCO LM CHANNEL). A DPR STUDY PREPARED BY FREDERICK HARRIS IN 2000 HIGHLIGH TED THE MORPHOLOGICAL ACTIVITY IN THE AREA AND RECOMMENDED REGULAR SURVEY S BE UNDERTAKEN TO INVESTIGATE THIS ASPECT FURTHER, NOTING THAT THE MA IN DHOLERA CHANNEL WOULD BE SUBJECT TO RAPID SHOALING IN THE EVENT THAT UPST REAM DRAINAGE CHANNELS ARE DEVIATED BY THE BANK MIGRATION. 3.3 HOWEVER, THE AO WAS NOT CONVINCED AND ACCORDING TO HIM THE SERVICES PROVIDED BY M/S. HR WALLINGFORD LTD, UK WE RE NOTHING BUT FEES FOR SEDIMENTATION STUDIES, WHICH ACCORDING TO HIM WERE IN THE NATURE OF FEES FOR TECHNICAL SERVICES AS DEFINED IN EXPLAN ATION 2 OF SECTION 9 (1)(VII) OF IT ACT. A RESIDENT OF INDIA HAD MADE TH E PAYMENT FOR ON SITE SEDIMENTATION SERVICES TO A NON RESIDENT AND SUCH INCOME IN THE HANDS OF THE NON RESIDENT WAS CHARGEABLE TO TAX IN INDIA U/S.9(VII) OF IT ACT. THE AO HAS ALSO DISCUSSED SECTION 9 OF FINANCE ACT, 2007. THE AO HAS CONCLUDED THAT THE SERVICES RENDERED WERE IN THE NA TURE OF PROVIDING CONSULTANCY SERVICE WHICH WAS MADE AVAILABLE TO DHO LERA PORT LTD. THE AO HAS COMPUTED THE TAX AND INTEREST THEREON AS UND ER: 6. TO SUMMARIES, IT IS HELD THAT PAYMENT RECEIVED BY M/S. HR WALLINGFORD. UK IS TAXABLE BOTH AS PER THE PROVISIO N OF THE IT ACT, 1961 AND THE TAX TREATY BETWEEN INDIA AND UNITED KINGDOM. AS THE ASSESSEE COMPANY HAS ALREADY REMITTED THE TOTAL PAYMENT TO THE NON-R ESIDENT, THE TAX DEDUCTED AT SOURCE HAS TO BE ARRIVED BY GROSSING U/S.195A OF TH E ACT. THE ASSESSEE IS ALSO LIABLE FOR INTEREST AS PER SECTION 201(1A) OF THE A CT, FOR THE DELAY. TAX U/S. 201(1) AND INTEREST U/S.201(1A) OF THE ACT PAYABLE BY THE ASSESSEE ARE AS UNDER: REMITTANCE IN GBP 40,635 IN INDIAN [@ 1 GBP = RS. 80.129] TOTAL AMOUNT RS.32,56,048 (GROSSIN UP U/S. 195A RS.36,17,831) TOTAL AMOUNT OF TAX U/S. 201(1) AT 10% RS.3,61,783 INTEREST U/S. 201(1A) RS. 54,270 TOTAL AMOUNT PAYABLE RS.4,16,053 ITA NOS.1405 & 1407/AHD/2009 ITO AHMEDABAD VS. ADANI PORT INFRASTRUCTURE P. LTD. AND ITO AHMEDABAD VS. DHOLERA PORT LTD. A.Y.2008-09 - 6 - 4. WHEN THE MATTER REACHED TO THE FIRST APPELLATE A UTHORITY, THE MATTER WAS DISCUSSED AT LENGTH IN THE LIGHT OF FEW CASE LAWS, NAMELY, CESC LTD., VS. DCIT, 80 TTJ 808 AND RAYMOND LTD., 8 7 ITD 791 (MUM.) AND D. BEERS INDIA MINERALS PVT. LTD., 3401 AND 3402 (VIR) (2004) (BIHAR) . AFTER CONSIDERING THE ARGUMENTS, LEARNED CIT(A) H AS HELD AS UNDER: I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND I HAVE ALSO PERUSED THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE. THE ASSESSING OFFICER HAS HELD THAT THE FEES PAID TO HR WALLINGFORD LTD., A UK BASED COMPANY CAN BE CHARACTERIZED AS FEES FOR TECHNICAL SERVICES UND ER ARTICLE 13(4) OF INDIA UK DTAA. HOWEVER, IN DOING SO, HE HAS IGNORED THE FACT THAT THE APPELLANT COMPANY WAS SUPPOSED TO RECEIVE ONLY A REPORT ON TH E PRE-EXISTING CONDITIONS. THIS REPORT CONTAINS DATA AND INFORMATI ON ABOUT THE MORPHOLOGICAL STUDIES, NAVIGATION STUDIES, ETC. IN RELATION TO THE DHOLERA PORT WHEREBY NO TECHNICAL KNOWLEDGE, SKILL, KNOW-HOW, ET C IS MADE AVAILABLE TO THE ASSESSEE. THE ASSESSING OFFICER IN REACHING TO THIS CONCLUSION ALSO RELIED ON AN EXAMPLE [REPRODUCED ON PAGE-8 OF THE ORDER] FORM ING PART OF THE MEMORANDUM OF UNDERSTANDING APPENDED TO INDIA US TR EATY IN ORDER TO BORROW THE MEANING OF THE TERM MAKE AVAILABLE. IN DOING SO, HE HAS HIMSELF APPLIED THE INDIA US TREATY BECAUSE THE ARTICLE 12 TO INDIA US DTAA IS PARI MATERIAL WITH THAT OF THE ARTICLE 13(4) OF INDIA UK DTAA. THE ASSESSING OFFICER HAS WRONGLY APPLIED THE SAID EXAMPLE FOR TH E REASON THAT THE US COMPANY HAS TRANSFERRED THE SET OF SKILL IN THE FOR M OF INSTRUCTIONS WHICH WILL ASSIST THE INDIAN TO INSTALL THE SYSTEM. THIS INDIV IDUAL WILL BE IN A POSITION TO RENDER SUCH OR SIMILAR INSTRUCTIONS TO OTHER PEOPLE IN INDIA. HENCE, THE SAID SERVICES HAVE READILY BEEN MADE AVAILABLE TO THE IN DIVIDUAL BUT THERE BEING A SPECIFIC EXEMPTION UNDER ARTICLE 12(5)(D) IN RESPEC T OF SERVICES UTILIZED FOR PERSONAL PURPOSES, THE PAYMENT MADE SHALL NOT BE CH ARACTERIZED AS FEES FOR INCLUDED SERVICES. SINCE IN THIS CASE H.R. WALLINGF ORD LTD, THE UK BASED COMPANY HAS MERELY PROVIDED SERVICES IN RELATION TO MORPHOLOGICAL STUDIES, SEDIMENTATION STUDIES, ETC NO TECHNICAL KNOWLEDGE, SKILL EXPERIENCE OR PROCESS IS MADE AVAILABLE TO THE APPELLANT COMPANY IN THE T ERMS OF ARTCILE 13(4)(C) OF THE INDIA UK TREATY. THE APPELLANT WILL ALSO NOT BE IN A POSITION TO RENDER SUCH SERVICES ON ITS OWN TO OTHERS. THUS, IN TERMS OF ARTICLE 13(4)(C) OF THE INDIA UK DTAA, THE FEES PAID BY THE APPELLANT COMPA NY ARE NOT FEES FOR TECHNICAL SERVICES AND THEY CONSTITUTE BUSINESS INC OME IN THE HANDS OF THE BRITISH COMPANY. CONSEQUENTLY, THE APPELLANT COMPAN Y WOULD NOT BE LIABLE TO WITH-HOLDING TAX U/S. 195(1) OF THE INCOME TAX A CT, 1961. HENCE, THIS GROUND OF APPEAL IS PARTLY ALLOWED. ITA NOS.1405 & 1407/AHD/2009 ITO AHMEDABAD VS. ADANI PORT INFRASTRUCTURE P. LTD. AND ITO AHMEDABAD VS. DHOLERA PORT LTD. A.Y.2008-09 - 7 - 5. FROM THE SIDE OF REVENUE, LEARNED DR MR. P.L. KU REEL APPEARED. HE HAS INFORMED THAT THE ASSESSEE HAD REMITTED A SU M OF RS.32,56,048/- TO A NON RESIDENT COMPANY, NAMELY, M/S. HR WALLINGF ORD COMPANY, U.K. FOR THE TECHNICAL SERVICES RENDERED. THE ASSES SEE HAD NOT DEDUCTED THE TAX U/S.195 OF IT ACT WHILE REMITTING THE AMOUN T. THE REASON GIVEN FOR NON DEDUCTION OF TDS WAS THAT NO SERVICES WERE MADE AVAILABLE BY THE SAID NON-RESIDENT TO THE ASSESSEE AS PER THE ME ANING ASSIGNED IN ARTICLE 13 DTAA BETWEEN INDIA AND UK. BUT ACCORDING TO LD DR THE REMITTANCE WAS COVERED BY THE DEFINITION OF FEES F OR TECHNICAL SERVICES, AND THAT THE AMOUNT REMITTED WAS CHARGEABLE TO TAX IN THE HANDS OF THE SAID NON RESIDENT. HE HAS ARGUED THAT THE PROVISIO NS OF SECTION 9(1)(VII) WERE APPLICABLE ON THE FEES PAID FOR TECHNICAL SERV ICES BECAUSE THE SERVICES WERE RENDERED AND UTILIZED IN INDIA. THE A SSESSEE WAS REQUIRED TO DEDUCT THE TAX U/S. 195 AND THE AO HAS RIGHTLY TREA TED THE ASSESSEE IN DEFAULT U/S.201(1) OF IT ACT BY RAISING THE DEMAND OF RS.3,61,783/- AS ALSO CHARGED INTEREST U/S.201(1A) OF RS.54,270/-. 5.1 LEARNED DR HAS PLEADED THAT AS PER THE AGREEMEN T ENTERED INTO BY DHOLERAPORT AND HR WALLINGFORD, THE SAID NON RESIDE NT COMPANY WAS REQUIRED TO DELIVER A REPORT ON MORPHOLOGICAL AND NAVIGATION STUDIES IN RESPECT OF DHOLERA PORT. THE ABSTRACT OF THE AGREEM ENT IS REPRODUCED AS UNDER: PHASE 1- MORPHOLOGICAL STUDIES - DETERMINE THE RATE OF SEDIMENTATION AND THE QUANT ITY AND FREQUENCY OF DREDGING. - AGREEMENT OF CHANNEL ALIGNMENT - SEDIMENTATION AND MARITIME DREDGING REQUIREMENTS FOR THE BERTHING POCKET. - REQUIREMENT AND NATURE OF ANY SHORE PROTECTION ME ASURES. - THE IMPACT OF CAPITAL DREDGING WORKS AND SHORE PR OTECTION ON THE ITA NOS.1405 & 1407/AHD/2009 ITO AHMEDABAD VS. ADANI PORT INFRASTRUCTURE P. LTD. AND ITO AHMEDABAD VS. DHOLERA PORT LTD. A.Y.2008-09 - 8 - 5.2. LEARNED DR HAS PLACED RELIANCE ON A JUDGMENT O F AUTHORITY FOR ADVANCE RULING (INCOME TAX) (NEW DELHI) 9 TH DAY OF DECEMBER, 2011 ARR NO.869 OF 2010 IN THE CASE OF PERFETTI VAN MELL E HOLDING, WHEREIN THE RELEVANT OBSERVATIONS WERE AS UNDER: 2. APPLICANT SUBMITS THAT BEING A TAX RESIDENT OF THE NETHERLANDS THE PROVISION OF INDIA-NETHERLAND DOUBLE TAXATION AVOID ANCE CONVENTION (DTAC) WILL APPLY TO THE EXTENT THEY ARE MORE BENEF ICIAL WHEN COMPARED TO THE PROVISIONS OF THE INCOME-TAX ACT, 1961 (ACT). U NDER PARA 5(B) OF ARTICLE 12 OF THE DTAC, ANY SERVICE TO QUALIFY AS FEES FOR TECHNICAL SERVICES (FTS), THE SERVICE SHOULD BE TECHNICAL OR CONSULTANCY IN NATURE AND THE SERVICES SHOULD MAKE AVAILABLE' TECHNICAL KNOWLEDGE, EXPERIENCE, S KILL, KNOW-HOW OR PROCESSES, OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. THE DEFINITION OF FTS UNDER THE D TAC IS MORE RESTRICTIVE THAN UNDER THE ACT AND HENCE BEING INVOKED. APPLICA NT SUBMITS THAT THE TERM 'MAKE AVAILABLE' HAS NOT BEEN DEFINED UNDER THE DTA C, BUT AN INFERENCE MAY BE DRAWN FROM INDIA-USA DTAC WHICH HAS AN IDENTICAL DEFINITION IN PARAGRAPH 4(B) OF ARTICLE 12 FOR DEFINING 'FEES FOR INCLUDED SERVICES'. UNDER THE MEMORANDUM OF UNDERSTANDING OF INDIA-USA DTAC, MAKE AVAILABLE MEANS THAT THE PERSON ACQUIRING THE SERVICES IS ENA BLED TO INDEPENDENTLY APPLY THE TECHNOLOGY, THAT THERE SHOULD BE TRANSFER OF TECHNICAL KNOWLEDGE, SKILL ETC. FROM THE SERVICE PROVIDER TO THE RECIPIE NT IN ORDER FOR THE SERVICES TO QUALIFY AS MAKING AVAILABLE TECHNICAL KNOWLEDGE, SK ILL ETC . [REF.: INTERTEK TESTING SERVICES INDIA (P) LTD. IN RE (2008) (307 I TR 418) NATIONAL ORGANIC CHEMICALS IND., LTD., 96 TTJ 765; CESC VS. CIT (80 TTJ 806).]. THUS, WE ARE OF THE OPINION THAT SERVICES UNDER THE SERVICE AGREEMENT WHEN READ WITH TTLA, FALL WITHIN THE PURVIEW OF ARTICLE 12.5(A) OF THE DTAC AS SUCH SERVICES ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYM ENT DESCRIBED IN PARAGRAPH 4 OF THIS ARTICLE IS RECEIVED.. CHAIRMAN (ADDING) AAR/869/2010 I FULLY AGREE WITH THE RULING PROPOSED BY MEMBER (R ) A CONVENTION IS A TREATY ENTERED INTO BY TWO SOVERE IGN STATES RELATING TO RIGHTS AND DUTIES OF SUBJECTS OR CITIZENS OF THE RESPECTIV E STATES IN ONE ANOTHERS POSSESSIONS (SEE RAMANATHA AIYAR LAW LEXICON). A TREATY IS NEGOTIATED AND ENTERED INTO AT POLITICAL LEVEL AND HAVE SEVERAL CO NSIDERATIONS AS THEIR BASE (SEE AZADI BACHAO ANDOLAN-263 ITR 706). A TREATY IS UNIQUE FOR THE TWO NATIONS THAT ARE PARTIES TO IT. SO, HOW CAN A TREAT Y WITH ONE COUNTRY, BE INTERPRETED IN THE LIGHT OF THE TREATY WITH ANOTHER COUNTRY, SUBJECT OF A BARGAIN AND MUTUAL GIVE AND TAKE WITH REFERENCE TO THE RELA TIONSHIP WITH THAT PARTICULAR COUNTRY? IF SO, HOW CAN A MEMORANDUM OF UNDERSTANDING ITA NOS.1405 & 1407/AHD/2009 ITO AHMEDABAD VS. ADANI PORT INFRASTRUCTURE P. LTD. AND ITO AHMEDABAD VS. DHOLERA PORT LTD. A.Y.2008-09 - 9 - ACCOMPANYING A TREATY WITH ANOTHER COUNTRY, BE USED AS AN AID TO INTERPRET THE TREATY WITH A DIFFERENT COUNTRY? I AM OF THE VI EW THAT THE USE OF THE MEMORANDUM OF UNDERSTANDING ACCOMPANYING OR SUPPLEM ENTING THE INDIA- US TAX CONVENTION CANNOT BE USED AS AN AID TO UNDER STAND THE TERMS OF THE INDIA-NETHERLANDS TREATY. THE SIGNIFICANCE OF THE F ACT THAT SUCH A MEMORANDUM OR A SIMILAR MEMORANDUM OF UNDERSTANDING DOES NOT SUPPLEMENT THE CONVENTION WITH NETHERLANDS CANNOT A LSO BE LOST SIGHT OF. ONE POSSIBLE INFERENCE IS THAT INDIA DID NOT WANT THE S ITUATION ARISING OUT OF THE MEMORANDUM OF UNDERSTANDING ACCOMPANYING THE LNDIA- US DOUBLE TAXATION AVOIDANCE CONVENTION TO PREVAIL IN THE INTERPRETATI ON OF ITS CONVENTION WITH NETHERLANDS. I AM, THEREFORE, NOT PERSUADED TO ACCE PT THE ARGUMENT THAT THE INDIA-NETHERLANDS CONVENTION SHOULD BE INTERPRETED WITH THE AID OF THE MEMORANDUM OF UNDERSTANDING ACCOMPANYING THE INDIA- US CONVENTION. ARTICLE 12.5 OF THE CONVENTION BETWEEN INDIA AND NE THERLANDS HAS TO BE INTERPRETED ON ITS TERMS, AT BEST WITH REFERENCE TO THE PROTOCOL THAT ACCOMPANIED THAT CONVENTION. 2. THE EXPRESSION 'MAKE AVAILABLE' ONLY MEANS THAT THE RECIPIENT OF THE SERVICE SHOULD BE IN A POSITION TO DERIVE AN ENDURING BENEF IT AND BE IN A POSITION TO UTILISE THE KNOWLEDGE OR KNOW-HOW IN FUTURE ON HIS OWN. 'BY MAKING AVAILABLE THE TECHNICAL SKILLS OR KNOW-HOW, THE RECIPIENT OF THE SAME WILL GET EQUIPPED WITH THAT KNOWLEDGE OR EXPERTISE AND BE ABLE TO MAK E USE OF IT IN FUTURE, INDEPENDENT OF THE SERVICE PROVIDER.' [SEE INTERTEK TESTING SERVICES INDIA (P) LTD., IN RE (2008) 307 ITR 418]. SO WHEN THE EXPERT ISE IN RUNNING THE INDUSTRY RUN BY THE GROUP IS PROVIDED TO THE INDIAN ENTITY I N THE GROUP TO BE APPLIED IN RUNNING THE BUSINESS, THE EMPLOYEES OF THE INDIAN E NTITY GET EQUIPPED TO CARRY ON THAT BUSINESS MODEL OR SERVICE MODEL ON THEIR OW N WITHOUT REFERENCE TO THE SERVICE PROVIDER, WHEN THE SERVICE AGREEMENT COMES TO AN END. IT IS NOT AS IF FOR MAKING AVAILABLE, THE RECIPIENT MUST ALSO BE CO NVEYED SPECIFICALLY THE RIGHT TO CONTINUE THE PRACTICE PUT INTO EFFECT AND ADOPTED UNDER THE SERVICE AGREEMENT ON ITS EXPIRY. 5.2 SOME MORE CASE LAWS WERE REFERRED FROM THE SIDE OF THE REVENUE, AS LISTED BELOW: 1. HINDUSTAN SHIPYARD LIMITED, ITA NOS.204 & 205/V IZAG/2011. 2. CGG VERITAS SERVICES SA, (2012) 18 TAXMANN.COM 13 (DELHI-TRIBUNAL) 3. SNC LAVALIN INTERNATIONAL INC., (2011) 11 TAXMA NN.COM 23 (DELHI) 4. HINDALCO INDUSTRIES LTD V. ITO, ITA NO.3773(MUM) 1996 5. ASHAPURA MINICHEM LTD., (2010) 40 SOT 220 (MUM. ) 6. MARUTI UDYOG LTD. (2009) 34 SOT 480 (DELHI) 7. SHELL INDIA MARKETS P. LTD.,(2012) 18 TAXMANN. C OM 46 (AAR NEW DELHI). 8. SINTEX LIMITED, ITA NO.2021/AHD/2009 & ITA NO.63 9/AHD/2010 (ASSESSMENT YEAR 2009-10 & 2010-11)(ITAT AHMEDABAD. ) ITA NOS.1405 & 1407/AHD/2009 ITO AHMEDABAD VS. ADANI PORT INFRASTRUCTURE P. LTD. AND ITO AHMEDABAD VS. DHOLERA PORT LTD. A.Y.2008-09 - 10 - 6. FROM THE SIDE OF THE RESPONDENT ASSESSEE, LEARNE D AR MR. S.N. SOPARKAR HAS INFORMED THAT THE ASSESSEE COMPANY WAS CONTEMPLATING TO DEVELOP DHOLERA PORT LOCATED BETWEEN AHMEDABAD & BH AVNAGAR, IN THE GULF OF KHAMBAT. FOR THE PURPOSE OF DEVELOPING THE PORT, THE ASSESSEE COMPANY HAD TO UNDERTAKE CERTAIN BASIC STUDIES FOR EVALUATING THE FEASIBILITY OF THE PORT. LD A.R. HAS FURTHER INFORM ED THAT PORTS AROUND THE WORLD SUFFER FROM SEDIMENTATION OF THEIR BERTHING A ND MANEUVERING AREAS WHICH CALL FOR MAINTENANCE DREDGING ACTIVITIES. THE NAVIGATION CHANNELS ALSO GRADUALLY DECREASE OVER TIME DUE TO SEDIMENTAT ION SINCE THE NAVIGATION CHANNEL BEHAVES AS A SEDIMENT TRACK. TO EVALUATE THE ECONOMIC FEASIBILITY OF THE PORT, MAINTENANCE COST PLAY A CRITICAL ELEMENT. THEREFORE, THE ASSESSEE-COMPANY AVAILED SERVICES OF M/S. H.R. WALLINGFORD LTD. TO UNDERTAKE SEDIMENTATION, NAVIGA TION AND MOORING ASSESSMENT STUDIES AND COMPILE A REPORT. ACCORDING TO HIM A TECHNICAL KNOWLEDGE IS MAKE AVAILABLE TO RECIPIENT IF THE K NOWLEDGE IS TRANSMITTED TO THE RECIPIENT AND THE RECIPIENT CAN DRIVE ENDURING BENEFIT AND ALSO CAN UTILIZE THE KNOWLEDGE ON HIS OWN IN FU TURE WITHOUT THE AID OF SERVICE PROVIDER. THE TECHNICAL KNOWLEDGE THUS IS M ADE AVAILABLE IF THE KNOWLEDGE REMAINS WITH THE PERSON RECEIVING THE SER VICES EVEN AFTER THE END OF CONTRACT. THE SERVICE PROVIDED BY HR WALLING FORD WAS NAMELY NAVIGATION AND MANOORING ASSESSMENT SHIP NAVIGATION SIMULATION STUDY, SHIP MOORING STUDY WHICH WERE NOT IN THE NAT URE OF TECHNICAL KNOWLEDGE TRANSMITTED TO THE ASSESSEE. HE HAS PLACE D RELIANCE ON CIT VS. D. BEERS INDIA LTD., 346 ITR 467 (KARNATAKA), GUY C ARPENTER AND COMPANY, 346 ITR 504 (DELHI) . ITA NOS.1405 & 1407/AHD/2009 ITO AHMEDABAD VS. ADANI PORT INFRASTRUCTURE P. LTD. AND ITO AHMEDABAD VS. DHOLERA PORT LTD. A.Y.2008-09 - 11 - 7. WE HAVE HEARD BOTH THE SIDES AT LENGTH. WE HAVE ALSO CAREFULLY PERUSED THE DOCUMENTS FURNISHED IN THE COMPILATION CONTAINING COPY OF THE MEMORANDUM OF AGREEMENT WITH HR WALLINGFORD DAT ED 13.02.2007, PROPOSAL PREPARED AND OFFERED BY ADANI GROUP DATED 16/21 FEBRUARY, 2006 AND ACCEPTED BY THE SERVICE PROVIDER. IN SHORT , THE APPELLANT HAD ENTERED INTO AN AGREEMENT WITH M/S. HR WALLINGFORD FOR THE FOLLOWING SERVICES: 1. MORPHOLOGICAL STUDIES 2. SEDIMENTATION ASSESSMENT 3. NAVIGATION AND MOORING ASSESSMENT. 6.1 THE REASON FOR ASKING A REPORT IN RESPECT OF TH E DHOLERA PORT WAS THAT AS PER PREVIOUS STUDIES UNDERTAKEN IT WAS NOTI CED THAT THERE WERE STRONG TIDAL ACTION AND OCCASIONAL CYCLONE ACTIVITY . THE MORPHOLOGICAL ACTIVITY AT THE SITE CAUSES RAPID COASTAL EROSION; THEREFORE, A SURVEY IS REQUIRED TO BE UNDERTAKEN TO INVESTIGATE ALL THOSE ASPECTS. THE ASSESSEE HAS THEREFORE REQUESTED TO GIVE THE REPORT IN TWO P HASES AS UNDER: PHASE 1 MORPHOLOGICAL STUDIES 1. DETERMINE THE RATE OF SEDIMENTATION AND THE QUAN TITY AND FREQUENCY OF DREDGING. 2. AGREEMENT OF CHANNEL ALIGNMENT. 3. SEDIMENTATION AND MARITIME DREDGING REQUIREMENTS FOR THE BERTHING PACKET. 4. REQUIREMENT AND NATURE OF ANY SHORE PROTECT MEAS URES. 5. THE IMPACT OF CAPITAL DREDGING WORKS AND SHORE P ROTECTION ON THE HYDRODYNAMIC AND MORPHOLOGY OF THE AREA. PHASE II NAVIGATION STUDIES 1. ORIENTATION OF THE BERTHS 2. REVIEW OF APPROACH, DEPARTURE AND TURNING MANEUV ERS AND EMERGENCY PROCEDURES. 3. MOORING ARRANGEMENTS. 6.2 THE REPORTS WERE IN THE FORM OF PRELIMINARY ASS ESSMENT, AS CLAIMED BY THE ASSESSEE; THEREFORE, THE RESULT OF THE SURVE Y WAS REQUIRED TO BE ITA NOS.1405 & 1407/AHD/2009 ITO AHMEDABAD VS. ADANI PORT INFRASTRUCTURE P. LTD. AND ITO AHMEDABAD VS. DHOLERA PORT LTD. A.Y.2008-09 - 12 - PROJECTED IN TABULAR AND GRAPHICAL FORM. WHEREVER I T WAS APPROPRIATE A DESIGN OF THE TERMINAL WITH PROPER ANALYSIS WAS ALS O REQUIRED TO BE PROVIDED BY THE SERVICE PROVIDER. THERE WAS A CLAUS E OF CONFIDENTIALITY AND THE KNOW-HOW. IN THE AGREEMENT IT IS PROVIDED T HAT THE REPORT SO PREPARED BY HR WALLINGFORD SHALL NOT BE TRANSFERABL E BY THE ASSESSEE. THE ASSESSEE COMPANY SHALL NOT USE THE KNOW-HOW IN PERFORMING SERVICES FOR ANY OTHER CLIENT IN FUTURE. EVEN THE A SSESSEE COMPANY WAS NOT ENTITLED TO SUB-LICENSE ANY OF THE RIGHT GRANTE D IN THE REPORT. 6.3 WITH THIS BRIEF FACTUAL BACKGROUND, WE HAVE STU DIED ARTICLE 13 OF INDO-UK DTAA WHICH SAYS THAT ROYALTY AND FEES FO R TECHNICAL SERVICES ARISING IN A CONTRACT STATE AND PAID TO A RESIDENT OF OTHER CONTRACTING STATE MAY BE TAXED IN THAT OTHER STATE IF IT IS MADE AVAILABLE TO THE RECIPIENT. IN THE CASE OF DIAMOND SERVICES INTERNATIONAL, 304 ITR 201 (BOM.) IT WAS HELD THAT THE JOB OF GRADING DIAMONDS IN TH E LABORATORY AND FURNISHING A GRADING CERTIFICATE DID NOT AMOUNT TO TRANSFERRING OF ANY TECHNICAL SKILL OR KNOWLEDGE TO THE CUSTOMER. THE H ONBLE COURT HAS OBSERVED THAT THE GRADING REPORT BY GIA IS A STATEM ENT OF FACT REGARDING THE CHARACTERISTICS OF A DIAMOND. SO THE PAYMENT RE CEIVED BY GIA IS NOT ONE FOR THE RIGHT TO USE THE EXPERIENCE. FEW CASE L AWS, NAMELY, RAYMOND LTD, 87 ITD 791 (MUM.), NQA QUALITY SYSTEM REGISTER LTD., 92 TTJ 945, CESC LTD., 80 TTJ 808 (CAL.), MCKINSEY AND COM PANY, 99 ITD 549 (MUM.). SHERATON INTERNATIONAL, 106 TTJ 620 (DE LHI) HAVE LAID DOWN A COMMON PRINCIPLE THAT IF THE FRUITS OF THE S ERVICES REMAINED WITH THE SERVICE PROVIDER THEN OUT OF THE AMBITS OF THE TERM MAKE AVAILABLE BUT AFTER THE FRUITS OF THE SERVICE RENDERED REMAIN ED WITH THE SERVICE RECIPIENT AND THE SERVICE RECIPIENT IS ABLE TO PERF ORM SIMILAR ACTIVITY, FOR ITA NOS.1405 & 1407/AHD/2009 ITO AHMEDABAD VS. ADANI PORT INFRASTRUCTURE P. LTD. AND ITO AHMEDABAD VS. DHOLERA PORT LTD. A.Y.2008-09 - 13 - WHICH THE SERVICES WERE SOUGHT, WITHOUT THE HELP OR RECOURSE OF THE SERVICE RENDERED THEN THE TECHNOLOGY CAN BE SAID TO BE TRANSFERRED OR MADE AVAILABLE TO THE RECIPIENT. IN THE CASE OF MAHINDRA & MAHINDRA (122 ITD 216) (SB) , THE MEANING OF EXPRESSION MAKE AVAILABLE HAS BEEN ANALYZED BY DISCUSSING AN ANOTHER DECISION OF INTERTEK TESTING SERVICES, 307 ITR 418 WHEREIN IT WAS SAID THAT THE SERVICE SHOULD BE AIMED AT AND RESULT IN TRANSMITTING THE TECHNICAL K NOWLEDGE, ETC., SO THAT THE RECEIVER OF SERVICE COULD DERIVE AN ENDURING BE NEFIT AND UTILIZE THE KNOWLEDGE OR KNOW-HOW IN FUTURE OR HIS OWN WITHOUT THE AID OF THE SERVICE PROVIDER. 6.4 AFTER ANALYZING FEW CASE LAWS IN THE BACKGROUND OF THE CLAUSES OF THE TREATY AND THE PROVISIONS OF IT ACT WE CAN COMM ENT THAT THERE ARE SIGNIFICANT DISTINCTION BETWEEN THE DEFINITION AS P RESCRIBED U/S.9 OF IT ACT OF FEES FOR TECHNICAL SERVICES AS COMPARED WITH T HE DEFINITION PRESCRIBED IN ARTICLE 13 OF INDO-UK TREATY. BUT THE SETTLED LAW IS THAT THE PROVISIONS OF DTAA OVERRIDES THE PROVISIONS OF IT A CT IN THE MATTER OF ASCERTAINMENT OF TAXABILITY UNDER THE INCOME TAX A CT. THEREFORE, WE HAVE TO DECIDE THIS ISSUE IN THE LIGHT OF ARTICLES OF DTAA. RESULTANTLY GROUND NO 3 OF THE REVENUE SHALL ALSO NOT SURVIVE. AT THIS JUNCTURE, IT IS WORTH TO MENTION A DECISION OF HONBLE APEX COURT P RONOUNCED IN THE CASE OF UNION OF INDIA VS. AZADI BACHAO ANDOLAN, 263 ITR 70 6 (SC). FURTHER IN THE CASE OF GE INDIA TECHNOLOGY, 327 ITR 456 (SC) IT WAS DECIDED THAT THERE WAS NO OBLIGATION FOR WITHHOLDIN G THE TAX ON ANY PERSON MAKING PAYMENT TO A NON RESIDENT IF THE PAYM ENT MADE TO THE NON RESIDENT IS NOT CHARGEABLE UNDER THE PROVISIONS OF IT ACT. IN ANY CASE, THE ISSUE BEFORE US IS LIMITED TO THE APPLICABILITY OF THE PROVISIONS OF ARTICLE ITA NOS.1405 & 1407/AHD/2009 ITO AHMEDABAD VS. ADANI PORT INFRASTRUCTURE P. LTD. AND ITO AHMEDABAD VS. DHOLERA PORT LTD. A.Y.2008-09 - 14 - 13 OF DTAA BETWEEN INDIA AND UK AND AFTER CONSIDERI NG THE FACTS AND CIRCUMSTANCES OF THE CASE AS DISCUSSED AT LENGTH HE REINABOVE WE HEREBY HOLD THAT THE FEES FOR TECHNICAL SERVICES WAS NOT P AID FOR MAKING AVAILABLE THE TECHNICAL KNOWLEDGE, EXPERIENCE, KNOW-HOW TO TH E ASSESSEE. THEREFORE, THE PAYMENT MADE BY THE ASSESSEE TO THE SAID RESIDENT IS OUT OF THE AMBITS OF THE PROVISIONS OF SECTION 195 OF IT A CT. THE VIEW TAKEN BY LEARNED CIT(A) IS HEREBY CONFIRMED. RESULTANTLY, TH E GROUNDS RAISED BY THE REVENUE ARE HEREBY DISMISSED. 7. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. SD/- SD/- ( ANIL CHATURVEDI) (MUKUL KR. SHRAWAT) ACCOUNTANT MEMBER JUD ICIAL MEMBER AHMEDABAD; DATED 30/05/2014 PRABHAT KR. KESARWANI, SR. P.S. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-III, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD