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

ITA 233/PUN/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1955 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-11-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 07-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Residential status; Double taxation relief; Permanent establishment; Advance ruling; Initiation of penalty proceedings; Wholly owned subsidiary; Competent authority
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA , AM . / ITA NO. 2 33 /PN/201 4 / ASSESSMENT YEAR : 20 1 0 - 11 IMERYS ASIA PACIFIC PVT. LTD., C/O IMERYS NEWQUEST (INDIA) PVT. LTD., UNIT 403, SAI CAPITAL, SENAPATI BAPAT ROAD, PUNE 411016 . / APPELLANT PAN: AA BCI2170F VS . THE DY. DIRECTOR OF INCOME - TAX (INTERNATIONAL TAXATION) - I, PUNE . / RESPONDENT / APPELLANT BY : SHRI RAJENDRA AGIWAL / RESPONDENT BY : S MT. DIVYA BAJPA YEE / RESPONDENT BY : S MT. DIVYA BAJPA YEE / DATE OF HEARING : 16 . 02 .201 6 / DATE OF PRONOUNCEMENT: 15 . 0 4 .201 6 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF DY. DIT(INTERNATIONAL TAXATION - I ) , PUNE , DATED 2 1 . 1 1 .20 1 3 RELATING TO ASSESSMENT YEAR 20 1 0 - 11 PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - ITA NO. 2 33 /PN/20 1 4 IMERYS ASIA PACIFIC PVT. LTD. 2 1. NON GRANTING OF BENEFITS UNDER THE INDIA SINGAPORE TAX TREATY (TREATY) TO THE APPELLANT O N THE BASIS THAT IT IS NOT THE BENEFICIAL OWNER OF THE INCOME RECEIVED FROM ROYALTY AND INTEREST THE LEARNED AO BASED ON DIRECTIONS OF THE HONBLE DRP, HAS ERRED IN DENYING TREATY RELIEF TO THE APPELLANT ON THE INCORRECT BASIS THAT THE APPELLANT IS NOT TH E BENEFICIAL OWNER OF THE ROYALTY INCOME OF RS.48,88, 234 AND INTEREST INCOME OF RS.20,73,846 EARNED FROM IMERYS NEWQUEST (INDIA) PRIVATE LIMITED AND IMERYS MINERALS (INDIA) PRIVATE LIMITED RESPECTIVELY; 2. NON APPLICABILITY OF ARTICLE 24 LIMITATION OF R ELIEF OF THE TREATY TO THE ROYALTY AND INTEREST INCOME OF THE APPELLANT THE LEARNED AO BASED ON DIRECTIONS OF THE HONBLE DRP HAS ERRED IN APPLYING THE PROVISIONS OF ARTICLE 24 LIMITATION OF RELIEF OF THE TREATY AND IN DENYING THE APPLICATION OF CONCES SIONAL RATE OF TAX AS PER THE TREATY TO THE ROYALTY AND INTEREST INCOME EARNED BY THE APPELLANT; 3. INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT OF THE ACT THE LEARNED AO BASED ON DIRECTIONS OF THE HONBLE DRP HAS ERRED IN INITIA TING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 3. THE ISSUE ARISING IN THE PRESENT APPEAL IS AGAINST THE RATE OF TAX TO BE APPLIED I.E. IN THE FACTS OF THE CASE WHETHER THE BENEFITS UNDER INDIA SINGAPORE TAX TREATY ARE TO BE ALLOWED OR TH E INCOME IS TO BE ASSESSED UNDER SECTION 115A OF THE ACT. 4. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS A COMPANY INCORPORATED IN SINGAPORE AND WAS TAX RESIDENT OF SINGAPORE AS PER INDIA - SINGAPORE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) . THE ASSESSEE COMPANY WAS 100% SUBSIDIARY OF THE FRENCH COMPANY MIRCALS SA FRANCE AND IMERYS SA, FRANCE WAS ITS ULTIMATE HOLDING COMPANY. THE PRINCIPAL ACTIVITIES OF THE ASSESSEE WERE RELAT ED TO ACTIVITIES OF ACTING AS A HEADQUARTERS FOR ASIA - PACIFIC REGION, RENDERING ADMINISTRATIVE, MARKETING AND SALES SERVICES TO THE GROUP AND AFFILIATED COMPANIES, TRADING IN PAPER AND PERFORMANCE MINERALS AND OTHER RELATED BUSINESS AC TIVITIES INCLUDING PROJECT WORK. FOR THE ITA NO. 2 33 /PN/20 1 4 IMERYS ASIA PACIFIC PVT. LTD. 3 YEAR UNDER CONSIDERATION , THE ASSESSEE HAD FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 69,62,080/ - . THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD OFFERED FOLLOWING RECEIPTS FOR TAX IN INDIA: - NAME OF THE ENTITY NATURE OF TRANSACTION AMOUNT (RS.) RATE OF TAX APPLIED AS PER DTAA IMERYS NEW QUEST (INDIA) PVT. LTD ROYALTY 48,88,234 10% IMERYS MINERALS (INDIA) PVT. LTD. INTEREST 20,73,846 15% TO T AL 69,62,080 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO SUBMIT THE PROOF THAT IT WAS THE BENEFICIAL OWNER OF INTER EST AND ROYALTY AND THE SAID INCOME WAS REMITTED TO OR RECEIVED BY THE ASSESSEE IN SINGAPORE AND OFFERED AS INCOME IN SINGAPORE. THE ASSESSEE WAS ALSO SHOW CAUSED THAT IN THE ABSENCE OF INFORMATION, THE BENEFIT UNDER DTAA BETWEEN INDIA AND SINGAPORE WOULD NOT BE ALLOWED. THE ASSESSING OFFICER FURTHER ON THE BASIS OF RECORDS AVAILABLE NOTED THAT THE BENEFICIAL OWNER OF ROYALTY WAS NOT THE RECORDS AVAILABLE NOTED THAT THE BENEFICIAL OWNER OF ROYALTY WAS NOT THE ASSESSEE, BUT WAS IMERYS MINERALS LTD., UK. THE ASSESSEE S CLAIM THAT KNOW - HOW AGREEMENT BETWEEN IMERYS MINERALS LTD., UK AND IMERYS SINGAPORE WAS ON PRINCIPAL TO PRINCIPAL BASIS AND THE ASSESSEE WAS NOT AN AGENT OF IMERYS MINERALS LTD., UK , COULD NOT BE SUPPORTED WITH DOCUMENTARY EVIDENCE. THE ASSESSING OFFICER FURTHER NOTED THAT THE AUDITED FINANCIALS OF THE ASSESSEE W ERE PRODUCED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. FROM THE RECORDS, IT WAS FURTHER NOTED BY THE ASSESSING OFFICER THAT KNOW - HOW WAS ACTUALLY TRANSFERRED TO THE INDIAN ENTITY BY IMERYS MINERALS LTD. UK AND THE ASSESSEE WAS ONLY ACTING AS AN AGENT F OR TAKING THE BENEFIT OF LOWER RATE AS PER THE TAX TREATY. THE ASSESSING OFFICER ALSO QUESTIONED WHETHER THE ASSESSEE WAS WELL EQUIPPED WITH THE EXPERTISE OR PERSONNEL TO TRANSFER THE KNOW - HOW. THE ASSESSING OFFICER THUS, HELD THAT THE ASSESSEE WAS NOT T HE BENEFICIAL OWNER OF ITA NO. 2 33 /PN/20 1 4 IMERYS ASIA PACIFIC PVT. LTD. 4 THE ROYALTY AND INTEREST IN THE ABSENCE OF DOCUMENTARY EVIDENCE HAVING NOT BEEN PRODUCED BY THE ASSESSEE. BASED ON THE SUBMISSIONS FILED BY THE ASSESSEE, THE ASSESSING OFFICER PROPOSED DRAFT ASSESSMENT ORDER UNDER SECTION 144C R.W.S . 143(3) OF THE ACT, WHEREIN THE ASSESSEES TOTAL INCOME WAS COMPUTED AT RS. 69,62,080/ - , WHICH WAS SAME AS THE RETURN OF INCOME. HOWEVER, IN VIEW OF THE FACT THAT THE ASSESSEE WAS NOT BENEFICIAL OWNER OF INTEREST AND ROYALTY, THE ASSESSEES CLAIM FOR LOWE R RATE OF TAX FOR INTEREST AND ROYALTY AS PER DTAA WAS REJECTED AND THE INCOME WAS TAXED @ 20% AS PER SECTIONS 115A(1)(A) (B) AND 115A(1)( B )(B) OF THE ACT, RESPECTIVELY PLUS SURCHARGE AND EDUCATION CESS. THE ASSESSEE FILED OBJECTIONS AGAINST THE DRAFT ASSE SSMENT ORDER BEFORE THE DISPUTE RESOLUTION PANEL (DRP) , PUNE. AFTER HEARING THE SAME, THE DRP REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE COMPANY. WHILE DISPOSING THE OBJECTIONS, THE DRP CONFIRMED THE DECISION OF ASSESSING OFFICER THAT THE ASSESSEE WA S NOT THE BENEFICIAL OWNER OF INTEREST AND ROYALTY INCOME, ALSO THE BENEFITS OF INDIA - SINGAPORE DTAA TO THE ASSESSEE WERE DENIED. IN VIEW THEREOF, THE ASSESSING OFFICER PASSED AN ORDER UNDER SECTION 143(3) R.W.S. 144C(13) OF THE ACT HOLDING THAT SINCE THE ASSESSEE WAS NOT BENEFICIAL OWNER OF ROYALTY AND INTEREST INCOME FROM INDIA AND ALSO DOES NOT SATISFY THE PROVISIONS OF ARTICLE 24 OF DTAA , T HE ASSESSEE WAS NOT ELIGIBLE TO CLAIM THE LOWER RATE OF TAXES FOR INTEREST AND ROYALTY AS PER DTAA . T HEREFORE, IN TEREST OF RS.20,73,846/ - AND ROYALTY OF RS. 48,88,234/ - WAS PROPOSED TO BE TAXED @20% AS PER SECTIONS 115A(1)(A)(B) AND 115A(1)(B)(B) OF THE ACT, RESPECTIVELY PLUS SURCHARGE AND EDUCATION CESS . 6. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF ASSESSING OFFICER. ITA NO. 2 33 /PN/20 1 4 IMERYS ASIA PACIFIC PVT. LTD. 5 7. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT THE QUANTUM OF RECEIPTS OF INTEREST AND ROYALTY WERE NOT IN DISPUTE. HE FURTHER STATED THAT THE ASSESSEE WAS RESIDENT OF SINGAPORE AND WAS NON - RESIDENT IN I NDIA. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD RECEIVED BOTH INTEREST AND ROYALTY FROM INDIAN COMPAN IES AND THE ROYALTY INCOME WAS OFFERED TO TAX @10% AND THE INTEREST INCOME WAS OFFERED TO TAX @15%. HOWEVER, THE ASSESSING OFFICER DENIED THE BEN EFIT OF LOWER RATE OF TAXES HOLDING THAT THE PROVISIONS OF DTAA BETWEEN INDIA - SINGAPORE WERE NOT AVAILABLE TO THE ASSESSEE AND TAXED THE INTEREST AND ROYALTY @20% UNDER THE PROVISIONS OF SECTION 115A OF THE ACT. THE LEARNED AUTHORIZED REPRESENTATIVE FOR T HE ASSESSEE POINTED OUT THAT THE ISSUE VIDE GROUND OF APPEAL NO.1 WAS AGAINST OBSERVATION OF ASSESSING OFFICER THAT THE ASSESSEE WAS NOT THE BENEFICIAL OWNER OF INTEREST AND ROYALTY INCOME AND HENCE, THE PROVISIONS OF DTAA WERE NOT APPLICABLE. OUR ATTENTI ON WAS DRAWN TO THE ASSESSMENT ORDER, WHEREIN THE ASSESSING OFFICER HAS MENTIONED THAT THE ASSESSEE WAS ENGAGED IN CARRYING ON VARIOUS ACTIVITIES, WHICH WAS THE INDICATOR OF THE FACT THAT THE ASSESSEE WAS OPERATIONAL COMPANY. HE FURTHER REFERRED TO PARA 5 OF THE ASSESSMENT ORDER AND POINTED OUT THAT THERE WAS EXISTENCE OF AN AGREEMENT BETWEEN UK COMPANY AND SINGAPORE COMPANY WHICH WAS BETWEEN PRINCIPAL TO PRINCIPAL FOR USE OF TECHNICAL KNOW - HOW. THE SINGAPORE ENTITY I.E. THE ASSESSEE FURTHER ENTERS INTO A GREEMENT WITH THE INDIAN ENTITY FOR SUB - LICENSING TEC HNICAL KNOW - HOW, AGAINST WHICH IT HAD RECEIVED ROYALTY. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE STRESSED THAT THERE WAS NO MERIT IN THE OBSERVATIONS OF ASSESSING OFFICER THAT THE SINGAPOR E COMPANY WAS CONDUIT . WITH REGARD TO INTEREST INCOME, IT WAS POINTED OUT THAT SINGAPORE ENTITY HAD G IVEN LOAN TO INDIAN ENTITY, AGAINST WHICH IT HAD RECEIVED INTEREST AND WAS THE DIRECT BENEFICIARY OF THE SAID INTEREST. THE LEARNED AUTHORIZED REPRESENTA TIVE ITA NO. 2 33 /PN/20 1 4 IMERYS ASIA PACIFIC PVT. LTD. 6 FOR THE ASSESSEE REFERRED TO ARTICLE 11 OF DTAA BETWEEN INDIA AND SINGAPORE AND POINTED OUT THAT IF THE BENEFICIAL OWNER WAS NON - RESIDENT OF INDIA, THEN 15% OF GROSS AMOUNT OF INTEREST WAS TO BE CHARGED. AS PER ARTICLE 12 OF DTAA, ROYALTY RECEIPTS WE RE TO BE CHARGED @10%. THE FIRST ISSUE TO BE DECIDED IN THE PRESENT APPEAL VIDE GROUND OF APPEAL NO.1 WAS THE QUESTION OF BENEFICIAL OWNER, WHETHER THE SAME WAS TH E UK COMPANY OR SINGAPORE COMPANY. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE P OINTED OUT THAT THE ISSUE AS GROUND OF APPEAL NO.2, THE ASSESSING OFFICER HAD ERRED IN APPLYING THE PROVISIONS OF ARTICLE 24 I.E. LIMITATION OF RELIEF OF TREATY AND IN DENYING THE APPLICATION OF CONCESSIONAL RATE OF TAX AS PER TREATY TO THE ROYALTY AND INT EREST INCOME EARNED BY THE ASSESSEE. THE FIRST OBJECTION RAISED BY THE ASSESSING OFFICER WAS THAT THE SAID AMOUNT WAS NOT REMITTED IN THIS YEAR. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT EVEN IF THE ASSESSEE SUCCEEDS ON BENE FICIAL OWNER, SINCE THE AMOUNT WAS NOT REMITTED IN THIS YEAR, THE QUESTION WAS WHETHER ARTICLE 24 OF DTAA APPLIES. FIRST OF ALL, IT WAS POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THERE WAS NO CONDITION IN THE TREATY THAT TH E INCOME HAS TO BE REMITTED IN THE SAME FISCAL YEAR AND IF THE INCOME IS OFFERED ON ACCRUAL BA S IS IN SINGAPORE, THE SAME WOULD BE TAXED IN TWO PLACES. IN THIS REGARD, HE FURTHER SUBMITTED THAT THE PURPOSE OF TREATY WOULD NOT BE SERVED AND THE PROVISIONS O F TREATY WERE TO BE INTERPRETED LIBERALLY. OUR ATTENTION WAS DRAWN TO THE FINANCIALS OF ASSESSEE COMPANY AND THAT IT WAS REGISTERED IN SINGAPORE AS PER DOCUMENTS PLACED AT PAGE 4 OF THE PAPER BOOK. FURTHER, OUR ATTENTION WAS DRAWN TO THE PAGES 12 AND 13 OF THE PAPER BOOK, UNDER WHICH, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT LOOKING INTO THE QUANTUM OF ASSETS AND LIABILITIES OWNED BY SINGAPORE COMPANY, IT COULD NOT BE SAID THAT THE COMPANY WAS CONDUIT . OUR ATTENTION WAS ALS O DRAWN TO THE REVENUE GENERATED BY THE ITA NO. 2 33 /PN/20 1 4 IMERYS ASIA PACIFIC PVT. LTD. 7 ASSESSEE DURING THE YEAR. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER REFERRED TO THE AGREEMENT PLACED AT PAGES 54 ONWARDS AND REFERRED TO THE VARIOUS TERMS OF AGREEMENT AND FURTHER REFERRED TO TH E INVOICES RAISED FOR CHARGING ROYALTY PLACED AT PAGES 72 AND 73 OF THE PAPER BOOK AND THE REMITTANCE OF ROYALTY IN THE SUBSEQUENT YEAR AS E VIDENCED BY THE DOCUMENTS PLACED AT PAGES 74 AND 75 OF THE PAPER BOOK. THE LEARNED AUTHORIZED REPRESENTATIVE FOR TH E ASSESSEE ALSO REFERRED TO THE CERTIFICATE OF RESIDENCY GIVEN BY THE SINGAPORE AUTHORITIES, WHICH IS PLACED AT PAGE 93 OF THE PAPER BOOK. OUR ATTENTION WAS ALSO DRAWN TO THE AGREEMENT BETWEEN UK COMPANY AND SINGAPORE COMPANY PLACED AT PAGE 113 OF THE PAP ER BOOK ALONG WITH DETAILS OF EMPLOYEES WHO WERE TRANSFERRED TO INDIA, PLACED AT PAGE 122 OF PAPER BOOK AND DETAILS OF ROYALTY RECEIVED FROM OTHER ENTITIES PLACED AT PAGE 123 OF THE PAPER BOOK. FURTHER, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE REFERRED TO THE AGREEMENT TO EARN INTEREST AT PAGES 131 TO 134 OF THE PAPER BOOK ALONG WITH LIST OF LOANS TAKEN AND GRANTED AT PAGE 176 OF THE PAPER BOOK. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE STRESSED THAT THE INVESTMENT WAS OUT OF AM OUNTS OF SINGAPORE ENTITY AND IT COULD NOT BE SAID THAT THE ASSESSEE CONCERN WAS CONDUIT COMPANY. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE RATIO LAID DOWN BY PUNE BENCH OF TRIBUNAL IN SHAAN MARINE SERVICES PVT. LTD. VS. DY. D IRECTOR OF INCOME TAX (2014) 165 TTJ 952 (PUNE) AS TO WHAT IS CONDUIT COMPANY. FURTHER RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN UNION OF INDIA VS. AZADI BACHAO ANDOLAN (2003) 263 ITR 706 (SC) AND IT WAS POINTED OUT THAT B EFORE THE APEX COURT, THE VALIDITY OF CIRCULAR WAS CHALLENGED, WHICH CIRCULAR IN TURN, STATED THAT THE CERTIFICATE OF RESIDENCY WOULD CONSTITUTE SUFFICIENT EVIDENCE OF STATUS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUMMED UP IN SAYING THAT ROYALTY INCOME WAS OFFERED ON ACCRUAL ITA NO. 2 33 /PN/20 1 4 IMERYS ASIA PACIFIC PVT. LTD. 8 BASIS IN SINGAPORE, HENCE, THE ASSESSEE WAS ENTITLED TO THE TREATY BENEFIT AND THE PROVISIONS OF ARTICLE 24 OF DTAA WERE NOT APPLICABLE. WITH REGARD TO INTEREST INCOME, IT WAS POINTED OUT BY HIM THAT THE SAME WAS OFF ERED ON RECEIPT BASIS AND THERE WAS NO DISPUTE THAT IT WAS NOT TAXED IN SINGAPORE. FURTHER, IT WAS POINTED OUT BY HIM THAT THERE WAS NO CONDITION UNDER THE ACT THAT THE SAME SHOULD BE REMITTED IN THE FISCAL YEAR. 8. THE LEARNED DEPARTMENTAL REPRESENTATIV E FOR THE REVENUE IN REPLY, STATED THAT THE ISSUE IS TO BE DECIDED WHETHER THE ASSESSEE WAS BENEFICIAL OWNER OR NOT. OUR ATTENTION WAS DRAWN TO THE OBSERVATIONS OF DRP IN PARA 2.1.10 AT PAGE 6 OF THE DRPS ORDER. HE FURTHER POINTED OUT THAT THE REVENUE H AD CHALLENGED WHETHER THE ASSESSEE HAD PASSED ON THE ROYALTY AND INTEREST TO THE UK COMPANY, WHERE UK COMPANY DEVELOPS THE KNOW - HOW AND LICENSE WAS GIVEN TO THE SINGAPORE ENTITY, SO SINGAPORE ENTITY WAS LICENSEE OF THE UK COMPANY. HE FURTHER STATED THAT T HE PROVISIONS OF ARTICLE 24 OF DTAA WERE ATTRACTED. 9. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY POINTED OUT THAT IT WAS THE SUB - LICENSEE CONTRACT ENTERED INTO BETWEEN THE ASSESSEE AND INDIA ENTITIES. HOWEVER, THE QUESTION TO BE SEEN WAS WHETHER THE ASSESSEE WAS RECEIVING THE INCOME OF ITS OWN RIGHT. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE RATIO LAID DOWN BY AUTHORITY FOR ADVANCE RULINGS, NEW DELHI REPORTED (1997) 94 TAXMAN 171 (AAR - NEW DELHI) . 1 0. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE BEFORE US IS A COMPANY INCORPORATED IN SINGAPORE AND IS TAX RESIDENT ITA NO. 2 33 /PN/20 1 4 IMERYS ASIA PACIFIC PVT. LTD. 9 OF SINGAPORE. THE ASSESSEE WAS 100% SUBSIDIARY OF THE FRENCH COMPANY MIRCALS SA FRANCE AND IMERYS SA, FRANC E WAS ITS ULTIMATE HOLDING COMPANY. THE ASSESSEE WAS ENGAGED IN VARIOUS ACTIVITIES OF MARKETING AND SALES SERVICES TO THE GROUP AND AFFILIATED COMPANIES , I N ADDITION TO THE TRADING OF PAPER AND PERFORMANCE MINERALS AND OTHER RELATED BUSINESS ACTIVITIES IN CLUDING PROJECT WORK . THE ASSESSEE ENTERED INTO A TECHNOLOGY LICENSE AGREEMENT WITH IMERYS NEWQUEST (INDIA) PVT. LTD. (I N PL) , WHICH IN TURN, MAKES ROYALTY PAYMENT TO THE ASSESSEE. UNDER THE TECHNOLOGY AGREEMENT , NON - EXCLUSIVE , NON - TRANSFERABLE, NON - ASSIG NABLE AND REVOCABLE LICENSE WAS GRANTED TO I N PL TO USE THE TECHNOLOGY AND KNOW - HOW IN CONNECTION WITH DEVELOPMENT, MANUFACTURE, USE AND SALE OF CALCIUM CARBONATE AND CALCIUM CARBONATE PRODUCTS IN GEOGRAPHICAL TERRITORY OF INDIA. I N PL WAS TO PAY ROYALTY EQ UIVALENT 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 PAPER BOOK. FURTHER, I M PL HAD OBTAINED ECB LOANS FROM THE ASSESSEE FOR PURCHASE OF CAPITAL GO ODS SINCE IT WAS IN THE PROCESS OF SETTING UP OF PLANTS AT BADHRACHAL AM, NEAR HYDERABAD AND AMRITSAR, PUNJAB. THE INTEREST ON THE LOANS OBTAINED WAS THREE MONTHS SIBOR + MARGIN OF 0.5% PER ANNUM. THE INTEREST ACC RUED 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 RECORD THE TAX RESIDENCY CERTIFICATE FROM ITS HEAD OFFICE IN SIN GAPORE. THE ASSESSEE CLAIMS THAT IT HAS NO PERMANENT ESTABLISHMENT / PE IN INDIA. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD RECEIVED ROYALTY 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 WAS TO BE APPLIED AS PER DTAA BETWEEN INDIA AND SINGAPORE. ITA NO. 2 33 /PN/20 1 4 IMERYS ASIA PACIFIC PVT. LTD. 10 11. THE FACTUAL ASPECT OF THE ROYALTY PAYMENT WAS THAT THE ASSESSEE HAD RAISED INVOICES RELATING TO ROYALTY FOR THE PERIOD JANUARY, 2005 TO DECEMBER, 2009 ON 19.10.2 010 AND FOR THE PERIOD JANUARY 2010 TO SEPTEMBER, 2010 ON 11.10.2010 . INPL HAD REMITTED THE AMOUNT OF ROYALTY FOR THE PERIOD JANUARY, 2005 TO DECEMBER, 2009 ON 14.07.2010 AND FOR THE PERIOD JANUARY, 2010 TO SEPTEMBER, 2010 ON 06.12.2010. SINCE THE ASSESS EE HAD NOT RECEIVED INCOME IN SINGAPORE FROM INDIA DURING THE FINANCIAL YEAR 2009 - 10, THE ASSESSING OFFICER SHOW CAUSED THE ASSESSEE AS TO THE APPLICABILITY OF ARTICLE 24 OF DTAA I.E. LIMITATION OF RELIEF CLAUSE IN DTAA BETWEEN INDIA AND SINGAPORE . THE EX PLANATION OF THE ASSESSEE WAS THAT IT HAD OFFERED INCOME ON ACCRUAL BASIS AND HENCE, HAD APPLIED REDUCED RATE FOR ROYALTY AND INTEREST INCOME AS PER DTAA I.E. 10% FOR ROYALTY AND 15% FOR INTEREST. IT WAS 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 TO OR RECEIVED IN OTHER CONTRACTING STATE IN THE RELEVANT FISCAL YEAR. IN THE ABSENCE OF THESE WORDS, THE ASSESSEE CONTENDED THAT THIS COULD NOT BE READ INTO ARTICLE 2 4(1) OF DTAA . WHERE THE ROYALTY AND INTEREST INCOME FOR FINANCIAL YEAR 2009 - 10 HAD BEEN REMITTED IN FINANCIAL YEAR 2010 - 11 , THE REQUIREMENT OF ARTICLE 24(1) OF DTAA AS PER THE ASSESSEE COUL D BE CONSIDERED TO HAVE SATISFIED AND THE CONCESSIONAL TAX RATE IN INDIA SHOULD NOT BE DENIED BY APPLICATION OF LIMITATION OF RELIEF PROVISIONS. 12. THE KNOW - HOW LICENSE AGREEMENT WAS ENTERED INTO BETWEEN IMERYS MINERALS LTD., UK AND THE ASSESSEE . UNDER THIS AGREEMENT, IMERYS SINGAPORE COULD SUB - LICENSE THE KNOW - HOW TO OTHER IMERYS GROUP COMPANIES I.E. SUB - LICENSEES AND RECEIVE ROYALTY INCOME FROM THE SAID LICENSEES. AS PER THE AGREEMENT, IMERYS, SINGAPORE I.E. THE ASSESSEE WAS LIABLE TO PAY ROYALTY @2% ITA NO. 2 33 /PN/20 1 4 IMERYS ASIA PACIFIC PVT. LTD. 11 OF THE NET SALES OF SUB - LICENSEE TO IMERYS MINERALS LTD., UK. O N THE OTHER HAND, THE ASSESSEE RECEIVED ROYALTY INCOME FROM SUB - LICENSEE @5% ON NET SALES OF SUB - LICENSEE. IN THIS REGARD, THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH I N PL AND FOR THE YEAR UNDER CONSIDERATION HAD RECEIVED RS.48,88,234/ - AS ROYALTY. T HE 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 RIGHT AND ON ITS OWN ACCOUNT AND HENCE, WAS THE BENEFICIAL OWNER OF ENTIRE ROYALTY INCOME RECEIVED FROM INPL UNDER ARTICLE 12(2) OF DTAA. 1 3 . THE FIRST CONDITION, IN ORDER TO BE ELIGIBLE TO T HE PROVISIONS OF DTAA BETWEEN INDIA AND SINGAPORE , IS THAT THE ENT ITY SHOULD BE TAX RESIDENT OF SINGAPORE. THE ASSESSEE HAS PLACED ON RECORD THE TAX RESIDENCY CERTIFICATE OF THE COMPANY FROM ITS HEAD OFFICE IN SINGAPORE. FURTHER, THE ASSESSEE DOES NOT HA VE ANY PE IN INDIA. HOWEVER, IN RESPECT OF ROYALTY INCOME AND INTEREST INCOME ACCRUED / RECEIVED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION, IT HAD FURNISHED THE RETURN OF INCOME AND HAD OFFERED THAT IT WAS LIABLE TO PAY TAXES AS PER THE PROVISIONS OF DTAA. ADMITTEDLY, THERE IS NO DISPUTE AS TO THE QUANTUM OF INCOME TO BE ASSESSED IN THE HANDS OF 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. 1 4 . THE RELEVANT ARTICLES FOR TAXABILITY OF INTEREST AND ROYALTY IN INDIA UNDER SINGAPORE TAX TREATY ARE REPRODUCED HEREUNDER FOR REFERENCE: - ITA NO. 2 33 /PN/20 1 4 IMERYS ASIA PACIFIC PVT. LTD. 12 ARTICLE 11: INTEREST 1. INTEREST 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 INTEREST MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH IT ARISES, AND ACCORDING TO THE LAWS OF THAT STATE, BUT IF THE BENEFICIAL OWNER OF THE INTEREST IS A RESIDENT OF THE OTHER CO NTRACTING 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 (INCLUDING AN INSURAN CE COMPANY) ; ( B ) 15 PERCENT OF THE GROSS AMOUNT OF THE INTEREST IN ALL OTHER CASES. 3... 4.. 5.. 6.. ARTICLE 12 : ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. ROYALTIES AND FEES FOR TECHNICAL SERVICES ARISING IN A CONTRACTING STATE AND PAID TO A RESID ENT OF THE OTHER CONTRACTING STATE MAY BE TAXED IN THAT OTHER STATE. 2. HOWEVER, 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 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 AGREEMENT PROVIDES ARTICLE 24 : LIMITATION OF RELIEF 1. WHERE THIS AGREEMENT PROVIDES (WITH OR WITHOUT OTHER CONDITIONS) THAT INCOME 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 THAT OTHER CONTRACTING STATE AND NOT BY REFERENCE TO THE FULL AMOUNT THEREOF, THEN THE EXEMPTION OR REDUCTION OF TAX TO BE ALLOWED UNDER THIS AGREEMENT IN THE FIRST - MENTIONED CONTRACTING STATE SHALL APPLY TO SO MUCH OF THE INCOME AS IS R EMITTED TO OR RECEIVED IN THAT OTHER CONTRACTING STATE. 2. HOWEVER, THIS LIMITATION DOES NOT APPLY TO INCOME DERIVED BY THE GOVERNMENT OF A CONTRACTING STATE OR ANY PERSON APPROVED BY THE COMPETENT AUTHORITY OF THAT STATE FOR THE PURPOSE OF THIS PARAGRAPH . THE TERM GOVER NMENT' INCLUDES ITS AGENCIES AND STATUTORY BODIES. 1 5 . 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 CONDITIONS TO BE SATISFIED THAT THE RECIPIENT SHALL BE THE BE NEFICIAL OWNER OF INTEREST AND ROYALTY. IN OTHER WORDS, THE RECIPIENT SHOULD HAVE RECEIVED THE INTEREST AND ROYALTY IN ITS OWN RIGHT. ITA NO. 2 33 /PN/20 1 4 IMERYS ASIA PACIFIC PVT. LTD. 13 1 6 . AS PER ARTICLE 12 OF DTAA BETWEEN INDIA AND SINGAPORE, 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 PROVIDED BY CLAUSE 12(2) OF DTAA THAT THE SAID ROYALTY AND EVEN FEES FOR TECHNICAL 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 DTAA, 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 INSTITUTION, IT WOULD BE TAXED @10% OF THE GROSS AMOUNT OF INTEREST AND IN ALL OTHER CASES 15% OF THE GROSS AMOUNT OF INT EREST. UNDER ARTICLE 24 OF DTAA, THE LIMITATION OF RELIEF IS PROVIDED THAT WHERE THE AGREEMENT PROVIDES THAT THE INCOME FROM SOURCES IN A CONTRACTING STATE, SHALL BE EXEMPT FROM TAX, OR TAX ED AT REDUCED RATE IN THAT CONTRACTING STATE AND UNDER THE LAWS IN FORCE IN THE OTHER CONTRACTING STATE, THE SAID INCOME IS SUBJECTED TO TAX BY REFERENCE TO THE AMOUNT THERETO WHICH IS REMITTED TO OR RECEIVED IN THE OTHER CONTRACTING STATE AND NOT BY REFERENCE TO THE FULL AMOUNT THEREOF. IT IS FURTHER PROVIDED THAT THE EXEMPTION OR REDUCTION OF TAX TO BE ALLOWED UNDER THIS AGREEMENT IN FIRST MENTIONED CONTRACTING STATE SHALL APPLY TO SO MUCH OF THE INCOME AS IS REMITTED TO OR RECEIVED IN THE OTHER CONTRACTING STATES. 1 7 . IN ORDER TO ADJUDICATE THIS ISSUE , WE HAVE PERUSE D THE AGREEMENT ENTERED INTO BETWEEN IMERYS, UK AND THE ASSESSEE AT SINGAPORE. 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 SECRET, SUBSTANTIAL AND IDENTIFIABLE KNOW - HOW IN CONNECTION WITH DESIGNING, BUILDING, OPERATION AND ITA NO. 2 33 /PN/20 1 4 IMERYS ASIA PACIFIC PVT. LTD. 14 MAINTENANCE OF PLANTS FOR THE MANUFACTURE OF PRODUCTS LISTED IN SCHEDULE A. FURTHER THE LICENSOR WISH ED TO DEVELOP SUB - LICENSING MARKET IN THE ASIA PACIFIC REGION FOR THIS KNOW - HOW AND WISHED THE LICEN SEE TO ACT AS SUB - LICENSOR IN ORDER TO DEVELOP ITS MARKET. THE LICENSEE ON THE OTHER HAND, WISHED TO OBTAIN THE LICENSE OF KNOW - HOW , NOT TO USE THE KNOW - HOW ITSELF, BUT IN ORDER TO SUB - LICENSE THE KNOW - HOW TO THIRD PART IES CUSTOMERS, SUBJECT TO TERMS OF T HE AGREEMENT. THE LICENSOR THUS, AGREED TO PERMIT THE LICENSEE TO SUB - LICENSE THE KNOW - HOW ON THE TERMS AND CONDITIONS OF THIS AGREEMENT. AS PER CLAUSE 2.1, THE LICENSOR GRANTED TO THE LICENSEE A NON - EXCLUSIVE , PERPETUAL, IRREVOCABLE LICENSE, SUBJECT TO TERMS AND CONDITIONS OF THE AGREEMENT, TO USE THE KNOW - HOW FOR THE PURPOSE OF HAVING PRODUCTS MANUFACTURED AND SOLD ON ITS BEHALF BY AN AUTHORIZED CONTRACTOR OR BY SUB - LICENSEE IN THE TERRITORY AND OF SELLING THE PRODUCTS BY ITSELF OR ITS AGENTS OR DISTRIB UTORS. THE LICENSE GRANTED BY THE LICENSOR SPECIFICALLY INCLUDE S THE RIGHT TO SUB - LICENSE. BY CLAUSE 4, IT WAS FURTHER 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. THEREFORE, 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 SUB - LICENSEE. 18. THE ASSESSEE IN LIEU OF THIS LICENSE GRANTED TO IT, ENTE RED 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 THE ASSESSEE UNDERTOOK TO PROVIDE TECHNOLOGY AND KNOW - HOW GRANTED TO THE LICENSEE A NON - EXCLUSIVE, NON - TRANSFERABLE, NON - ASS IGNABLE 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 TECHNOLOGY ITA NO. 2 33 /PN/20 1 4 IMERYS ASIA PACIFIC PVT. LTD. 15 AND KNOW - HOW LICENSE HEREUNDER SHALL BE USED SOL ELY AND EXCLUSIVELY FOR MANUFACTURING THE PRODUCTS AND FOR NO OTHER PURPOSE WHATSOEVER AND SHALL NOT BE SUB - LICENSED BY THE LICENSEE TO ANY OTHER PERSON WITHOUT WRITTEN CONSENT OF THE LICENSOR. IN CONSIDERATION OF THE 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 T HROUGH ITS EMPLOYEES , WHO HAD ALSO TRAVELLED TO INDIA, AGAINST WHICH IT HAD RECEIVED ROYALTIES AND THE ASSESSEE WAS THE BENEFICIAL OWNER OF ROYALTY RECEIVED FROM INDIAN COMPANY AND HENCE, WAS ELIGIBLE FOR CONCESSIONAL TAX RATE @10% UNDER ARTICLE 12(2) OF I NDIA - SINGAPORE TAX TREATY. THE COPIES OF INVOICES RAISED BY THE ASSESSEE ALONG WITH DOCUMENTS SUBMITTED WITH AUTHORIZED DEALER FOR REMITTANCE OF ROYALTY AND THE CERTIFICATE ISSUED BY THE AUDITOR FOR THE PAYMENT OF ROYALTY UNDER FOREIGN TECHNICAL COLLABORA TION AND ALSO THE EXTRACTS 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 CLAIM ED THE BENEFIT OF TDS AGAINST THE ROYALTY PAYMENT OF RS. 48,88,234/ - . IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WE HOLD THAT THE ASSESSEE WAS THE BENEFICIAL 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 RAT IO 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 WOULD BE ACQUIRING EXPERTISE AND TECHNICAL KNOW - HOW FROM THIRD PARTIES FOR WHICH IT WAS TO PAY ROYALTIES AND TECHNICAL FEES, WOULD BE BELONGING TO APPLICANT . THE ASSESSEE HAD EARNED ROYALTY INCOME FROM OTHER COUNTRIES ALSO. FURTHER, SIMILAR RATIO HAS BEEN LAID DOWN BY PUNE BENCH OF ITA NO. 2 33 /PN/20 1 4 IMERYS ASIA PACIFIC PVT. LTD. 16 TRIBUNAL IN SHAAN MARINE SERVICES PVT. LTD. VS. DY. DIRECTOR OF INCOME TAX (SUPRA). 19 . ANOTHER ASPECT OF THE ISSUE IS THAT THE BENEFITS AVAILABLE 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 HONBLE 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 SINGAPORE TAX RESIDENCY CERTIFICATE OF THE ASSESS EE FOR 2010 IS AVAILABLE AT PAGE 9 3 OF PAPER BOOK AND THE BENEFIT OF TREATY IS ALSO AVAILABLE 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 E CB LOAN TO IMPL , THE INTEREST INCOME RECEIVED BY THE ASSESSEE BEING THE BENEFICIAL OWNER OF IT, IS TAXABLE IN ITS HANDS @15% AS PER ARTICLE 11 OF DTAA. THE CASE OF AUTHORITIES BELOW WAS THAT THE ASSESSEE WOULD NOT BE ENTITLED TO THE BENEFIT OF CLAUSES UNDER DTAA BE TWEEN INDIA AND SINGAPORE SINCE IT HAD NOT REMITTED THE SAID INCOME TO SINGAPORE WITHIN FISCAL YEAR I.E. FINANCIAL YEAR 2009 - 10. IN THIS REGARD, THE FIRST PLEA RAISED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT THE TAX DEPARTMENT HAS ACCEPTED TH E CONCESSIONAL TAX RATE IN THE CASE OF ASSESSMENT YEARS 2006 - 07, 2008 - 09 & 2009 - 10 AND HENCE THE SAME POSITION SHOULD BE ADOPTED FOR ASSESSMENT YEAR 2010 - 11 . THE ASSESSING OFFICER REJECTED THE SAID PLEA OF THE ASSESSEE SINCE THE RETURNS FOR ALL THOSE YEAR S WERE PROCESSED UNDER SECTION 143(1) OF THE ACT. HOWEVER, WHERE THE ASSESSEE WAS THE BENEFI CIAL ITA NO. 2 33 /PN/20 1 4 IMERYS ASIA PACIFIC PVT. LTD. 17 RECIPIENT OF THE INTEREST INCOME, THE SAME IS TO BE TAXED @ 15% AS PER THE DTAA 2 1. THE NEXT PLEA OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW WAS THAT THE LIMI TATION OF RELIEF PROVIDED IN ARTICLE 24 OF DTAA WOULD ARISE IN CASE WHERE THE INCOME IS SO MUCH OF INCOME AS IS REMITTED TO OR RECEIVED IN THE OTHER CONTRACTING STATE. IN OTHER WORDS, THE BENEFIT OF DTAA PROVISIONS IS RESTRICTED TO THE AMOUNT OF INCOME WH ICH IS THE SUBJECT MATTER OF TAXATION IN THE OTHER CONTRACTING STATE. IN A SITUATION, WHERE THE NON - RESIDENT COMPANY CLAIMS TREATY PROTECTION, THEN THE SAME SHOULD REMAIN CONFINED TO THE AMOUNT WHICH IS ACTUALLY SUBJECTED TO TAX IN THE SOURCE COUNTRY. TH E ABOVE SAID PROVISION IS PROVIDED TO AVOID SITUATION, UNDER WHICH INCOME WHICH IS NOT SUBJECT TO TAX IN THE RESIDENCE JURISDICTION, WILL BE AVAILABLE FOR TREATY PROTECTION IN THE OTHER CONTRACTING STATES. 22 . IN THE FACTS OF THE PRESENT CASE BEFORE US, IT IS NOT THE CASE OF REVENUE THAT THE AMOUNT HAS NOT BEEN REMITTED TO SINGAPORE, BUT THE BENEFIT OF TAX TREATY HAVE BEEN DENIED TO THE ASSESSEE SINCE THE SAID AMOUNT HAS NOT BEEN REMITTED IN THE CURRENT FISCAL YEAR I.E. FINANCIAL YEAR 2009 - 10. WHERE THE AMOUNT HAS BEEN REMITTED TO SINGAPORE AND HAS BEEN SUBJECT TO THE TAX, WE FIND NO MERIT IN THE ORDERS OF ASSESSING OFFICER / DRP IN DENYING THE BENEFIT OF TREATY PROVISIONS TO THE ASSESSEE IN TAXING THE INCOME AT LOWER RATES. IN THIS REGARD, WE FIND SUPP ORT FROM THE RATIO LAID DOWN BY RAJKOT BENCH OF TRIBUNAL IN ALABRA SHIPPING PTE LTD., SINGAPORE VS. ITO IN ITA NO.392/RJT/2014, RELATING TO ASSESSMENT YEAR 2011 - 12, ORDER DATED 09.10.2014 . ACCORDINGLY, WE HOLD THAT WHERE THE ASSESSEE WHO HAD ENTERED INTO AN AGREEMENT WITH ITS PRINCIPAL IN UK AND RECEIVED THE KNOW - HOW, WHICH IN TURN, IT COULD SUB - LICENSE AND HAD IN ITA NO. 2 33 /PN/20 1 4 IMERYS ASIA PACIFIC PVT. LTD. 18 FURTHERANCE PROVIDED SERVICES TO ITS SUB - LICENSEE AND RECEIVED SUB - LICENSEE FEES FROM SUB - LICENSEE I.E. INPL , THEN SUCH ROYALTY INCOME HAVING BE EN RECEIVED BY THE ASSESSEE NON - RESIDENT COMPANY ON ITS OWN RIGHT AS THE BENEFICIAL OWNER OF THE SAME, SUCH ROYALTY INCOME IS TO BE SUBJECT TO TAX AT CONCESSIONAL TAX RATE AT 10%. SIMILARLY, THE INTEREST INCOME EARNED BY THE ASSESSEE WAS ALSO RECEIVED BY IT BEING ITS BENEFICIAL OWNER AND WHICH IN TURN, HAS BEEN REMITTED THOUGH NOT IN THE INSTANT YEAR, IS TAXABLE AT CONCESSIONAL RATE OF TAXES. ACCORDINGLY, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED. 2 3 . IN THE RESULT, THE APPEAL OF THE ASSE SSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 15 TH DAY OF APRIL , 201 6 . SD/ - SD/ - SD/ - SD/ - (PRADIP KUMAR KEDIA) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 15 TH APRIL , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2. T HE RESPONDENT; 3. THE DIT (INTL. TAXATION), PUNE; 4. THE DRP, PUNE; 5. THE DR B, ITAT, PUNE; / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE