The ITO, (International Taxation)- 1, Ahmedabad V. Shri Susanto Purnamo, Ahmedabad

ITA 254/AHD/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0953 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 06-06-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 02-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHSIH POHARE
• Keywords: Business income; Double taxation relief; Permanent establishment
• Section: 143(3)

Judgement Text

I.T.A. NO. 254/AHD/15 CO NO 43/AHD/15 ASSESSMENT YEAR: 2011 - 12 PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD I BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND S S GODARA JM ] I.T.A. NO. 254/AHD/2015 ASSESSMENT YEAR: 2011 - 12 INCOME TAX OFFICER (INTERNATIONAL TAXATION) - I AHMEDABAD ............. .APPELLANT V S. SUSANTO PURNAMO .. . . RESPONDENT 21089 GREENLEAF DRIVE CUPERTIONG, CALIFORNIA , CA 95014 UNITED STATES [PAN: BHQPP7104Q] C/O SHAILESH A SHAH,CA, 2 NILIMA PARK UNIVERSITY ROAD, AHMEDABAD 380009 CO NO. 43/AHD/2015 ARISING OUT OF I.T.A. NO. 254/ AHD/2015 ASSESSMENT YEAR: 2011 - 12 SUSANTO PURNAMO ............. CROSS OBJECTOR 21089 GREENLEAF DRIVE CUPERTIONG, CALIFORNIA , CA 95014 UNITED STATES [PAN: BHQPP7104Q] C/O SHAILESH A SHAH,CA, 2 NILIMA PARK UNIVERSITY ROAD, AHMEDABAD 380009 VS. INCO ME TAX OFFICER (INTERNATIONAL TAXATION) - I AHMEDABAD .. . . RESPONDENT APPEARANCES BY: ASHSIH POHARE FOR THE APPELLANT ASSESSING OFFICER DHINAL SHAH, ALONGWITH TARJANI GUPTA FOR THE RESPONDENT ASSESSEE DATE OF CONCLUDING THE HEARING : JUNE 08 , 2016 DATE OF PRONOUNC ING THE ORDER : AUGUST 04 , 2016 O R D E R PER PRAMOD KUMAR , AM : 1. THIS IS AN APPEAL FILED BY THE ASSESSING OFFICER AND IS DIRECTED AGAINST THE ORDER DATED 5 TH NOVEMBER 2014 PASSED BY THE CIT(A) IN THE MATTER OF ASSESSMENT I.T.A. NO. 254/AHD/15 CO NO 43/AHD/15 ASSESSMENT YEAR: 2011 - 12 PAGE 2 OF 11 UNDE R SECTION 143(3) OF THE INCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2011 - 12, ON THE FOLLOWING GROUNDS: I . THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN AW THAT THE NATURE OF SERVICE RENDERED BY THE NON - RESIDENT WAS INDEPENDENT PERSONAL SERVICE, AND THAT ART ICLE 15 OF THE INDIA USA DTAA IS APPLICABLE. II . THE LEARNED CIT(A) HAS ALSO ERRED GROSSLY IN CONCLUDING THAT INDIVIDUAL PROFESSIONALS CAN ONLY BE CONSULTANTS AND CANNOT RENDER TECHNICAL SERVICE; THEREBY HOLDING THAT THESE SERVICES DID NOT CONSTITUTE FEE FOR TECHNICAL/ INCLUDED SERVICE UNDER ARTICLE 12(4) OF INDIA USA DTAA. III . IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE CANCELLED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED TO THE ABOVE EXTENT. IV . ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 2. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. THE ASSESSEE BEFORE US IS AN INDIVIDUAL FISCALLY DOMICILED IN, AND CARRYING ON BUSINESS IN THE NAME OF HIS SOLE PROPRIETORSHIP CONCERN BY THE NAME OF TRANSFORME , IN TH E USA. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAS PROVIDED CERTAIN S ERVICES TO FUSE+MEDIA PVT LTD (FMPL, IN SHORT) , A BUSINESS ENTITY BASED IN INDIA. AS TO THE NATURE OF SERVICES RENDERED BY THE ASSESSEE, THESE ARE STATED TO BE AS FOLLOWS: TRANS FORME HAS BEEN REQUESTED TO PROVIDE A SOFTWARE DEVELOPMENT SERVICE TO DESIGN, BUILD AND MAINTAIN A COMPLETE VIDEO STREAMING WEBSITE AND ALL OF ITS ADMINISTRATIVE APPLICATIONS. THIS SYSTEM IS CALLED FUSE+MEDIA WEB APPLICATION (FMWA). TRANFORME WILL BE RESP ONSIBLE FOR THE WORKS THAT INCLUDE DATABASE ARCHITECTURE DESIGN AND IMPLEMENTATION, VIRTUAL SERVER MANAGEMENT, SDN SUPPORTS, WEBSITE DEVELOPMENT, VIDEO TECHNOLOGY INGESTION, AND CONTINUOUS IMPROVEMENT AND SITES MAINTENANCE. 3. DURING THE COURSE OF SCRUTIN Y ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT WHILE THE ASSESSEE HAS RECEIVED A SUMS AGGREGATING TO RS 2,23,96,667 FOR THE SERVICES RENDERED TO FMPL, THE ASSESSEE HAS NOT PAID ANY TAXES IN INDIA IN RESPECT OF THE SAME. THE CLAIM OF THE ASSES SEE, AS NOTED BY THE ASSESSING OFFICER, WAS THAT THE PROVISIONS OF THE INDIA US DOUBLE TAXATION AVOIDANCE AGREEMENT [(1991) 187 ITR (STAT) 102; INDO - US TAX TREATY, IN SHORT] WILL OVERRIDE THE PROVISIONS OF I.T.A. NO. 254/AHD/15 CO NO 43/AHD/15 ASSESSMENT YEAR: 2011 - 12 PAGE 3 OF 11 THE INCOME TAX ACT IN THIS CASE, SINCE THE PROVISI ONS OF THE TREATY ARE MORE FAVOURABLE TO THE ASSESSEE AND IN VIEW OF THE SPECIFIC PROVISION TO THAT EFFECT UNDER SECTION 90(2) OF THE ACT. IT WAS THEN POINTED OUT THAT THE INCOME EARNED BY THE ASSESSEE IN INDIA IS IN THE NATURE OF BUSINESS INCOME TAXABLE U NDER ARTICLE 7 OF THE TREATY , WHICH, IN THE ABSENCE OF A PERMANENT ESTABLISHMENT IN INDIA - AS PROVIDED UNDER ARTICLE 5 OF THE TREATY , CANNOT BE BROUGHT TO TAX IN INDIA. IT WAS ALSO CONTENDED THAT, IN THE ALTERNATIVE, THE SERVICES RENDERED BY THE ASSESSEE TO THE INDIAN ENTITY ARE AT BEST IN THE NATURE OF INDEPENDENT PERSONAL SERVICES WHICH, UNDER ARTICLE 15, CANNOT BE BROUGHT TO TAX IN INDIA, UNLESS THE ASSESSEE HAS A FIXED BASE REGULARLY AVAILABLE TO HIM IN INDIA. IT WAS ALSO CONTENDED THAT THE ASSESSEE DID NOT HAVE ANY FIXED BASE AVAILABLE TO HIM IN INDIA FOR RENDITION OF THESE SERVICES. THE ASSESSEE FURTHER CONTENDED THAT EVEN IF INCOME OF THE ASSESSEE IS TO BE CONSTRUED AS FEES FOR INCLUDED SERVICES RENDERED BY HIM TO THE INDIAN ENTITY, THE SAME SHAL L NOT BE TAXABLE UNDER ARTICLE 12 OF INDO US TAX TREATY, ON THE FACTS OF THIS CASE, SINCE THE SERVICES SO RENDERED DO NOT SATISFY THE MAKE AVAILABLE CONDITION AS IS SINE QUA NON FOR INVOKING TAXABILITY IN THE SOURCE COUNTRY. ON THE STRENGTH OF THESE ARGU MENTS, IT WAS CONTENDED BY THE ASSESSEE THAT THE CONSIDERATION FOR SERVICES RENDERED BY THE ASSESSEE TO THE INDIAN ENTITY CANNOT BE TAXED IN HIS HANDS IN INDIA. IN OTHER WORDS, THE INCOME OF THE ASSESSEE WAS TREATY PROTECTED SO FAR AS ITS TAXATION IN INDIA WAS CONCERNED. THESE ARGUMENTS, HOWEVER, DID NOT IMPRESS THE ASSESSING OFFICER. WHILE THE ASSESSING OFFICER HAD NO ISSUES WITH THE TREATY PROTECTION AVAILABLE TO THE ASSESSEE, HIS CASE WAS THAT, ON THE FACTS OF THIS CASE, THE ASSESSEE WAS NOT PROTECTED BY ARTICLE 15 INASMUCH AS THE SERVICES RENDERED BY THE ASSESSEE WERE NOT IN THE NATURE OF INDEPENDENT SERVICES AND THAT THE MAKE AVAILABLE CONDITION WAS FULFILLED ON THE FACTS OF THIS CASE INASMUCH AS THE MERE FACT THAT SUCH A SERVICE HAS ENABLED THE USER OF THE SERVICE IN APPLYING THE TECHNOLOGY (NOT OWNING IT) IS SUFFICIENT TO DEMONSTRATE THAT THE TECHNICAL KNOWLEDGE HAS BEEN MADE AVAILABLE . THE ASSESSING OFFICER THUS CONCLUDED THAT THE INCOME OF THE ASSESSEE IS TAXABLE IN INDIA, THOUGH ON GROSS BASI S @10% UNDER SE CTION 115A OF THE ACT, AND THAT THE EDUCATION CESS@ 2% AND SECONDARY EDUCATION CESS @1% WAS ALSO PAYABLE ON THE TAX SO CHARGED. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). LEARNED CIT(A) HELD THAT ARTICLE 15 OF INDIA US TAX TREATY SPECIFICALLY COVERS THE I.T.A. NO. 254/AHD/15 CO NO 43/AHD/15 ASSESSMENT YEAR: 2011 - 12 PAGE 4 OF 11 SERVICES PROVIDED BY INDEPENDENT ENGINEERS , THAT THE PROVISIONS OF ARTICLE 12(6) SPECIFICALLY STATE THAT IN CASE THE SERVICES PROVIDED BY AN INDIVIDUAL WHICH ARE IN THE NATURE AS DEALT WITH IN ARTICLE 15, THEN THE PROVISIONS OF ARTICLE 15 WOULD PREVAIL OVER ARTICLE 12 , THAT IT IS ALSO APPARENT FROM THE FACTS OF THIS CASE THAT THE APPELLANT HAS RENDERED ENGINEERING SERVICES TO ITS CUSTOMER, NAMELY FMPL AND THAT THEREFORE, IN MY VIEW, THE PROVISIONS OF ARTICLE 15 WOULD BE APPLICABLE . HE THUS REVERSED FINDING OF THE ASSESSING OFFICER IN THIS REGARD, AND HELD THAT SINCE ARTICLE 15 APPLIES ON THE FACTS OF THIS CASE AN D SINCE THE CONDITIONS OF ARTICLE 15, WITH REGARD TO AVAILABILITY OF FIXED BASE IN INDIA OR STAY IN INDIA FOR A PERIOD OF MORE THAN 90 DAYS IN THE RELEVANT PREVIOUS YEAR, ARE NOT SATISFIED ON THE FACTS OF THIS CASE, THE INCOME CANNOT BE BROUGHT TO TAX IN INDIA UNDER ARTICLE 15. AS FOR THE CONTENTIONS OF THE ASSESSEE, WITH RESPECT TO MAKE AVAILABLE CLAU SE NOT BEING SATISFIED ON THE FACTS OF THIS CASE, LEARNED CIT(A) HELD THE SAME TO BE INFRUCTUOUS. THE ASSESSING OFFICER IS AGGRIEVED OF THE RELIEF SO GRANTED BY THE CIT(A) AND IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MA TERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 5. THERE IS NO DISPUTE THAT THE ASSESSEE BEFORE HAS THE PROTECTION OF INDO - US TAX TREATY. THERE IS ALSO NO, NOR THERE CAN BE ANY, DISPUTE THAT IN THE EVE NT OF THE PROVISIONS OF THE APPLICABLE TAX TREATY BEING MORE BENEFICIAL TO THE ASSESSEE VIS - - VIS THE PROVISIONS OF THE INCOME TAX ACT, 1961, THE PROVISION S OF THE ACT CANNOT BE INVOKED; SECTION 90(2) SPECIFICALLY PROVIDES IN A SITUATION IN WHICH ASSESSEE IS ENTITLED TO A TAX TREATY PROTECTION , THE PROVISIONS OF THIS ACT ( I.E. INCOME TAX ACT, 1961 ) SHALL APPLY TO THE EXTENT THEY ARE MORE BENEFICIAL TO THAT ASSESSEE . THE SHORT ISSUE THAT WE HAVE TO, THEREFORE, EXAMINE IS WHETHER THE ASSESSEE IS LIABLE TO T AX UNDER THE PROVISIONS OF THE INDO - US TAX TREATY. WHILE THE CASE OF THE ASSESSING OFFICER IS THAT THE ASSESSEE IS TAXABLE UNDER SECTION 12(4) OF THE INDO - US TAX TREATY, LEARNED CIT(A) HAS GRANTED THE IMPUGNED RELIEF ON THE BASIS THAT THE ASSESSEE HAS REN DERED PROFESSIONAL SERVICES WHICH CAN BE TAXED, IF AT ALL, UNDER ARTICLE 15, BUT THEN SINCE TAXABILITY UNDER ARTICLE 15 FAILS ON THE FACTS OF THIS CASE, THE INCOME IN THE HANDS OF THE ASSESSEE CANNOT BE TAXED AT ALL. LET US TAKE A LOOK AT THE RELEVANT I.T.A. NO. 254/AHD/15 CO NO 43/AHD/15 ASSESSMENT YEAR: 2011 - 12 PAGE 5 OF 11 TRE ATY PROVISIONS, I.E. ARTICLE 12 AND 15, WHICH ARE REPRODUCED BELOW FOR READY REFERENCE: ARTICLE 12 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 CON TRACTING 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 OR FEES FOR INCLUDED SERVICES IS A RESIDENT OF THE OTHER CONTRACTING STATE, THE TAX SO CHARGED SHALL NOT EXCEED : (A) IN THE CASE OF ROYALTIES REFERRED TO IN SUB - PARAGRAPH (A) OF PARAGRAPH 3 AND FEES FOR INCLUDED SERVICES AS DEFINED IN THIS ARTICLE (OTHE R THAN SERVICES DESCRIBED IN SUB - PARAGRAPH (B) OF THIS PARAGRAPH ): (I) DURING THE FIRST FIVE TAXABLE YEARS FOR WHICH THIS CONVENTION HAS EFFECT, (A) 15 PER CENT OF THE GROSS AMOUNT OF THE ROYALTIES OR FEES FOR INCLUDED SERVICES AS DEFINED IN THIS ARTICL E, WHERE THE PAYER OF THE ROYALTIES OR FEES IS THE GOVERNMENT OF THAT CONTRACTING STATE, A POLITICAL SUB - DIVISION OR A PUBLIC SECTOR COMPANY; AND (B) 20 PER CENT OF THE GROSS AMOUNT OF THE ROYALTIES OR FEES FOR INCLUDED SERVICES IN ALL OTHER CASES; AND ( II) DURING THE SUBSEQUENT YEARS, 15 PER CENT OF THE GROSS AMOUNT OF ROYALTIES OR FEES FOR INCLUDED SERVICES; AND (B) IN THE CASE OF ROYALTIES REFERRED TO IN SUB - PARAGRAPH (B) OF PARAGRAPH 3 AND FEES FOR INCLUDED SERVICES AS DEFINED IN THIS ARTICLE THAT AR E ANCILLARY AND SUBSIDIARY TO THE ENJOYMENT OF THE PROPERTY FOR WHICH PAYMENT IS RECEIVED UNDER PARAGRAPH 3(B) OF THIS ARTICLE, 10 PER CENT OF THE GROSS AMOUNT OF THE ROYALTIES OR FEES FOR INCLUDED SERVICES. 3. THE TERM ROYALTIES' AS USED IN THIS ARTICLE MEANS : (A) PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF A LITERARY, ARTISTIC, OR SCIENTIFIC WORK, INCLUDING CINEMATOGRAPH FILMS OR WORK ON FILM, TAPE OR OTHER MEANS OF REPRODUCTION FOR USE IN CON NECTION WITH RADIO OR TELEVISION BROADCASTING, ANY PATENT, TRADEMARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE, INCLUDING GAINS DERIVED FROM THE ALIENATION OF ANY SUCH R IGHT OR PROPERTY WHICH ARE CONTINGENT ON THE PRODUCTIVITY, USE, OR DISPOSITION THEREOF; AND (B) PAYMENT OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, THE INDUSTRIAL, COMMERCIAL, OR SCIENTIFIC EQUIPMENT, OTHER THAN PAYMENTS DER IVED BY AN ENTERPRISE DESCRIBED IN PARAGRAPH 1 OF ARTICLE 8 (SHIPPING AND AIR TRANSPORT) FROM ACTIVITIES DESCRIBED IN PARAGRAPH 2(C) OR 3 OR ARTICLE 8. I.T.A. NO. 254/AHD/15 CO NO 43/AHD/15 ASSESSMENT YEAR: 2011 - 12 PAGE 6 OF 11 4. FOR PURPOSES OF THIS ARTICLE, FEES FOR INCLUDED 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, PRO PERTY 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. 5. N OTWITHSTANDING PARAGRAPH 4, FEES FOR INCLUDED SERVICES' DOES NOT INCLUDE AMOUNTS PAID : (A) FOR SERVICES THAT ARE ANCILLARY AND SUBSIDIARY, AS WELL AS INEXTRICABLY AND ESSENTIALLY LINKED, TO THE SALE OF PROPERTY OTHER THAN A SALE DESCRIBED IN PARAGRAPH 3 (A); (B) FOR SERVICES THAT ARE ANCILLARY AND SUBSIDIARY TO THE RENTAL OF SHIPS, AIRCRAFT, CONTAINERS OR OTHER EQUIPMENT USED IN INTERNATIONAL TRAFFIC; (C) FOR TEACHING IN OR BY EDUCATIONAL INSTITUTIONS; (D) FOR SERVICES FOR THE PERSONAL USE OF THE INDIV IDUAL OR INDIVIDUALS MAKING THE PAYMENT; OR (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 15 (INDEPENDENT PERSONAL SERVICES). 6. THE PROVISIONS OF PARAGRAPHS 1 AND 2 SHALL NOT APPLY IF THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR INCLUDED SERVICES, BEING A RESIDENT OF A CONTRACTING STATE, CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE, IN WHICH THE ROYALTIES OR FEES FOR INCLUD ED 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 ROYALTIES OR FEES FOR INCLUDED SERVICES ARE ATTRIBUTABLE TO SUCH PERMANENT ESTA BLISHMENT OR FIXED BASE. IN SUCH CASE THE PROVISIONS OF ARTICLE 7 (BUSINESS PROFITS) OR ARTICLE 15 (INDEPENDENT PERSONAL SERVICES), AS THE CASE MAY BE, SHALL APPLY. 7. (A) ROYALTIES AND FEES FOR INCLUDED SERVICES SHALL BE DEEMED TO ARISE IN A CONTRACTING STATE WHEN THE PAYER IS THAT STATE ITSELF, A POLITICAL SUB - DIVISION, A LOCAL AUTHORITY, OR A RESIDENT OF THAT STATE. WHERE, HOWEVER, THE PERSON PAYING THE ROYALTIES OR FEES FOR INCLUDED 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 INCLUDED SERVICES WAS INCURRED, AND SUCH ROYALTIES OR FEES FOR INCLUDED SERVICES ARE BORNE BY SUCH PERMANENT ESTABLISHM ENT OR FIXED BASE, THEN SUCH ROYALTIES OR FEES FOR INCLUDED SERVICES SHALL BE DEEMED TO ARISE IN THE CONTRACTING STATE IN WHICH THE PERMANENT ESTABLISHMENT OR FIXED BASE IS SITUATED. (B) WHERE UNDER SUB - PARAGRAPH (A) ROYALTIES OR FEES FOR INCLUDED SERVICE S DO NOT ARISE IN ONE OF THE CONTRACTING STATES, AND THE ROYALTIES RELATE TO THE USE OF, OR THE I.T.A. NO. 254/AHD/15 CO NO 43/AHD/15 ASSESSMENT YEAR: 2011 - 12 PAGE 7 OF 11 RIGHT TO USE, THE RIGHT OR PROPERTY, OR THE FEES FOR INCLUDED SERVICES RELATE TO SERVICES PERFORMED, IN ONE OF THE CONTRACTING STATES, THE ROYALTIES OR FEES FOR INCLUDED SERVICES SHALL BE DEEMED TO ARISE IN THAT CONTRACTING STATE. 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 OR FEES FOR INCLUDED SERVICES PAID EXCEEDS THE AMOUNT WHICH WOULD HAVE BEEN PAID 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 THE CONVENTION. ARTICLE 15 INDEPENDENT PERSONAL SERVICES 1. INCOME DERIVED BY A PERSON WHO IS AN INDIVIDUAL OR FIRM OF INDIVIDUAL (OTHER THAN A COMPANY) WHO IS A RESIDE NT OF A CONTRACTING STATE FROM THE PERFORMANCE IN THE OTHER CONTRACTING STATE OF PROFESSIONAL SERVICES OR OTHER INDEPENDENT ACTIVITIES OF A SIMILAR CHARACTER SHALL BE TAXABLE ONLY IN THE FIRST - MENTIONED STATE EXCEPT IN THE FOLLOWING CIRCUMSTANCES WHEN SUCH INCOME MAY ALSO BE TAXED IN THE OTHER CONTRACTING STATE : (A) IF SUCH PERSON HAS A FIXED BASE REGULARLY AVAILABLE TO HIM IN THE OTHER CONTRACTING STATE FOR THE PURPOSE OF PERFORMING HIS ACTIVITIES; IN THAT CASE, ONLY SO MUCH OF THE INCOME AS IS ATTRIBUTA BLE TO THAT FIXED BASE MAY BE TAXED IN THAT OTHER STATE; OR (B) IF THE PERSON'S STAY IN THE OTHER CONTRACTING STATE IS FOR A PERIOD OR PERIODS AMOUNTING TO OR EXCEEDING IN THE AGGREGATE 90 DAYS IN THE RELEVANT TAXABLE YEAR. 2. THE TERM PROFESSIONAL SERV ICES' INCLUDES INDEPENDENT SCIENTIFIC, LITERARY, ARTISTIC, EDUCATION OR TEACHING ACTIVITIES AS WELL AS THE INDEPENDENT ACTIVITIES OF PHYSICIANS, SURGEONS, LAWYERS, ENGINEERS, ARCHITECTS, DENTISTS AND ACCOUNTANTS. 6. A CAREFUL LOOK AT THE ABOVE TREATY PROV ISIONS WOULD SHOW THAT IN THE EVENT OF OUR COMING TO THE CONCLUSION THAT THE SERVICES RENDERED BY THE ASSESSEE ARE IN THE NATURE OF INDEPENDENT PERSONAL SERVICES UNDER ARTICLE 15, IT IS WHOLLY ACADEMIC WHETHER OR NOT THESE SERVICE S ARE COVERED BY ARTICLE 1 2 AND SATISFY THE MAKE AVAILABLE CLAUSE. IT IS SO FOR THE REASON THAT (A) IT IS UNCONTROVERTED CLAIM OF THE ASSESSEE THAT THE CONDITIONS PRECEDENTS FOR TAXABILITY UNDER SECTION 15 ARE NOT SATISFIED INASMUCH AS NEITHER THE ASSESSEE HAD ANY FIXED BASE AVAILA BLE TO HIM IN INDIA NOR THE ASSESSEE VISITED INDIA FOR MORE THAN 90 DAYS IN THE RELEVANT PREVIOUS YEAR, AND (B) UNDER ARTICLE 12( 5 ), WHICH STATES THAT FEES FOR INCLUDED SERVICES WILL NOT INCLUDE AMOUNTS PAID .. (E) TO AN EMPLOYEE OF THE PERSON MAKING THE P AYMENTS OR TO ANY INDIVIDUAL OR FIRM OF INDIVIDUALS (OTHER THAN A COMPANY) FOR I.T.A. NO. 254/AHD/15 CO NO 43/AHD/15 ASSESSMENT YEAR: 2011 - 12 PAGE 8 OF 11 PROFESSIONAL SERVICES AS DEFINED IN ARTICLE 15 (INDEPENDENT PERSONAL SERVICES) , ONCE AN AMOUNT IS FOUND TO BE OF SUCH A NATURE AS CAN BE COVERED, IN AN APPROPRIATE CASE, BY AR TICLE 15, THE SAME SHALL STAND EXCLUDE D FROM THE AMBIT OF ARTICLE 12. AS WE TAKE NOTE OF THIS TREATY PROVISION , WE MAY MENTION THAT THE LEARNED CIT(A) HAS REFERRED TO ARTICLE 12(6) IN SUPPORT OF THIS PROPOSITION, AND TO THAT EXTENT HE IS NOT RIGHT BECAUSE ARTICLE 12(6) REFERS TO A SITUATION IN WHICH THE SERVICES ARE RENDERED THROUGH THE FIXED BASE OR THROUGH THE PERMANENT ESTABLISHMENT, AND THE CONSEQUENT TAXABILITY ARISES UNDER ARTICL E 15 OR ARTI CLE 7 RESPECTIVELY. THE DISPUTE, IN SUCH A SITUATION, IS ESSE NTIALLY CONFINED TO THE TAXABILITY ON UNDER ARTICLE 12 , ON ONE HAND, OR UNDER ARTICLE 15 OR ARTICLE 7 , ON THE OTHER HAND . THAT IS NOT AN ISSUE WHICH IS RELEVANT IN THE PRESENT CONTEXT. LEARNED CIT(A) S RELIANC E ON ARTICLE 12(6) IS, THEREFORE, CERTAINLY INC ORRECT BUT HIS CONCLUSIONS ARE CORRECT BECAUSE OF THE IMPACT OF ARTICLE 12(5)(E). 7 . THE CRUCIAL QUESTION, THEREFORE, IS AS TO WHAT CONSTITUTES INDEPENDENT PERSONAL SERVICES FOR THE PURPOSE OF ARTICLE 15 AND WHETHER THE SERVICES RENDERED BY THE ASSESSE E CAN FALL IN THIS CATEGORY OF SERVICES. THIS ISSUE, REGARDING THE SCOPE OF ARTICLE 15 OF INDO - US TAX TREATY, CAME UP FOR CONSIDERATION, ALMOST ONE AND A HALF DECADE AGO, BEFORE A COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF GRAPHITE INDIA LTD VS DCIT [(2002) 86 ITD 384 (KOL)]. SPEAKING THROUGH ONE OF US, I.E. THE ACCOUNTANT MEMBER, THE TRIBUNAL HAD THEN, INTER ALIA , OBSERVED AS FOLLOWS: 12. THE DEFINITION OF 'PROFESSIONAL SERVICES , WHICH ARE TERMED AS 'INDEPENDENT PERSONAL SERVICES IN THE PHRASEOLOG Y EMPLOYED IN TAX TREATIES, IS, HOWEVER, NOT DEFINED IN TAX TREATIES OR EVEN OFFICIAL COMMENTARIES ON UN AND OECD MODEL CONVENTIONS. THE MEANING OF THIS TERM IS ILLUSTRATED BY SOME EXAMPLES OF TYPICAL LIBERAL PROFESSIONS, AND THIS ENUMERATION OF PROFESSION S HAS ONLY AN EXPLANATORY CHARACTER. 'THE LAW LEXICON EDITED BY JUSTICE Y.V. CHANDRACHUD (1997 EDITION) DEFINES 'PROFESSION , INTER ALIA, AS INVOLVING 'THE IDEA OF AN OCCUPATION REQUIRING EITHER PURELY INTELLECTUAL SKILL OR IF ANY MANUAL SKILL, AS IN PAIN TING AND SCULPTURE OR SURGERY, SKILL CONTROLLED BY THE INTELLECTUAL SKILL OF THE OPERATOR, AS DISTINGUISHED FROM AN OCCUPATION WHICH IS SUBSTANTIALLY THE PRODUCTION OR SALE OR ARRANGEMENTS FOR THE PRODUCTION OR SALE OF COMMODITIES . THIS DEFINITION, BARRIN G THE WORDS 'AS DISTINGUISHED FROM AN OCCUPATION WHICH IS SUBSTANTIALLY THE PRODUCTION OR SALE OR ARRANGEMENTS FOR THE PRODUCTION OR I.T.A. NO. 254/AHD/15 CO NO 43/AHD/15 ASSESSMENT YEAR: 2011 - 12 PAGE 9 OF 11 SALE OF COMMODITIES' IS INCIDENTALLY THE SAME AS ASSIGNED BY SCRUTTON, LJ IN IRC VS. MAXSE (1919) 1 KB 647 REFERRED TO IN L .B. CURZON S LAW DICTIONARY. REFERRING TO HON BLE BOMBAY HIGH COURT S JUDGMENT IN THE CASE OF SAKHARAM NARYAN KHERDEKAR VS. CITY OF NAGPUR CORPORATION AIR 1964 BOM 200, AT P. 210, THE LAW LEXICON FURTHER STATES THAT 'AN ACTIVITY TO BE PROFESSION MUST BE ON E CARRIED ON BY AN INDIVIDUAL BY HIS PERSONAL SKILL, INTELLIGENCE AND DEPENDENT ON INDIVIDUAL CHARACTERISTICS . BLACK S LAW DICTIONARY (5TH EDITION) DEFINES PROFESSION AS 'A VOCATION OR OCCUPATION REQUIRING SPECIAL, USUALLY ADVANCED, EDUCATION AND SKILL E. G. IN LAW AND MEDICINE AND OBSERVES THAT 'THE LABOUR AND SKILL INVOLVED IN A PROFESSION IS PREDOMINANTLY MENTAL OR INTELLECTUAL, RATHER THAN PHYSICAL OR MANUAL . THE SCHOOL OF THOUGHT THUS EMERGING FROM THESE DELIBERATIONS IS THAT, BROADLY SPEAKING, A PRO FESSION WILL IMPLY ANY VOCATION CARRIED ON BY AN INDIVIDUAL, OR GROUP OF INDIVIDUALS, REQUIRING PREDOMINANTLY INTELLECTUAL SKILLS, DEPENDENT ON INDIVIDUAL CHARACTERISTICS OF THE PERSON(S) PURSING THAT VOCATION, REQUIRING SPECIALIZED AND ADVANCED EDUCATION OR EXPERTISE . [EMPHASIS, BY UNDERLINING, SUPPLIED BY US NOW] 8. THERE IS NO CHANGE IN THE LEGAL POSITION; NOTHING CONTRARY TO THE DECISION SO RENDERED HAS BEEN BROUG HT TO OUR NOTICE. VIEWED IN THE LIGHT, SOFTWARE DEVELOPMENT SERVICE RENDERED BY AN INDIVI DUAL, WHICH ESSENTIALLY REQUIRES PREDOMINANTLY INTELLECTUAL SKILL, DEPENDENT ON INDIVIDUAL CHARACTERISTICS OF THE PERSON PURSUING SOFTWARE DEVELOPMENT, AND BASED ON SPECIALIZED AND ADVANCED EDUCATION AND EXPERTISE, IS ALSO A PROFESSIONAL SERVICE. AS REGARD S THE OBJECTION OF THE ASSESSING OFFICER THAT SOFTWARE DEVELOPMENT IS NOT SPECIFICALLY COVERED BY ARTICLE 15 (2), AS EVIDENT FROM THE OPENING WORDS OF THIS PROVISION TO THE EFFECT THE TERM PROFESSIONAL SERVICES' INCLUDES ( EMPHASIS , BY UNDERLINING , SUPPLIE D BY US ) , TH E SPECIFIC PROFESSIONS SET OUT THEREIN ARE ONLY ILLUSTRATIVE AND NOT EXHAUSTIVE . THE EMPHASIS IS ESSENTIALLY ON THE NATURE OF SERVICES, BUT THEN, AS WE HAVE NOTED ABOVE, THAT TEST IS SATISFIED ON THE FACTS OF THIS CASE. WHILE DEALING WITH THE SCOPE OF SERVICES WHICH ARE COVERED BY ARTICLE 15, IT IS IMPORTANT TO BEAR IN MIND THE FACT THAT THERE COULD INDEED BE OVERLAPPING EFFECT OF THE SCOPE OF SERVICES COVERED BY THE OTHER ARTICLES BUT AS LONG AS THE SERVICES ARE RENDERED BY AN INDIVIDUAL OR G ROUP OF INDIVIDUALS, GENERALLY RENDITION OF SUCH SERVICES IS COVERED BY ARTICLE 15. THE EXCLUSION CLAUSE SET OUT IN ARTICLE 12(5)(E) TYPICALLY EXEMPLIFIES THIS APPROACH. WE MAY, IN THIS REGARD, ALSO REFER I.T.A. NO. 254/AHD/15 CO NO 43/AHD/15 ASSESSMENT YEAR: 2011 - 12 PAGE 10 OF 11 TO THE OBSERVATIONS MADE BY A COORDINATE BENCH OF T HIS TRIBUNAL, IN THE CASE OF LINKLATERS LLP VS ITO [(2011) 9 ITR TRI 217 (MUM) ] , AS FOLLOWS: 105. LEARNED COUNSEL HAS ALSO CONTENDED THAT THE PROFESSIONAL SERVICES CAN ONLY BE TAXED UNDER THE HEAD ART. 15 AND IN CASE CHARGEABILITY UNDER ART. 15 FAILS, TH AT IS END OF THE ROAD. IT CANNOT BE OPEN TO REVENUE AUTHORITIES TO TAX INCOME FROM PROFESSIONAL SERVICES UNDER ART. 7. IT IS CONTENDED THAT ART. 15 APPLIES ONLY TO INDIVIDUALS. AS TO THE SITUATIONS IN WHICH ART. 5 WILL APPLY IN RESPECT OF THE PROFESSIONAL SERVICES AND THE SITUATIONS IN WHICH ART. 15 OF THE INDIA - UK TAX TREATY, WHICH IS IN PARI MATERIA WITH ART. 14 OF THE UN MODEL CONVENTION, WILL APPLY, WE FIND GUIDANCE FROM THE FOLLOWING OBSERVATIONS MADE IN THE UN MODEL CONVENTION COMMENTARY: 'THE GROUP DISCUSSED THE RELATIONSHIP BETWEEN ART. 14 AND SUB - PARA 3(B) OF ART. 5. IT WAS GENERALLY AGREED THAT REMUNERATION PAID DIRECTLY TO AN INDIVIDUAL FOR HIS PERFORMANCE OF ACTIVITY IN AN INDEPENDENT CAPACITY WAS SUBJECT TO THE PROVISIONS OF ART. 14. PAYMENTS T O AN ENTERPRISE IN RESPECT OF THE FURNISHING BY THAT ENTERPRISE OF THE ACTIVITIES OF EMPLOYEES OR OTHER PERSONNEL ARE SUBJECT TO ARTS. 5 AND 7. THE REMUNERATION PAID BY THE ENTERPRISE TO THE INDIVIDUAL WHO PERFORMED THE ACTIVITIES IS SUBJECT EITHER TO ART. 14 (IF HE IS AN INDEPENDENT CONTRACTOR ENGAGED BY THE ENTERPRISE TO PERFORM THE ACTIVITIES) OR ART. 15 (IF HE IS AN EMPLOYEE OF THE ENTERPRISE). IF THE PARTIES BELIEVE THAT FURTHER CLARIFICATION OF THE RELATIONSHIP BETWEEN ART. 14 AND ARTS. 5 AND 7 IS NEE DED, THEY MAY MAKE SUCH CLARIFICATION IN THE COURSE OF NEGOTIATIONS.' (EMPHASIS, BY UNDERLINING, SUPPLIED BY US) 106. WE ARE IN CONSIDERED AGREEMENT WITH THIS ANALYSIS IN THE UN MODEL CONVENTION COMMENTARY. WE ARE THUS OF THE CONSIDERED VIEW THAT, IN A SI TUATION LIKE THE ONE THAT WE ARE IN SEISIN OF, I.E. IN WHICH SPECIFIC PROVISIONS FOR PROFESSIONAL SERVICES OR INDEPENDENT PERSONAL SERVICES OR INCLUDED SERVICES EXIST UNDER ART. 15, WHEN SERVICES ARE RENDERED BY THE ENTERPRISE, ART. 5(2)(K) WILL COME INTO PLAY, AND WHEN SERVICES ARE RENDERED BY AN INDIVIDUAL, ART. 15 WILL FIND APPLICATION . 9. THE APPLICABILITY OF ARTICLE 15, THEREFORE, IS ALSO SUBSTANTIALLY INFLUENCED BY THE STATUS OF THE RECIPIENT - I.E. WHETHER HE IS AN INDIVIDUAL OR WHETHER HE IS A COR PORATE ENTITY. IN THE LIGHT OF ALL THESE DISCUSSIONS , IN OUR CONSIDERED VIEW, THE SERVICES RENDERED BY THE ASSESSEE ARE IN THE NATURE OF PROFESSIONAL SERVICES BUT THEN SINCE THE CONDITIONS SET OUT IN ARTICLE 15(1) ARE ADMITTEDLY NOT SATISFIED ON THE FACTS OF THIS CASE, THE TAXABILITY UNDER ARTICLE 15 DOES NOT ARISE. AS A COROLLARY TO OUR FINDING THAT THE SERVICES IN QUESTION ARE IN THE NATURE OF PROFESSIONAL SERVICES, AND BY THE VIRTUE OF EXCLUSION CLAUSE IN ARTICLE 12(5)(E) , WHICH PROVIDES THAT THE INCOME FROM I.T.A. NO. 254/AHD/15 CO NO 43/AHD/15 ASSESSMENT YEAR: 2011 - 12 PAGE 11 OF 11 PROFESSIONAL SERVICES RENDERED BY AN INDIVIDUAL OR GROUP OF INDIVIDUALS (OTHER THAN A COMPANY) CANNOT BE SUBJECTED TO TAX UNDER ARTICLE 15, THE CONSIDERATION FOR THESE SERVICES CANNOT BE TAXED UNDER ARTICLE 12(4) EITHER. REVENUE S CASE FOR TAXABILITY UNDER ARTICLE 12(4) IS THUS CLEARLY UNSUSTAINABLE IN LAW AND ON THE FACTS OF THIS CASE. LEARNED CIT(A) WAS THUS QUITE CORRECT IN THIS CONCLUSIONS. WE UPHOLD HIS CONCLUSIONS AND DECLINE TO INTERFERE IN THE MATTER. 10. THE ASSESSEE HAS FILED A CROSS OBJECTI ON URGING US TO HOLD THAT, IN ANY EVENT, MAKE AVAILABLE CLAUSE IS NOT SATISFIED ON THE FACTS OF THIS CASE, AND FOR THIS REASON ALSO, THE IMPUGNED TAXABILITY UNDER ARTICLE 12(4) IS WHOLLY UNSUSTAINABLE IN LAW. LEARNED COUNSEL HAS MADE ELABORATE ARGUMENTS IN SUPPORT OF THIS PROPOSITION AND HAS ALSO FILED A LARGE NUMBER OF JUDICIAL PRECEDENTS ON THE ISSUE. IN OUR CONSIDERED VIEW, HOWEVER, ONCE WE COME TO THE CONCLUSION, AS WE HAVE INDEED COME TO ON THE FACTS OF THIS CASE, THAT THE SERVICES RENDERED BY THE ASSE SSEE WERE PROFESSIONAL SERVICES IN NATURE, THIS ASPECT OF THE MATTER IS WHOLLY ACADEMIC AND INFRUCTUOUS. WE NEED NOT ADDRESS OURSELVES TO THIS ASPECT OF THE MATTER. THE CROSS OBJECTION FILED BY THE ASSESSEE MERELY SUPPORTS THE CONCLUSIONS ARRIVED AT BY THE CIT(A) AND IS, ACCORDINGLY, DISMISSED AS INFRUCTUOUS. 11. IN THE RESULT, THE APPEAL AND THE CROSS OBJECTION, ARE DISMISSED. PRONOUNCED IN THE OPEN COURT TODAY ON 4 TH DAY OF AUGUST, 2016 SD/ - SD/ - SS GODARA PRAMOD KUMAR (JUDICIAL ME MBER) (ACCOUNTANT MEMBER) DATED: 4 TH DAY OF AUGUST , 2016. COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR I NCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD