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

ITA 1434/PUN/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1530 (ITAT-PUNE)
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 30-10-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANIL CHAWARE
• Keywords: Double taxation relief; Permanent establishment; Advance ruling; Initiation of penalty proceedings; Wholly owned subsidiary; Competent authority; Reassessment proceedings
• Section: 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, PUNE . . , BEFORE SHRI R.K. PANDA, AM . / ITA NO.1434/PN/2015 / ASSESSMENT YEAR : 2006-07 IMERYS ASIA PACIFIC PTE LIMITED, C/O. IMERYS NEWQUEST (INDIA) PVT. LTD., UNIT 403, 4 TH FLOOR, SAI CAPITAL, SENAPATI BAPAT ROAD, PUNE 411 016 PAN NO.AABCI2170F . / APPELLANT V/S JDIT (INTERNATIONAL TAXATION), B.O. BHAVAN, PUNE SATARA ROAD, PARVATI, PUNE 411 009 . / RESPONDENT / APPELLANT BY : SHRI RAJENDRA AGIWAL / RESPONDENT BY : SHRI ANIL CHAWARE / ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 25-08-2015 OF THE CIT(A)-13, PUNE RELATING T O THE ASSESSMENT YEAR 2006-07. 2. GROUNDS OF APPEAL NO.1 RELATES TO THE ORDER OF THE CI T(A) IN UPHOLDING THE REASSESSMENT PROCEEDINGS U/S.147 OF THE I. T. ACT. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET DID NOT PRESS THE ABOVE GROUND FOR WHICH THE LD. DEPARTMENTAL REPRESENTAT IVE HAS NO OBJECTION. ACCORDINGLY, GROUND OF APPEAL NO.1 IS DISMISSE D AS NOT PRESSED. / DATE OF HEARING :20.07.2016 / DATE OF PRONOUNCEMENT:22.07.2016 2 ITA NO.1434/PN/2015 3. GROUNDS OF APPEAL NO.2 TO 4 BY THE ASSESSEE READ AS UNDER : 2. NON GRANTING OF BENEFITS UNDER THE INDIA - SINGA PORE TAX TREATY ('TREATY') TO THE APPELLANT ON THE BASIS THAT IT IS NOT THE BENEFICIAL OWNER OF THE INCOME RECEIVED FROM ROYALTY. THE LEARNED CIT(A), HAS ERRED IN UPHOLDING THE ACTI ON OF LEARNED AO IN DENYING TREATY BENEFIT TO THE APPELLANT ON THE INCO RRECT BASIS THAT THE APPELLANT IS NOT THE BENEFICIAL OWNER OF THE ROYALTY INCOME OF RS.48,35,010/- EARNED FROM IMERYS NEWQUEST (INDIA) PRI VATE LIMITED ; 3. NON APPLICABILITY OF ARTICLE 24 - LIMITATION OF REL IEF OF THE TREATY TO THE ROYALTY INCOME OF THE APPELLANT . THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ACTION OF THE LEARNED AO IN APPLYING THE PROVISIONS OF ARTICLE 24 - LIMITATION OF RELIEF OF THE TREATY AND IN DENYING THE APPLICATION OF CONCESSIONAL RATE OF TAX AS PER THE TREATY TO THE ROYALTY INCOME EARNED BY THE APPELLANT; 4. INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 27 1(1)(C) OF THE ACT. THE LEARNED CIT(A) HAS ERRED IN NOT CANCELLING THE I NITIATION OF PENALTY PROCEEDINGS BY THE LEARNED AO. 4. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A COMPANY INCORPORATED IN SINGAPORE AND IS A TAX RESIDENT OF SINGAPO RE AS PER THE INDIA-SINGAPORE TAX TREATY. IT IS A 100% SUBSIDIARY OF MIRCAL, SA, FRANCE AND IMERYS SA, FRANCE IS ITS ULTIMATE HOLDING CO MPANY. THE PRINCIPAL ACTIVITIES OF THE ASSESSEE ARE THOSE RELATING TO ACTIVITY AS HEADQUARTERS FOR THE ASIA PACIFIC REGION, RENDERING ADMINISTRATIVE, MARKETING AND SALES SERVICES TO THE GROUP AND AFFILIATED COMPANIES, TRADING OF PAPER AND PERFORMANCE MINERALS AND OTHER RELATED BUSINESS ACTIVITIES INCLUDING PROJECT WORK. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO ASKED THE ASSESSEE TO SUBMIT THE PROOF THAT THE ASSESSEE IS BENEFICIAL OWNER OF INTEREST AND ROYALTY AND SAID INCOME IS REMITTED TO OR RECEIVED BY THE ASSESSEE IN SINGAPORE AND OFFERED AS INCO ME IN SINGAPORE. IT WAS ALSO STATED BY THE AO IN THE SAID LET TER THAT IF THE 3 ITA NO.1434/PN/2015 SAID INFORMATION IS NOT SUBMITTED BENEFIT UNDER DTAA BETWEE N INDIA AND SINGAPORE WILL NOT BE ALLOWED. 6. THE ASSESSEE FILED A DETAILED REPLY VIDE LETTER DATED 14-08-2013. HOWEVER, THE AO WAS NOT SATISFIED WITH THE SUBMISSIONS. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY TH E ASSESSEE THE AO HELD THAT THE ASSESSEE IS NOT BENEFICIA L OWNER OF THE ROYALTY INCOME RECEIVED FROM INDIA AND ALSO DOES NOT SATISFY THE PROVISIONS OF ARTICLE 24 OF DTAA. THEREFORE, THE ASSESSEE IS NOT ELIGIBLE TO CLAIM THE LOWER RATE OF TAX ON ROYALTY AS PER THE DTAA. 7. IN APPEAL THE LD.CIT(A) FOLLOWING HIS ORDER FOR A.Y. 2007-08 AND 2008-09 UPHELD THE ACTION OF THE AO. 8. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US BEFORE THE TRIBUNAL. 9. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET FILED A COPY OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2010-11 AND SUBMITTED THAT UNDER IDENTICAL FACTS AND CIRCUMSTANCES THE TRIBUNA L ALLOWED THE CLAIM OF THE ASSESSEE AND HELD THAT ASSESSEE IS ENT ITLED TO CONCESSIONAL RATE OF TAXES AS PER INDIA-SINGAPORE TAX TR EATY TO THE ROYALTY AND INTEREST INCOME EARNED BY THE ASSESSEE. HE SUBMITTED THAT SINCE THE FACTS FOR THE IMPUGNED ASSESSMENT YEAR ARE IDENTICAL TO THE FACTS OF THE A.Y. 2010-11, THEREFORE, THIS BEING A CO VERED MATTER THE GROUNDS RAISED BY THE ASSESSEE SHOULD BE ALLOWED. 10. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND FAIRLY CONCEDED THAT THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN A.Y. 2010-11 AND THE GROUNDS RAISED BY THE 4 ITA NO.1434/PN/2015 ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR ARE IDENTICAL TO THE GROUNDS RAISED IN A.Y. 2010-11. 11. I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND T HE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. I HAVE ALSO CONSIDER ED THE VARIOUS DECISIONS CITED BEFORE ME. I FIND AN IDENTICAL ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 20 10-11 AND THE TRIBUNAL IN THE SAID ORDER HAS HELD THAT THE ROY ALTY AND INTEREST INCOME EARNED BY THE ASSESSEE IS TO BE SUBJEC T TO TAX ON CONCESSIONAL TAX RATE AT 10%. THE RELEVANT OBSERVATION OF THE TRIBUNAL FROM PARA 10 ONWARDS READ AS UNDER : 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE BEFORE US IS A COMPANY INCORPORATED IN SINGAPORE AND IS TAX RESIDENT OF SINGAPORE. THE ASSESSEE WAS 100% SUBSIDIARY OF THE FRENCH COMPANY MIRCALS SA FRANCE AND IMERYS SA, FRANCE WAS ITS ULTIMATE HOLDING COMPANY. THE ASSESSEE WAS ENGAGED IN VARIOUS ACTI VITIES OF MARKETING AND SALES SERVICES TO THE GROUP AND AFFILIATE D COMPANIES, IN ADDITION TO THE TRADING OF PAPER AND PERFORMANCE MI NERALS AND OTHER RELATED BUSINESS ACTIVITIES INCLUDING PROJECT WORK. THE ASSESSEE ENTERED INTO A TECHNOLOGY LICENSE AGREEMENT WITH IME RYS NEWQUEST (INDIA) PVT. LTD. (INPL), WHICH IN TURN, MAKES ROYAL TY PAYMENT TO THE ASSESSEE. UNDER THE TECHNOLOGY AGREEMENT , NON-EXCLUSIV E, NONTRANSFERABLE, NON-ASSIGNABLE AND REVOCABLE LICENSE W AS GRANTED TO INPL TO USE THE TECHNOLOGY AND KNOW-HOW IN CONNECTIO N WITH DEVELOPMENT, MANUFACTURE, USE AND SALE OF CALCIUM CAR BONATE AND CALCIUM CARBONATE PRODUCTS IN GEOGRAPHICAL TERRITORY OF INDIA. INPL WAS TO PAY ROYALTY EQUIVALENT TO AN AMOUNT OF 5% OF ANNUAL NET SALES FOR PERIOD OF SEVEN YEARS COMMENCING FROM 18.11.2004, AS PER THE TECHNOLOGY AGREEMENT PLACED AT PAGE S 51 TO 68 OF PA PER BOOK. FURTHER, IMPL HAD OBTAINED ECB LOANS FROM THE ASSESSEE F OR PURCHASE OF CAPITAL GOODS SINCE IT WAS IN THE PROCESS OF SETTING U P OF PLANTS AT BADHRACHALAM, NEAR HYDERABAD AND AMRITSAR, PUNJAB. T HE INTEREST ON THE LOANS OBTAINED WAS THREE MONTHS SIBOR + MARGIN OF 0.5% PER ANNUM. THE INTEREST ACCRUED WAS TO BE PAID ON LOANS ON QUARTERLY BASIS. FURTHER, THESE LOANS WERE GRANTED BY THE ASSESSEE IN ACCORDANCE WITH EXTERNAL COMMERCIAL BORROWING (ECB) GUIDELINES ISSUED BY THE RESERVE BANK OF INDIA. THE ASSESSEE HAS FURNISHED ON RECOR D THE TAX RESIDENCY CERTIFICATE FROM ITS HEAD OFFICE IN SINGAPO RE. THE ASSESSEE CLAIMS THAT IT HAS NO PERMANENT ESTABLISHMENT / PE IN I NDIA. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD RECEIVED ROYA LTY FROM INPL AT RS.48,88,234/- AND INTEREST OF RS.20,73,846/- FROM IMPL. THE ASSESSEE CLAIMED THAT THE RATE OF TAX ON SUCH RECEIPTS WA S TO BE APPLIED AS PER DTAA BETWEEN INDIA AND SINGAPORE. 5 ITA NO.1434/PN/2015 11. THE FACTUAL ASPECT OF THE ROYALTY PAYMENT WAS THA T THE ASSESSEE HAD RAISED INVOICES RELATING TO ROYALTY FOR THE PERIOD JA NUARY, 2005 TO DECEMBER, 2009 ON 19.10.2010 AND FOR THE PERIOD JAN UARY 2010 TO SEPTEMBER, 2010 ON 11.10.2010. INPL HAD REMITTED TH E AMOUNT OF ROYALTY FOR THE PERIOD JANUARY, 2005 TO DECEMBER, 2 009 ON 14.07.2010 AND FOR THE PERIOD JANUARY, 2010 TO SEPTEMBER, 2010 ON 06.12.2010. SINCE THE ASSESSEE HAD NOT RECEIVED INCOME IN SINGAPORE FROM INDIA DURING THE FINANCIAL YEAR 2009-10, THE ASSESSING OFFICE R SHOW CAUSED THE ASSESSEE AS TO THE APPLICABILITY OF ARTICLE 24 OF DT AA I.E. LIMITATION OF RELIEF CLAUSE IN DTAA BETWEEN INDIA AND SINGAPORE . THE EXPLANATION OF THE ASSESSEE WAS THAT IT HAD OFFERED INCOME ON ACCRUA L BASIS AND HENCE, HAD APPLIED REDUCED RATE FOR ROYALTY AND INT EREST INCOME AS PER DTAA I.E. 10% FOR ROYALTY AND 15% FOR INTEREST. IT W AS FURTHER POINTED OUT THAT THERE WAS NO CONDITION IN ARTICLE 24(1) OF DTAA BETWEEN INDIA AND SINGAPORE THAT THE MONEY OUGHT TO BE REMITTED T O OR RECEIVED IN OTHER CONTRACTING STATE IN THE RELEVANT FISCAL YEAR . IN THE ABSENCE OF THESE WORDS, THE ASSESSEE CONTENDED THAT THIS COULD NOT B E READ INTO ARTICLE 24(1) OF DTAA. WHERE THE ROYALTY AND INTERE ST INCOME FOR FINANCIAL YEAR 2009-10 HAD BEEN REMITTED IN FINANCI AL YEAR 2010-11, THE REQUIREMENT OF ARTICLE 24(1) OF DTAA AS PER THE ASSESSEE COULD BE CONSIDERED TO HAVE SATISFIED AND THE CONCESSIONAL TAX R ATE IN INDIA SHOULD NOT BE DENIED BY APPLICATION OF LIMITATION OF RELIEF PROVISIONS. 12. THE KNOW-HOW LICENSE AGREEMENT WAS ENTERED INTO B ETWEEN IMERYS MINERALS LTD., UK AND THE ASSESSEE. UNDER THIS AGRE EMENT, IMERYS SINGAPORE COULD SUB-LICENSE THE KNOW-HOW TO OTH ER IMERYS GROUP COMPANIES I.E. SUBLICENSEES AND RECEIVE ROYALTY I NCOME FROM THE SAID LICENSEES. AS PER THE AGREEMENT, IMERYS, SINGAPORE I.E. THE ASSESSEE WAS LIABLE TO PAY ROYALTY @2% OF THE NET SALES OF SUB-LICENSEE TO IMERYS MINERALS LTD., UK. ON THE OTHER HAND, THE A SSESSEE RECEIVED ROYALTY INCOME FROM SUB-LICENSEE @5% ON NET SALES OF SUB -LICENSEE. IN THIS REGARD, THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH INPL AND FOR THE YEAR UNDER CONSIDERATION HAD RECEIVED RS.48,8 8,234/- AS ROYALTY. THE CASE OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW WAS THAT IT WAS NOT AN AGENT OR NOMINEE OR CONDUIT COMPANY OF IMERYS MINERALS LTD., UK AND THE KNOW-HOW AGREEMENT BETWEEN IT AND IMERYS MINERLS LTD., UK WAS PRINCIPAL TO PRINCIPAL BASIS. THE CASE OF THE ASSESSEE BEFORE US WAS THAT IT HAD EARNED ROYALTY ON ITS OWN RI GHT AND ON ITS OWN ACCOUNT AND HENCE, WAS THE BENEFICIAL OWNER OF E NTIRE ROYALTY INCOME RECEIVED FROM INPL UNDER ARTICLE 12(2) OF DT AA. 13. THE FIRST CONDITION, IN ORDER TO BE ELIGIBLE TO THE PROVISIONS OF DTAA BETWEEN INDIA AND SINGAPORE, IS THAT THE ENTITY SHOUL D BE TAX RESIDENT OF SINGAPORE. THE ASSESSEE HAS PLACED ON RECORD THE TAX RESIDENCY CERTIFICATE OF THE COMPANY FROM ITS HEAD OFFICE IN S INGAPORE. FURTHER, THE ASSESSEE DOES NOT HAVE ANY PE IN INDIA. HOWEVER, IN RESPECT OF ROYALTY INCOME AND INTEREST INCOME ACCRUED / RECEIVE D BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION, IT HAD FURNISHED T HE RETURN OF INCOME AND HAD OFFERED THAT IT WAS LIABLE TO PAY TAXES AS PE R THE PROVISIONS OF DTAA. ADMITTEDLY, THERE IS NO DISPUTE AS TO THE QUANTU M OF INCOME TO BE ASSESSED IN THE HANDS OF ASSESSEE. BOTH THE ASSESSEE AND THE ASSESSING OFFICER HAVE COMPUTED INCOME AT RS.69,62,080/- . THE DISPUTE IS AS TO THE RATE OF TAX TO BE APPLIED ON SUCH INCOME. 6 ITA NO.1434/PN/2015 14. THE RELEVANT ARTICLES FOR TAXABILITY OF INTEREST AND ROYALTY IN INDIA UNDER SINGAPORE TAX TREATY ARE REPRODUCED HEREUNDER FOR REFERENCE: ARTICLE 11: INTEREST 1. INTEREST ARISING IN A CONT RACTING STATE AND PAID TO A RESIDENT OF THE OTHER CONTRACTING STATE MA Y BE TAXED IN THAT OTHER STATE. 2. HOWEVER, SUCH INTEREST MAY ALSO BE TAXED IN THE CON TRACTING STATE IN WHICH IT ARISES, AND ACCORDING TO THE LAWS OF THAT ST ATE, BUT IF THE BENEFICIAL OWNER OF THE INTEREST IS A RESIDENT OF THE OTHER CONTRACTING STATE, THE TAX SO CHARGED SHALL NOT EXCEED : (A) 10 PERCENT OF THE GROSS AMOUNT OF THE INTEREST IF SUCH INTEREST IS PAID ON A LOAN GRANTED BY A BANK CARRYING ON A BONA FIDE BANKING BUSINESS OR BY A SIMILAR FINANCIAL INSTITUTION (INCLUDIN G AN INSURANCE COMPANY) ; (B) 15 PERCENT OF THE GROSS AMOUNT OF THE INTEREST IN ALL OTHER CASES. 3... 4.. 5.. 6.. ARTICLE 12 : ROYALTIES AND FEES FOR TECHNICAL SERVI CES 1. ROYALTIES AND FEES FOR TECHNICAL SERVICES ARISING IN A C ONTRACTING STATE AND PAID TO A RESIDENT OF THE OTHER CONTRACTING STAT E MAY BE TAXED IN THAT OTHER STATE. 2. HOWEVER, SUCH ROYALTIES AND FEES FOR TECHNICAL SERVI CES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THEY ARISE A ND ACCORDING TO THE LAWS OF THAT CONTRACTING 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 PERCENT. . ARTICLE 24 : LIMITATION OF RELIEF 1. WHERE THIS AG REEMENT PROVIDES (WITH OR WITHOUT OTHER CONDITIONS) THAT INCO ME FROM SOURCES IN A CONTRACTING STATE SHALL BE EXEMPT FROM TAX, OR TAXES AT A REDUCED RATE IN THAT CONTRACTING STATE AND UNDER THE LAWS IN FORCE IN THE OTHER CONTRACTING STATE THE SAID INCOME IS SUBJECT TO TAX BY REFERENCE TO THE AMOUNT THEREOF WHICH IS REMITTED TO OR RECEIVED IN T HAT OTHER CONTRACTING STATE AND NOT BY REFERENCE TO THE FULL AMOUNT THEREOF, THEN THE EXEMPTION OR REDUCTION OF TAX TO BE ALLOWED UND ER THIS AGREEMENT IN THE FIRST-MENTIONED CONTRACTING STATE SHALL APPLY TO SO MUCH OF THE INCOME AS IS REMITTED TO OR RECEIVED IN THAT OTHER CO NTRACTING STATE. 2. HOWEVER, THIS LIMITATION DOES NOT APPLY TO INCOME DERIVED BY THE GOVERNMENT OF A CONTRACTING STATE OR ANY PERSON APPR OVED BY THE COMPETENT AUTHORITY OF THAT STATE FOR THE PURPOSE OF THIS PARAGRAPH. THE TERM GOVERNMENT' INCLUDES ITS AGENCIES AND STATUTO RY BODIES. 7 ITA NO.1434/PN/2015 15. IN ORDER TO TAKE THE BENEFIT OF REDUCED RATE OF TAX FOR INTEREST AND ROYALTY AS PER ARTICLES 11 AND 12 OF THE DTAA, THE CO NDITIONS TO BE SATISFIED THAT THE RECIPIENT SHALL BE THE BENEFICIAL O WNER OF INTEREST AND ROYALTY. IN OTHER WORDS, THE RECIPIENT SHOULD HAVE RE CEIVED THE INTEREST AND ROYALTY IN ITS OWN RIGHT. 16. AS PER ARTICLE 12 OF DTAA BETWEEN INDIA AND SING APORE, THE ROYALTIES AND FEES FOR TECHNICAL SERVICES WHICH ARISES IN THE CONTRACTING STATE AND ARE PAID TO RESIDENT OF OTHER CONTRACTING STATE, THEN THE SAME IS TO BE TAXED IN THE OTHER STATES. IT IS FURTHER PRO VIDED BY CLAUSE 12(2) OF DTAA THAT THE SAID ROYALTY AND EVEN FEES FOR TECHN ICAL SERVICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THEY ARISE AND AGREED TO THE LAWS OF CONTRACTING STATE, BUT IF THE RECIPIENT WAS THE BENEFICIAL OWNER OF ROYALTIES OR FEES FOR TECHNICAL SERVICES, THE TAX SO CHARGED, WAS NOT TO EXCEED 10%. FURTHER UNDER ARTICLE 11 OF D TAA, SIMILAR PROVISIONS ARE LAID DOWN IN RESPECT OF INTEREST, EXCEPT RATES OF TAX I.E. IN RESPECT OF LOANS GRANTED BY A BANK OR A FINANCIAL INST ITUTION, IT WOULD BE TAXED @10% OF THE GROSS AMOUNT OF INTEREST AND IN ALL OTHER CASES 15% OF THE GROSS AMOUNT OF INTEREST. UNDER ARTICLE 24 OF D TAA, THE LIMITATION OF RELIEF IS PROVIDED THAT WHERE THE AGRE EMENT PROVIDES THAT THE INCOME FROM SOURCES IN A CONTRACTING STATE, SHALL BE EXEMPT FROM TAX, OR TAXED AT REDUCED RATE IN THAT CONTRACTING S TATE AND UNDER THE LAWS IN FORCE IN THE OTHER CONTRACTING STATE, THE SAI D INCOME IS SUBJECTED TO TAX BY REFERENCE TO THE AMOUNT THERETO WHICH IS REMITTED TO OR RECEIVED IN THE OTHER CONTRACTING STATE AND N OT BY REFERENCE TO THE FULL AMOUNT THEREOF. IT IS FURTHER PROVIDED THAT THE EXEMPTION OR REDUCTION OF TAX TO BE ALLOWED UNDER THIS AGREEMENT IN FIRST MENTIONED CONTRACTING STATE SHALL APPLY TO SO MUCH OF THE INCOM E AS IS REMITTED TO OR RECEIVED IN THE OTHER CONTRACTING STATES. 17. IN ORDER TO ADJUDICATE THIS ISSUE, WE HAVE PERUSED THE AGREEMENT ENTERED INTO BETWEEN IMERYS, UK AND THE ASSESSEE AT SING APORE. AS PER THE RECITALS OF AGREEMENT PLACED AT PAGES 112 TO 118 OF THE PAPER BOOK, THE LICENSOR I.E. UK COMPANY HAD DEVELOPED BODY OF SE CRET, SUBSTANTIAL AND IDENTIFIABLE KNOW-HOW IN CONNECTION WITH DESIGNI NG, BUILDING, OPERATION AND MAINTENANCE OF PLANTS FOR THE MANUFACT URE OF PRODUCTS LISTED IN SCHEDULE A. FURTHER THE LICENSOR WISHED TO D EVELOP SUB- LICENSING MARKET IN THE ASIA PACIFIC REGION FOR THIS K NOW-HOW AND WISHED THE LICENSEE TO ACT AS SUB-LICENSOR IN ORDER TO D EVELOP ITS MARKET. THE LICENSEE ON THE OTHER HAND, WISHED TO OBT AIN THE LICENSE OF KNOW-HOW, NOT TO USE THE KNOW-HOW ITSELF, BUT IN ORDE R TO SUBLICENSE THE KNOW-HOW TO THIRD PARTIES CUSTOMERS, SUBJECT TO TER MS OF THE AGREEMENT. THE LICENSOR THUS, AGREED TO PERMIT THE L ICENSEE TO SUB- LICENSE THE KNOW-HOW ON THE TERMS AND CONDITIONS OF TH IS AGREEMENT. AS PER CLAUSE 2.1, THE LICENSOR GRANTED TO THE LICENSEE A NON-EXCLUSIVE, PERPETUAL, IRREVOCABLE LICENSE, SUBJECT TO TERMS AND C ONDITIONS OF THE AGREEMENT, TO USE THE KNOW-HOW FOR THE PURPOSE OF HAV ING PRODUCTS MANUFACTURED AND SOLD ON ITS BEHALF BY AN AUTHORIZED CONTRACTOR OR BY SUB-LICENSEE IN THE TERRITORY AND OF SELLING THE PRODU CTS BY ITSELF OR ITS AGENTS OR DISTRIBUTORS. THE LICENSE GRANTED BY THE LICE NSOR SPECIFICALLY INCLUDES THE RIGHT TO SUB-LICENSE. BY CLAUSE 4, IT WAS F URTHER PROVIDED THAT THE LICENSEE SHALL NOT EXPLOIT THE KNOW-HOW, BUT SHALL BE ALLOWED TO GRANT SUB-LICENSE OF THE KNOW-HOW TO SUB-LICENSEE. T HEREFORE, IT WAS AGREED THAT AS CONSIDERATION FOR THE KNOW-HOW LICENSE, THE LICENSEE SHALL PAY TO THE LICENSOR A LICENSE FEES EQUAL TO 2% OF THE SALES OF THE PRODUCT REALIZED BY SUBLICENSEE. 8 ITA NO.1434/PN/2015 18. THE ASSESSEE IN LIEU OF THIS LICENSE GRANTED TO IT, ENTERED INTO A ROYALTY AGREEMENT WITH INPL, COPY OF WHICH IS PLACED AT PAGES 51 TO 68 OF THE PAPER BOOK, UNDER WHICH IT WAS AGREED THAT TH E ASSESSEE UNDERTOOK TO PROVIDE TECHNOLOGY AND KNOW-HOW GRANTE D TO THE LICENSEE A NON-EXCLUSIVE, NONTRANSFERABLE, NON-ASSIGNABL E AND REVOCABLE LICENSE TO USE THE TECHNOLOGY AND KNOW-HOW IN THE TERRITORY IN CONNECTION WITH DEVELOPMENT, MANUFACTURE, USE AND SALE OF PRODUCTS. IT WAS AGREED BETWEEN THE PARTIES THAT THE T ECHNOLOGY AND KNOW-HOW LICENSE HEREUNDER SHALL BE USED SOLELY AND EXC LUSIVELY FOR MANUFACTURING THE PRODUCTS AND FOR NO OTHER PURPOSE W HATSOEVER AND SHALL NOT BE SUB-LICENSED BY THE LICENSEE TO ANY OTHER PERSON WITHOUT WRITTEN CONSENT OF THE LICENSOR. IN CONSIDERATION OF T HE GRANT OF LICENSE, IT WAS AGREED THAT ROYALTY EQUIVALENT TO AMOUNT OF 5 % PER ANNUM OF ANNUL NET SALES OF PRODUCTS REALIZED FOR A PARTICULAR YEAR SHALL BE PAID BY THE LICENSEE TO THE LICENSOR. IN ORDER TO PROVIDE THE SERVICES TO INPL, THE ASSESSEE CLAIMS THAT IT HAD PROVIDED SERVICES TO INPL THROUGH ITS EMPLOYEES, WHO HAD ALSO TRAVELLED TO INDIA, AGAINST WH ICH IT HAD RECEIVED ROYALTIES AND THE ASSESSEE WAS THE BENEFICIAL OW NER OF ROYALTY RECEIVED FROM INDIAN COMPANY AND HENCE, WAS ELIGIBLE FOR CONCESSIONAL TAX RATE @10% UNDER ARTICLE 12(2) OF INDIA-SINGAPOR E TAX TREATY. THE COPIES OF INVOICES RAISED BY THE ASSESSEE ALONG WITH DOC UMENTS SUBMITTED WITH AUTHORIZED DEALER FOR REMITTANCE OF R OYALTY AND THE CERTIFICATE ISSUED BY THE AUDITOR FOR THE PAYMENT OF ROYALTY UNDER FOREIGN TECHNICAL COLLABORATION AND ALSO THE EXTRACT S OF SINGAPORE TAX RETURN FOR 2009 ARE PLACED AT PAGES 72 TO 92 OF THE PAPER BOOK. THE ROYALTY PAYMENTS PAID BY INPL WERE SUBJECTED TO TAX DEDUCTION AT SOURCE AND THE ASSESSEE CLAIMED THE BENEFIT OF TDS AGAIN ST THE ROYALTY PAYMENT OF RS.48,88,234/-. IN THE TOTALITY OF THE AB OVE SAID FACTS AND CIRCUMSTANCES, WE HOLD THAT THE ASSESSEE WAS THE BENEFICIA L OWNER OF ROYALTY IN LINE WITH THE PROVISIONS OF ARTICLE 12 OF DTAA AND THE SAME WAS TO BE TAXED @10%. WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE AUTHORITY FOR ADVANCE RULINGS, NEW DELHI IN P.NO .13 OF 1995, IN RE (SUPRA), WHEREIN IT WAS HELD THAT THOUGH APPLICANT W OULD BE ACQUIRING EXPERTISE AND TECHNICAL KNOW-HOW FROM THIRD PARTIES F OR WHICH IT WAS TO PAY ROYALTIES AND TECHNICAL FEES, WOULD BE BELONGI NG TO APPLICANT. THE ASSESSEE HAD EARNED ROYALTY INCOME FROM OTHER COUNT RIES ALSO. FURTHER, SIMILAR RATIO HAS BEEN LAID DOWN BY PUNE BEN CH OF TRIBUNAL IN SHAAN MARINE SERVICES PVT. LTD. VS. DY. DIRECTOR OF I NCOME TAX (SUPRA). 19. ANOTHER ASPECT OF THE ISSUE IS THAT THE BENEFITS AV AILABLE UNDER THE TREATY SHOULD BE GRANTED TO THE ASSESSEE BASED ON VALID T RC WAS THE PROPOSITION APPROVED BY THE HONBLE SUPREME COURT IN UNION OF INDIA VS. AZADI BACHAO ANDOLAN (SUPRA) AND FURTHER THE HON BLE PUNJAB & HARYANA HIGH COURT IN SERCO BPO PVT. LTD. VS. AAR IN CIVIL WRIT PETITION NO.11037 OF 2014 (O&M), JUDGMENT DATED 26.08.2015, WHERE THE ASSESSEE BEFORE US IS TAX RESIDENT OF SINGAPORE AND THE SI NGAPORE TAX RESIDENCY CERTIFICATE OF THE ASSESSEE FOR 2010 IS AVAILAB LE AT PAGE 93 OF PAPER BOOK AND THE BENEFIT OF TREATY IS ALSO AVAILABL E TO THE ASSESSEE ON THIS GROUND. 20. FURTHER, WITH REGARD TO INTEREST INCOME RECEIVED BY THE ASSESSEE, SINCE THE AMOUNT WAS ADVANCED BY THE ASSESSEE AS ECB LOAN TO IMPL, THE INTEREST INCOME RECEIVED BY THE ASSESSEE BEING THE BENEFICIAL OWNER OF IT, IS TAXABLE IN ITS HANDS @15% AS PER ARTICL E 11 OF DTAA. THE CASE OF AUTHORITIES BELOW WAS THAT THE ASSESSEE WOULD NOT BE ENTITLED TO THE BENEFIT OF CLAUSES UNDER DTAA BETWEEN INDIA AND SINGAPORE SINCE IT HAD NOT REMITTED THE SAID INCOME T O SINGAPORE 9 ITA NO.1434/PN/2015 WITHIN FISCAL YEAR I.E. FINANCIAL YEAR 2009-10. IN T HIS REGARD, THE FIRST PLEA RAISED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER WA S THAT THE TAX DEPARTMENT HAS ACCEPTED THE CONCESSIONAL TAX RATE IN THE CASE OF ASSESSMENT YEARS 2006-07, 2008-09 & 2009-10 AND HENCE TH E SAME POSITION SHOULD BE ADOPTED FOR ASSESSMENT YEAR 2010-11. T HE ASSESSING OFFICER REJECTED THE SAID PLEA OF THE ASSESSEE SIN CE THE RETURNS FOR ALL THOSE YEARS WERE PROCESSED UNDER SECTION 143(1) OF THE ACT. HOWEVER, WHERE THE ASSESSEE WAS THE BENEFICIAL RECI PIENT OF THE INTEREST INCOME, THE SAME IS TO BE TAXED @ 15% AS PER T HE DTAA 21. THE NEXT PLEA OF THE ASSESSEE BEFORE THE AUTHORITIE S BELOW WAS THAT THE LIMITATION OF RELIEF PROVIDED IN ARTICLE 24 OF DTAA WOULD ARISE IN CASE WHERE THE INCOME IS SO MUCH OF INCOME AS IS REMITTE D TO OR RECEIVED IN THE OTHER CONTRACTING STATE. IN OTHER W ORDS, THE BENEFIT OF DTAA PROVISIONS IS RESTRICTED TO THE AMOUNT OF INCOME WHICH IS THE SUBJECT MATTER OF TAXATION IN THE OTHER CONTRACTING STATE. IN A SITUATION, WHERE THE NON-RESIDENT COMPANY CLAIMS TREATY PROTECTI ON, THEN THE SAME SHOULD REMAIN CONFINED TO THE AMOUNT WHICH IS ACT UALLY SUBJECTED TO TAX IN THE SOURCE COUNTRY. THE ABOVE SAID PROVISION IS PROVIDED TO AVOID SITUATION, UNDER WHICH INCOME WHIC H IS NOT SUBJECT TO TAX IN THE RESIDENCE JURISDICTION, WILL BE AVAILAB LE FOR TREATY PROTECTION IN THE OTHER CONTRACTING STATES. 22. IN THE FACTS OF THE PRESENT CASE BEFORE US, IT IS N OT THE CASE OF REVENUE THAT THE AMOUNT HAS NOT BEEN REMITTED TO SIN GAPORE, BUT THE BENEFIT OF TAX TREATY HAVE BEEN DENIED TO THE ASSESSEE SINCE THE SAID AMOUNT HAS NOT BEEN REMITTED IN THE CURRENT FISCAL YE AR I.E. FINANCIAL YEAR 2009-10. WHERE THE AMOUNT HAS BEEN REMITTED TO SINGAPORE AND HAS BEEN SUBJECT TO THE TAX, WE FIND NO MERIT IN THE ORDERS OF ASSESSING OFFICER / DRP IN DENYING THE BENEFIT OF TREATY PROV ISIONS TO THE ASSESSEE IN TAXING THE INCOME AT LOWER RATES. IN THIS REG ARD, WE FIND SUPPORT FROM THE RATIO LAID DOWN BY RAJKOT BENCH OF TRIBUNAL IN ALABRA SHIPPING PTE LTD., SINGAPORE VS. ITO IN ITA NO.392/R JT/2014, RELATING TO ASSESSMENT YEAR 2011-12, ORDER DATED 09.10.2014. ACC ORDINGLY, WE HOLD THAT WHERE THE ASSESSEE WHO HAD ENTERED INTO AN A GREEMENT WITH ITS PRINCIPAL IN UK AND RECEIVED THE KNOW-HOW, WHICH IN TURN, IT COULD SUB-LICENSE AND HAD IN FURTHERANCE PROVIDED SERVICES TO ITS SUB- LICENSEE AND RECEIVED SUB-LICENSEE FEES FROM SUB-LICENSEE I.E. INPL, THEN SUCH ROYALTY INCOME HAVING BEEN RECEIVED BY THE ASSESSEE NON- RESIDENT COMPANY ON ITS OWN RIGHT AS THE BENEFICIAL OW NER OF THE SAME, SUCH ROYALTY INCOME IS TO BE SUBJECT TO TAX AT CONCESSIO NAL TAX RATE AT 10%. SIMILARLY, THE INTEREST INCOME EARNED BY THE ASSE SSEE WAS ALSO RECEIVED BY IT BEING ITS BENEFICIAL OWNER AND WHICH IN TURN, HAS BEEN REMITTED THOUGH NOT IN THE INSTANT YEAR, IS TAXABLE A T CONCESSIONAL RATE OF TAXES. ACCORDINGLY, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED. 12. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRARY MA TERIAL BROUGHT TO MY NOTICE, I SET ASIDE THE ORDER OF THE CIT(A ) AND ALLOW THE GROUNDS RAISED BY THE ASSESSEE. 10 ITA NO.1434/PN/2015 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22-07-2016. SD/- ( R.K. PANDA ) ACCOUNTANT MEMBER PUNE ; DATED : 22 ND JULY, 2016. '# $# / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // TRUE COPY // // $ % //TRUE &' % * / SR. PRIVATE SECRETARY *, / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT (A) - 13, PUNE 4. 5. 6. THE CIT-IT/TP, PUNE $ %%*, *, SMC BENCH / DR, ITAT, SMC BENCH PUNE; 2 / GUARD FILE.