M/s. Sandvik AB, Pune V. DDIT (Int. Tax.)-II, Pune

ITA 47/PUN/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1065 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 04-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Assessee Lawyers: DANESH BAFNA
• Keywords: Transfer pricing; Double taxation relief; International transaction; Permanent establishment
• Section: 5(2); 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.47/PN/2013 (ASSESSMENT YEAR : 2008-09) M/S. SANDVIK AB, C/O. SANDVIK ASIA PRIVATE LIMITED, MUMBAI-PUNE ROAD, DAPODI, PUNE - 411012 PAN NO.AAHCS7486E .. APPLICANT VS. DDIT (INTERNATIONAL TRACTION)-II, PUNE .. RESPONDENT APPLICANT BY : SHRI DANESH BAFNA DEPARTMENT BY : SHRI A.K. MODI DATE OF HEARING : 20-05-2015 DATE OF PRONOUNCEMENT : 22-05-2015 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 27-10-2012 PASSED U/S.143(3) R.W.S.144C(13) OF THE DDIT (IT)-II, PUNE RELATING TO ASSESSMENT YEAR 2008-09. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE (SA NDVIK AB) FILED ITS RETURN OF INCOME ON 30-09-2008 DECLARING NIL TOTAL INCOME. THE ASSESSING OFFICER REFERRED THE MATTER TO THE DCIT (TRANSFER PRICING-IV), PUNE U/S.92CA(1) OF THE I.T. ACT FOR COMPUTATION OF THE ARMS LENGTH PRICE IN RESPECT OF THE INTERNATIONAL TRANSACTIONS. THE TPO VIDE ORDER DATED 31- 10-2011 PASSED U/S.92CA(3) ACCEPTED THE COMPUTATION OF THE ARM S LENGTH PRICE AND DID NOT DISTURB THE TP STUDY OF THE ASSESSEE. 2 3. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE IS A NON-RESIDENT COMPANY INCORPORATED IN SWEDEN. DURING THE IMPUGNED ASSESSMENT YEAR IT HAS RECEIVED MANAGEMENT SERVICE FEE OF RS.7,20,33,841/- FROM SANDVIK ASIA PVT. LTD., AND RS.1,39,68,410/- FROM WALTER TOOLS INDIA PVT. LTD. IN THE DRAFT ASSESSMENT ORDER PASSED O N 26-12- 2011 U/S.143(3) R.W.S.144C ADDITION OF RS.8,60,02,251/- WAS MADE BY TREATING THE AMOUNT RECEIVED ON RENDERING MANA GEMENT SERVICES TAXABLE AS FEES FROM TECHNICAL SERVICES. 4. BEFORE DRP THE ASSESSEE SUBMITTED THAT THE ASSESSE E PROVIDES MANAGEMENT SERVICES TO SANDVIK ASIA PRIVATE LIMIT ED AND WALTER TOOLS INDIA PRIVATE LIMITED IN ACCORDANCE WITH T HE MANAGEMENT SERVICES AGREEMENT ENTERED INTO WITH THESE GROUP COMPANIES. THESE SERVICES ARE IN THE NATURE OF COMMERCIA L, MANAGEMENT, MARKETING AND ADMINISTRATIVE SERVICES. THE SPECIFICATION OF THE SERVICES TO BE PROVIDED AND THE PRINCIP LES OF ALLOCATING THE COST OF SUCH SERVICES ARE UPDATED ON THE INTRANET ANNUALLY. 4.1 IT WAS SUBMITTED THAT THE PURPOSE OF THE ACTIVITIES UNDERTAKEN UNDER THE AGREEMENT IS TO GIVE DIRECTION OR GUIDANCE TO VARIOUS GROUP COMPANIES AS A WHOLE SO THAT THEY AD OPT OR FOLLOW STANDARD PROCEDURES OR TEMPLATES IN VARIOUS MATTER S. BY VIRTUE OF SUCH MANAGERIAL INTERVENTION, COMMON BENEFIT ACCRU ES TO THE GROUP COMPANIES AND IT IS EXPECTED THAT THEIR LEV EL OF PERFORMANCE WILL IMPROVE. THESE ARE NON-TECHNICAL SERVICES A ND ARE AVAILED BY GROUP COMPANIES WITH THE INTENTION OF CARRY ING ON BUSINESS IN LINE WITH THE BEST PRACTICES FOLLOWED BY SANDVIK GROUP. 3 4.2 IT WAS SUBMITTED THAT AS SPECIFIED IN THE AGREEMENT, T HE ASSESSEE IS A CENTRAL HUB OF KNOWLEDGE RELATING TO THE B USINESS STRATEGY AND SANDVIK GROUP POLICIES. THE BENEFIT OF THE SA ME IS SHARED BETWEEN THE GROUP COMPANIES TO IMPROVE THE QUA LITY OF PERFORMANCE AND ACHIEVE COST RATIONALISATION. THE SERVICES ARE NOT 'A ONE OFF TRANSACTION' BUT ARE MEANT TO SUPPORT SAPL' S AND WTTPL'S FUNCTIONING ON A CONTINUOUS BASIS. A FEE, BASED ON THE ACTUAL COST INCURRED PLUS A MARK- UP OF 4% IS CHARGED FO R THESE SERVICES AND THE PRINCIPLES OF ALLOCATION OF THE COSTS ARE COMMUNICATED ANNUALLY. 4.3 THE ASSESSEE EXPLAINED IN DETAIL THAT SERVICES RENDER ED BY IT CONSIST OF MANAGEMENT SERVICES, BUSINESS PROCESSES, MANUFACTURING, QUALITY CONTROL, LOGISTICS AND DEVELOPMENT, MARKETING, SAL SUPPORT, PROMOTION, HUMAN RESOURCES, IT SUP PORT ETC. THE AO TAXED THE CONSIDERATION RECEIVED FOR SERVICES RENDERED BY IT AS FEES FOR TECHNICAL SERVICES UNDER ARTICLE 12 OF INDIA-SWEDEN TAX TREATY. THE AO HAS STATED THAT ARTICL E 12 INCLUDES MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES. THE SERVICES RENDERED BY THE ASSESSEE ARE IN THE NATURE OF MANAGERIAL AND CONSULTANCY SERVICES. ACCORDINGLY, THE AO TAXED 8.6CR RECEIVED BY THE ASSESSEE-COMPANY. 4.4 THE ASSESSEE STATED THAT THE ABOVE PAYMENT IS NOT TAXABLE IN VIEW OF THE PROTOCOL TO DTAA BETWEEN INDIA AND SWEDEN ON ARTICLE 12. THIS PROTOCOL PROVIDES THAT INCASE INDIA ENTERS INTO ANY AGREEMENT, CONVENTION OR PROTOCOL WITH A THIRD STATE , WHICH IS A MEMBER OF OECD AND INDIA LIMITS ITS TAXATION AT SOURCE ON DIVIDENDS , INTEREST, ROYALTIES OR FEES FOR TECHNICAL SERVICES TO A RATE LOWER OR A SCOPE MORE RESTRICTED THEN THE RATE O R SCOPE PROVIDED FOR IN THIS CONVENTION ON THE SAID ITEMS OF INCOME. THE 4 SAME RATE OR SCOPE AS PROVIDED FOR IN THAT CONVENTION O R PROTOCOL ON THE SAID ITEMS OF INCOME SHALL ALSO APPLY UNDER THIS CONVENTION. 4.5 THE ASSESSEE FURTHER STATED THAT IN VIEW OF THE ABOV E, THE INCOME WILL NOT BE TAXABLE AS DTAA BETWEEN INDIA AND PORT UGAL IS MORE RESTRICTED IN SCOPE OF FTS. ARTICLE 12 ON 'FEES FOR TE CHNICAL SERVICES' IN INDIA-PORTUGAL DTAA HAS 'MAKE AVAILABLE' CLAUS E. THE SERVICES PROVIDED BY THE ASSESSEE COMPANY WERE MANAGE RIAL IN NATURE AND HENCE ARE NON-TECHNICAL. IN THIS CONNECTION, THE ASSESSEE RELIED ON THE DECISION OF DCIT VS BOSTON CONSULT ING GROUP PVT. LTD 2005 93 TTJ 293 (MUM) WHEREIN IT WAS HE LD THAT DEVISING, MARKETING AND SALES STRATEGIES , BUSINESS STRATE GY AND PORTFOLIO STRATEGY ETC. ARE NOT COVERED UNDER ARTICLE 12 4(B) OF INDIA-SINGAPORE DTAA SINCE THESE SERVICES ARE NOT TECHN ICAL IN NATURE. 4.6 RELYING ON VARIOUS DECISIONS IT WAS SUBMITTED THAT THE SERVICES RENDERED BY IT DO NOT SATISFY THE MAKE AVAILAB LE CONDITION. IT WAS SUBMITTED THAT THE TERM 'MAKE AVAILABLE' HAS BEEN DISCUSSED IN DETAIL IN MEMORANDUM OF UNDERSTANDING (MOU) TO INDIA -US DTAA TECHNICAL EXPLANATION TO INDIA-US DTAA EXPLANATORY MEMORANDUM TO INDIA-AUSTRALIA DTAA 4.7 THE ASSESSEE SUBMITTED THAT THE SERVICES RENDERED BY IT ARE ESSENTIALLY 'MANAGERIAL SERVICES TO SUPPORT THE DAY-TO- DAY FUNCTIONING OF THE GROUP ENTITIES AND TO SHARE BENEFIT OF SPECIALISATION TO IMPROVE QUALITY OF PERFORMANCE OF THE GROUP ENTITIES. THE DEFINITION OF FEES FOR TECHNICAL SERVICES IN THE DTAA BETWEEN INDIA AND PORTUGAL DOES NOT COVER MANAGERIAL SE RVICES. 5 HENCE, THE RECEIPTS FOR SUCH SERVICES ARE NOT TAXABLE IN INDIA. THEREFORE, THE ADDITION PROPOSED BY THE AO MAY BE REVERSED. 5. HOWEVER, THE DRP WAS ALSO NOT SATISFIED WITH THE ARGUMENTS ADVANCED BY THE ASSESSEE. THEY OBSERVED THAT THE MA NAGEMENT SERVICE AGREEMENT BETWEEN THE ASSESSEE COMPANY AND S ANDVIK ASIA LTD. AND BETWEEN THE ASSESSEE COMPANY AND WALTER TOOLS INDIA PRIVATE LIMITED ARE IDENTICAL. THE DRP REFERRED TO TH E CLAUSES RELATED TO SERVICES AS CONTAINED IN THE AGREEM ENT WHICH ARE AS UNDER : 2.1. THE PROVIDING PARTY SHALL FORM TIME TO TIME AT THE REQUEST OF THE RECEIVING PARTY PROVIDE THE RECEIVING PARTY WITH ALL OR ANY OF THE SERVICES UNDER THE TERMS SET O UT IN THIS SERVICE AGREEMENT. 2.2 THE PROVIDING PARTY AGREES TO PERFORM THE SER VICES WITH REASONABLE CARE AND SKILL AND WITHIN A REASONABLE TIME. 2.3. THE PROVIDING PARTY WILL PROVIDE THE RELEVANT SERVICES THROUGH CORRESPONDENCE, TELEPHONE, PERIODIC VISITS OF PERSONNEL AND OTHER MEANS AGREED ON FROM TIME TO TIME WITH THE RECEIVING PARTY. 2.4 THIS SERVICE AGREEMENT DOES NOT APPLY TO ACTIVITI ES PERFORMED BY THE PROVIDING PARTY THAT CONSTITUTES STEWARDSHIP OR CONTROL SERVICES VIS-A-VIS THE RECEIVI NG PARTY OR THAT IS IN ANY OTHER WAY BASED ON THE SHAREHOLDER - CORPORATION RELATIONSHIP DUE TO THE PROVIDING PARTY' S HOLDING OF A DIRECT OR INDIRECT PARTICIPATION IN THE RECEIVING P ARTY. 5.1 THEY OBSERVED THAT THE TERMS SERVICE IS DEFINED IN THE DEFINITION CLAUSE OF THE AGREEMENT WHICH READS AS UNDER : THE SUPPORT SERVICES LISTED IN SCHEDULE 2 OF THE AG REEMENT AS MAY BE AMENDED FROM TIME TO TIME BY THE AGREEMENT OF THE PARTIES. 5.2 THEY ALSO REPRODUCED THE SCHEDULE-2 OF THE AGREEMEN T WHICH READS AS UNDER : AS SPECIFICATION OF THE SERVICES PROVIDED AND OF T HE PRINCIPLES FOR ALLOCATING THE COSTS OF SUCH SERVICES T O THE RECEIVING PARTY WILL BE UPDATED ANNUALLY AND WILL BE DISTRIBUTED AND/OR BE MADE AVAILABLE AT SANDIKS INTR ANET TO THE CONTACT PERSONS INDICATED IN SCHEDULE 1 ABOVE. 6 ALL INFORMATION DISTRIBUTED OR MADE AVAILABLE IN PURSUA NCE TO THIS SCHEDULE 2 CONSTITUTE RESTRICTED INFORMATION. 5.3 THE CONTENTION OF THE ASSESSEE BEFORE THE DRP THAT THE NATURE OF THE SERVICES PROVIDED WERE OF MANAGERIAL SERVICE S WAS NOT ACCEPTED BY THE DRP ON THE GROUND THAT THE CONT ENTION OF THE ASSESSEE IS NOT BORNE OUT FROM THE TERMS OF THE AGREEM ENT. ALTHOUGH THE TITLE OF THE AGREEMENT IS OF MANAGERIAL SERVICE AGREEMENT, HOWEVER, THE DRP NOTED THAT THE NOMENCLATUR E GIVEN BY THE PARTIES IS NOT DETERMINATIVE OF REAL NATURE OF THE TRANSACTIONS. SINCE THE AGREEMENT ACCORDING TO THE DRP DOES NOT LIST ANY SERVICES PROVIDED BY THE ASSESSEE SO AS TO TRE AT THE SAME AS MANAGERIAL SERVICE, THEREFORE, THE DRP DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE SERVICES RENDERED ARE OF MARKETING, MANUFACTURING AND HUMAN RESOURCES AND INFORMAT ION TECHNOLOGY FUNCTIONS. IN VIEW OF LACK OF CLARITY ON PART OF THE ASSESSEE TO ESTABLISH THAT THE SERVICES RENDERED BY IT ARE ELIGIBLE FOR THE BENEFICIARY CLASS UNDER INDIA-PORTUGAL TREATY, THE DRP DECLINED TO INTERFERE WITH THE ORDER PASSED BY THE ASSES SING OFFICER. 6. BASED ON THE ORDER OF THE DRP THE ASSESSING OFFICER IN THE ORDER PASSED U/S.143(3) R.W.S. 144C(13) ON 27-10-2012 MADE ADDITION OF RS.8,60,02,251/- BEING INCOME FROM FTS. 7. AGGRIEVED WITH SUCH ORDER OF THE ASSESSING OFFICER THE ASSESSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW ; 1. THE LD. ASSESSING OFFICER AND THE LD. DRP HAS ERRED IN HOLDING THAT THE MANAGEMENT SERVICE FEES ('MSF') OF INR 86,002,25 1 RECEIVED BY THE APPELLANT, IS TAXABLE IN INDIA AS 'FEES FOR TECHNICAL SERVICES' ('FTS') WITHIN THE MEANING OF ARTICLE 12 OF THE INDIA-SWEDE N READ WITH THE PROTOCOL THERETO. 7 2. THE LEARNED ('LD') ASSESSING OFFICER HAS ERRED IN D ENYING APPLICABILITY OF DOUBLE TAXATION AVOIDANCE AGREEMEN T ('DTAA') BETWEEN INDIA AND PORTUGUESE VIA THE PROTOCOL ATTACH ED TO DTAA BETWEEN INDIA AND SWEDEN, BY ERRONEOUSLY MISPLACING R ELIANCE ON THE AAR DECISION IN THE CASE OF PERFETTI VAN MELLE HOLDI NGS BV (AAR NO 869 OF 2010). 3. THE LD. DISPUTE RESOLUTION PANEL ('DRP') HAS GROSSL Y ERRED IN CONCLUDING THAT THE APPELLANT WAS NOT ABLE TO ESTABLI SH WHETHER THE ILLUSTRATIVE SERVICES RENDERED WERE PURSUANT TO MANAGEM ENT SERVICES AGREEMENT (THE 'AGREEMENT') BETWEEN THE APPELLANT A ND ITS INDIAN AFFILIATE AND HENCE ERRED BY DECLINING TO INTERFERE WITH THE ORDER OF THE LD. ASSESSING OFFICER. 8. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET FILED A COPY OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A .Y. 2007- 08 VIDE ITA NO.1720/PN/2011 ORDER DATED 28-11-2014 AN D SUBMITTED THAT UNDER IDENTICAL CIRCUMSTANCES THE TRIBUNAL HAS HELD THAT ON THE PRINCIPLE OF THE MOST FAVOURED NATION C LAUSE THE PAYMENT RECEIVED BY THE ASSESSEE COMPANY FROM ITS INDIA N SUBSIDIARIES CANNOT BE BROUGHT TO TAX. REFERRING TO THE LIST OF SERVICES FOR A.Y. 2007-08 AND 2008-09 HE SUBMITTED THAT THE NATURE OF SERVICES ARE IDENTICAL. HE ACCORDINGLY SUBMITTED THAT IN VIEW OF THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CAS E IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR THE ADDITION MADE BY THE ASSESSING OFFICER SHOULD BE DELETED. 9. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND WHILE SUPPORTING THE ORDER OF THE ASSESSING OFFICER FAIRLY C ONCEDED THAT THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER/ DRP AN D THE AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND THE TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECED ING ASSESSMENT YEAR WHILE DECIDING AN IDENTICAL ISSUE HAS HELD T HAT 8 ON THE PRINCIPLE OF MOST FAVOURED NATION CLAUSE THE PAYMEN T RECEIVED BY THE ASSESSEE COMPANY FROM ITS INDIAN SUBSID IARIES CANNOT BE BROUGHT TO TAX. THE RELEVANT OBSERVATION OF TRIBUNAL FROM PARA 8 TO 13 OF THE READ AS UNDER : 8. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PART IES AND HAVE ALSO CONSIDERED THE WRITTEN SUBMISSIONS AND TH E PRECEDENTS AND DECISIONS RELIED ON BY BOTH THE PARTIES. THE A SSESSEE IS TAX RESIDENT OF SWEDEN. IT IS CLAIMED THAT THAT IT DOE S NOT HAVE A PERMANENT PLACE OF BUSINESS IN INDIA (PE). THE DIS PUTE IS IN RESPECT OF THE PAYMENT OF RS.5.9 CRORES RECEIVED BY THE ASSESSEE COMPANY FROM ITS INDIAN SUBSIDIES I.E. SANDVIK ASIA PVT. LTD. (SAPL) AND WTIPL. THE CLAIM OF THE ASSESSEE IS THA T THE ASSESSEE RECEIVED THE SAID PAYMENT FROM ITS INDIAN SUBSIDIES FOR RENDERING THE SERVICES WHICH ARE IN THE NATURE OF COMMERCIAL, MANAGEMENT, MARKETING AND PRODUCTION SERVICES. THE NATURE OF T HE SERVICES AS PER THE AGREEMENT ARE ALREADY MENTIONED HERE-IN-ABO VE. IN THIS CASE THERE IS NO DISPUTE ABOUT THE LEGAL POSITION T HAT THE AMOUNT RECEIVED BY THE ASSESSEE FROM ITS INDIAN SUBSIDIES IS TAXABLE IN INDIA UNDER NORMAL PROVISIONS OF ACT MORE PARTICULA RLY U/S. 9(1)(VII) R.W.S. 5(2) OF THE INCOME-TAX ACT. THE M AIN PLANK OF THE ARGUMENT OF THE LD. COUNSEL IS THAT WHEN THE ASSESS EE IS COVERED BY THE BENEFICIAL CLAUSES IN THE TREATY ENTERED INT O AS PER THE PROVISIONS OF SEC. 90 (2) OF THE INCOME-TAX ACT THE N EVEN IF THE ASSESSEES INCOME IS TAXABLE IN THE NORMAL PROVISIO NS STILL HE CAN CLAIM THE EXEMPTION FROM THE TAX AS PER THE CLAUSES APPLICABLE IN THE TREATY. 8.1 LD. COUNSEL ARGUES THAT THE ABOVE PAYMENT RECEI VED BY THE ASSESSEE COMPANY IS NOT TAXABLE IN INDIA IN VIE W OF THE BENEFICIAL PROVISIONS OF THE TAX TREATY BETWEEN IND IA AND SWEDEN READ WITH THE PROTOCOL WHICH IS INTEGRAL PART OF SA ID TREATY. HE SUBMITS THAT THE PROVISIONS OF TAX TREATY BETWEEN I NDIA AND SWEDEN READ WITH THE PROTOCOL RELATING TO THE SCOPE AND TAXATION OF FEES FOR TECHNICAL SERVICES BEING MORE BENEFICIA L THAN THE CORRESPONDENCE PROVISIONS OF THE INCOME-TAX ACT HEN CE, THE ASSESSEE MAY BE GIVEN THE BENEFIT OF THE TREATY BET WEEN INDIA- PORTUGAL ON THE BASIS OF PROTOCOL. HE SUBMITS THAT WITHOUT ADMITTING EVEN IF THE AMOUNT RECEIVED BY THE ASSESS EE IS IN THE NATURE OF FEES FOR TECHNICAL SERVICES (FTS) BUT GO ING ON THE PRINCIPLES OF MOST FAVOURED NATION (MFN) CLAUSE IN THE PROTOCOL ATTACHED TO THE DTAA BETWEEN INDIA AND SWEDEN, THE ASSESSEE CAN CLAIM THE EXEMPTION FROM TAX IN INDIA BECAUSE S UBSEQUENTLY THE INDIA HAS ALSO ENTERED INTO DTAA WITH PORTUGAL WHICH IS ALSO MEMBER OF THE OECD AND FEES FOR TECHNICAL SERVICES ARE NOT TAXABLE UNLESS THE CONDITION OF MAKE AVAILABLE IS F ULFILLED. 8.2 LD. COUNSEL PLACED HEAVY RELIANCE ON THE DECISI ON OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT, CENTRAL CIRCLE, BANGALORE AND ANOTHER VS. M/S. DE BEERS IND IA MINERALS PVT. LTD. 340 ITR 467 (KAR) AND BHARATI AXA GENERAL INSURANCE CO. LTD. VS. DIT 326 ITR 477. HE REFERRED TO THE A SSESSMENT ORDER AND SUBMITS THAT ASSESSING OFFICER HAS IMPLIE DLY ACCEPTED THAT THE TAX TREATY BETWEEN INDIA-PORTUGAL CAN BE A PPLIED TO THE ASSESSEE MORE PARTICULARLY IN THE CONTEXT OF THE PR OTOCOL ATTACHED TO THE INDIA AND SWEDEN TREATY. THERE IS CONDITION FOR BEGINNING TO TAX THE FEES FOR TECHNICAL SERVICES (FTS) IN THE DTAA BETWEEN INDIA AND PORTUGUESE I.E MAKE AVAILABLE AND IF SAID CONDITION IS NOT FULFILLED IN SOURCE COUNTRY FTS CANNOT BE TAXED . THE ASSESSEE IS TO BE GIVEN THE BENEFIT OF THE INDIA-PO RTUGUESE TREATY 9 ON PRINCIPLE OF MFN CLAUSE WHICH IS WELL RECOGNIZED IN INTERNATIONAL TAXATION. HE SUBMITS THAT THE IDENTI CAL ISSUE HAS COME FOR THE CONSIDERATION BY THE ITAT, PUNE IN THE CASE OF SANDVIK AUSTRALIA PTY. LTD. VS. D.D.I INTERNATIONA L TAX-II, PUNE IN ITA NO. 93/PN/2011 AND THE ASSESSEES CASE IS SQ UARELY COVERED ON THE INTERPRETATION OF A EXPRESSION-MAKE AVAILABLE. PER CONTRA, THE LD. DR RELIED ON THE WRITTEN SUBMIS SIONS. 9. IN THIS CASE THE ONLY ISSUE TO BE CONSIDERED BY US IS WHETHER THE ASSESSEE CAN BE GIVEN BENEFIT OF INDIA- PORTUGUESE TREATY ON PRINCIPLE OF MFN CLAUSE? THE INDIA ENTER ED INTO DTAA WITH THE SWEDEN WHICH WAS NOTIFIED VIDE NOTIFICATIO N NO. GR 705/E DATED 17.12.1997. ARTICLE 12 OF THE INDIA-SWE DEN DTAA PROVIDES THE MODE OF TAXATION OF THE ROYALTIES AND FEES FOR TECHNICAL SERVICES WHETHER THE SAME ARE TO BE TAXED IN THE SOURCE COUNTRY OR IN THE RESIDENCE COUNTRY. THE DEFINITIO N OF THE FEES FOR TECHNICAL SERVICES (FTS) IS GIVEN IN ARTICLE 12(3)( B) OF THE ACT. IT IS TRUE THAT IT IS A VERY CONSERVATIVE DEFINITION AND THERE IS NO CONDITION THAT THE TECHNICAL SERVICES SHOULD BE MAD E AVAILABLE. THE INDIA ALSO ENTERED INTO THE TREATY WITH PORTUGU ESE REPUBLIC WHICH WAS NOTIFIED VIDE NOTIFICATION NO. GR F42/E D ATED 16 TH JUNE, 2000. IN THE SAID TREATY, MODE OF TAXATION OF THE FEES FOR TECHNICAL SERVICES (FTS) BETWEEN TWO COUNTRIES IS A LSO PROVIDED IN THE ARTICLE 12 BUT INSTEAD OF FEES FOR TECHNICAL SE RVICES THE EXPRESSION USED IS FEES FOR INCLUDED TECHNICAL SER VICES. AS PER THE ARTICLE 12(4) FEES FOR INCLUDED SERVICES MEANS PAYMENT OF FEES OF ANY KIND OTHER THAN THOSE MENTIONED IN ARTICLE 1 4 AND 15 OF THE SAID TREATY, TO ANY PERSON IN CONSIDERATION OF THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES (INCLUDING TH ROUGH THE PROVISIONS OF SERVICES OF TECHNICAL OR OTHER PERSON AL) IF SUCH SERVICES (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A P AYMENT DESCRIBE IN PARA NO. 3 IS RECEIVED OR (B) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPRESSIONS , SKILL, KNOWHOW OR PROCESS, OR CONSIST OF THE DEVELOPMENT A ND TRANSFER OF TECHNICAL PLAN OR TECHNICAL DESIGN WHICH ENABLES THE PERSON ACQUIRING THE SERVICES TO APPLY THE TECHNOLOGY CONT AINED THEREIN. THE MAIN PLANK OF THE ARGUMENT OF THE LD. COUNSEL I S THAT CONSIDERING THE PRINCIPLE OF MOST FAVOURED NATION ( MFN) CLAUSE IN TREATY BETWEEN INDIA AND PORTUGUESE UNLESS A CONDIT ION OF MAKE AVAILABLE THE TECHNICAL KNOWLEDGE OR SKILL OR SERVI CES IS FULFILLED THEN SAID PAYMENT CANNOT BE TAXED IN SOURCE COUNTRY I.E. INDIA. 10. IN THE CASE OF SANDVIK AUSTRALIA PTY. LTD. (SUP RA) AND FOLLOWING THE DECISION IN THE CASE OF M/S. DE BEERS INDIA MINERALS PVT. LTD. (SUPRA) ON THE EXPRESSION MAKE AVAILABLE IT IS HELD AS UNDER 12. THE ASSESSING OFFICER HAS ALREADY REPRODUCED A RTICLE 12 OF THE INDIA AUSTRALIA TREATY IN HIS DRAFT ASSESSMENT ORDER AND HE HAS INTERPRETED THAT AS PER THE TREATY FTS MEANS PA YMENT OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR THE RENDERI NG OF ANY TECHNICAL OR CONSULTANCY SERVICES IF SUCH SERVICES MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESS OR CONSISTS OF DEVELOPMENT AND DATA OF TECHNICAL PLAN OR TECHNICAL DESIGN. IN VIEW OF THE ABOVE RENDERED BY THE ASSES SEE COMPANY TO ITS INDIAN AFFILIATES ARE IN THE NATURE OF FTS O R ROYALTIES AND SAME IS TAXABLE IN INDIA. WE REPRODUCE HEREIN UNDE R THE RELEVANT PART OF ARTICLE 12: 10 ARTICLE XII - ROYALTIES - 1. ROYALTIES ARISING IN O NE OF THE CONTRACTING STATES, BEING ROYALTIES TO WHICH A RESI DENT OF THE OTHER CONTRACTING STATE IS BENEFICIALLY ENTITLED, M AY BE TAXED IN THAT OTHER STATE. 2. SUCH ROYALTIES MAY ALSO BE TAXED IN THE CONTRACT ING STATE IN WHICH THEY ARISE, AND ACCORDING TO THE LAW OF THAT STATE, BUT THE TAX SO CHARGED SHALL NOT EXCEED: (A) IN THE CASE OF : (I) ROYALTIES REFERRED TO IN SUB-PARAGRAPH (3)(B) ; (II) PAYMENTS OR CREDITS FOR SERVICES REFERRED TO IN SUB- PARAGRAPH (3)(D), SUBJECT TO SUB-PARAGRAPHS (3)(H) TO (L), THAT ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATIO N OR ENJOYMENT OF EQUIPMENT FOR WHICH PAYMENTS OR CREDIT S ARE MADE UNDER SUB-PARAGRAPH (3)(B); OR (III) ROYALTIES REFERRED TO IN SUB-PARAGRAPH (3)(F ) THAT RELATE TO EQUIPMENT MENTIONED IN SUB-PARAGRAPH (3)( B); 10 PER CENT OF THE GROSS AMOUNT OF THE ROYALTIES; AND (B) IN THE CASE OF OTHER ROYALTIES : (I) DURING THE FIRST 5 YEARS OF INCOME FOR WHICH T HIS AGREEMENT HAS EFFECT : (A) WHERE THE PAYER IS THE GOVERNMENT OR A POLITICAL SUB-DIVISION OF THAT STATE OR A PUBLIC SE CTOR COMPANY: 15 PER CENT OF THE GROSS AMOUNT OF THE ROYALTIES; AND (B) IN ALL OTHER CASES: 20 PER CENT OF THE GROSS AMOUNT OF THE ROYALTIES; AND (II) DURING ALL SUBSEQUENT YEARS OF INCOME: 15 PER CENT OF THE GROSS AMOUNT OF THE ROYALTIES. 3. THE TERM ROYALTIES IN THIS ARTICLE MEANS PAYME NTS OR CREDITS, WHETHER PERIODICAL OR NOT, AND HOWEVER DESCRIBED OR COMPUTED, TO THE EXTENT TO WHICH THEY ARE MADE AS CONSIDERATION FOR : (A) THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT , PATENT, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PR OCESS, TRADE MARK OR OTHER LIKE PROPERTY OR RIGHT; (B) THE USE OF, OR THE RIGHT TO USE, ANY INDUSTRIA L, COMMERCIAL OR SCIENTIFIC EQUIPMENT; (C) THE SUPPLY OF SCIENTIFIC, TECHNICAL, INDUSTRIA L OR COMMERCIAL KNOWLEDGE OR INFORMATION; (D) THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THOSE OF TECHNICAL OR OTHER PER SONNEL) WHICH ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATI ON OR ENJOYMENT OF ANY SUCH PROPERTY OR RIGHT AS IS MENTI ONED IN SUB-PARAGRAPH (A), OR ANY SUCH EQUIPMENT AS IS MENT IONED IN SUB-PARAGRAPH (B) OR ANY SUCH KNOWLEDGE OR INFOR MATION AS IS MENTIONED IN SUB-PARAGRAPH (C); (E) THE USE OF, OR THE RIGHT TO USE : 11 (I) MOTION PICTURE FILMS; (II) FILMS OR VIDEO TAPES FOR USE IN CONNECTION WI TH TELEVISION; OR (III) TAPES FOR USE IN CONNECTION WITH RADIO BROAD CASTING; (F) TOTAL OR PARTIAL FORBEARANCE IN RESPECT OF TH E USE OR SUPPLY OF ANY PROPERTY OR RIGHT REFERRED TO IN SUB- PARAGRAPHS (A) TO (E); (G) THE RENDERING OF ANY SERVICES (INCLUDING THOSE OF TECHNICAL OR OTHER PERSONNEL), WHICH MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESSES OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNI CAL PLAN OR DESIGN; BUT THAT TERM DOES NOT INCLUDE PAYMENTS OR CREDITS RELATING TO SERVICES MENTIONED IN SUB-PARAG RAPHS (D) AND (G) THAT ARE MADE; (H) FOR SERVICES THAT ARE ANCILLARY AND SUBSIDIARY , AND INEXTRICABLY AND ESSENTIALLY LINKED, TO A SALE OF P ROPERTY; (I) FOR SERVICES THAT ARE ANCILLARY AND SUBSIDIARY TO THE RENTAL OF SHIPS, AIRCRAFT, CONTAINERS OR OTHER EQUIPMENT U SED IN CONNECTION WITH THE OPERATION OF SHIPS OR AIRCRAFT IN INTERNATIONAL TRAFFIC; (J) FOR TEACHING IN OR BY AN EDUCATIONAL INSTITUTI ON; (K) FOR SERVICES FOR THE PERSONAL USE OF THE INDIV IDUAL OR INDIVIDUALS MAKING THE PAYMENTS OR CREDITS; OR (L) TO AN EMPLOYEE OF THE PERSON MAKING THE PAYME NTS OR CREDITS OR TO ANY INDIVIDUAL OR FIRM OF INDIVIDU ALS (OTHER THAN A COMPANY) FOR PROFESSIONAL SERVICES AS DEFINE D IN ARTICLE 14. 4. THE PROVISIONS OF PARAGRAPHS (1) AND (2) SHALL N OT APPLY IF THE PERSON BENEFICIALLY ENTITLED TO THE ROYALTIES, BEIN G A RESIDENT OF ONE OF THE CONTRACTING STATES, CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE, IN WHICH THE ROYALTIES ARISE, TH ROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN, OR PERFOR MS IN THAT OTHER STATE INDEPENDENT PERSONAL SERVICES FROM A FI XED BASE SITUATED THEREIN, AND THE PROPERTY, RIGHT OR SERVIC ES IN RESPECT OF WHICH THE ROYALTIES ARE PAID OR CREDITED ARE EFFECT IVELY CONNECTED WITH SUCH PERMANENT ESTABLISHMENT OR FIXED BASE. IN SUCH A CASE, THE PROVISIONS OF ARTICLE 7 OR ARTICLE 14, AS THE CASE MAY BE, SHALL APPLY. 5. ROYALTIES SHALL BE DEEMED TO ARISE IN A CONTRACT ING STATE WHEN THE PAYER IS THAT STATE ITSELF OR A POLITICAL SUB-D IVISION OR LOCAL AUTHORITY OF THAT STATE OR A PERSON WHO IS A RESIDE NT OF THAT STATE FOR THE PURPOSES OF ITS TAX. WHERE, HOWEVER, THE PE RSON PAYING THE ROYALTIES, WHETHER THE PERSON IS A RESIDENT OF ONE OF THE CONTRACTING STATES OR NOT, HAS IN ONE OF THE CONTRA CTING STATES OR OUTSIDE BOTH CONTRACTING STATES A PERMANENT ESTABLI SHMENT OR FIXED BASE IN CONNECTION WITH WHICH THE LIABILITY T O PAY THE ROYALTIES WAS INCURRED, AND THE ROYALTIES ARE BORNE BY THE PERMANENT ESTABLISHMENT OR FIXED BASE, THEN THE ROY ALTIES SHALL BE DEEMED TO ARISE IN THE STATE IN WHICH THE PERMAN ENT ESTABLISHMENT OR FIXED BASE IS SITUATED. 12 6. WHERE, OWING TO A SPECIAL RELATIONSHIP BETWEEN T HE PAYER AND THE PERSON BENEFICIALLY ENTITLED TO THE ROYALTIES, OR BETWEEN BOTH OF THEM, AND SOME OTHER PERSON, THE AMOUNT OF THE R OYALTIES PAID OR CREDITED, HAVING REGARD TO WHAT THEY ARE PAID OR CREDITED FOR, EXCEEDS THE AMOUNT WHICH MIGHT HAVE BEEN EXPECTED T O HAVE BEEN AGREED UPON BY THE PAYER AND THE PERSON SO ENT ITLED IN THE ABSENCE OF SUCH RELATIONSHIP, THE PROVISIONS OF THI S ARTICLE SHALL APPLY ONLY TO THE LAST-MENTIONED AMOUNT. IN THAT CA SE, THE EXCESS PART OF THE AMOUNT OF THE ROYALTIES PAID OR CREDITE D SHALL REMAIN TAXABLE ACCORDING TO THE LAW, RELATING TO TAX, OF E ACH CONTRACTING STATE, BUT SUBJECT TO THE OTHER PROVISIONS OF THIS AGREEMENT. 13. WE ARE CONCERNED WITH PARA NO.3 OF ARTICLE 12, WHICH DEFINES THE TERM ROYALTY. UNDER THE IT ACT, THE TE RM ROYALTY AND EXPRESSION FTS ARE CLASSIFIED AS TWO DIFFERENT CONN OTATIONS, I.E. 9(1)(VI) AND 9(1)(VII). SO FAR AS ARTICLE 12 IS CO NCERNED, FTS IS INCLUDED IN THE TERM ROYALTY FOR THE PURPOSE OF D ECIDING IN WHICH CONTRACTING STATE THE INCOME FROM THE SAME IS TO BE TAXED. CLAUSE (G) IN ARTICLE 12(3) GOES TO THE ROOTS OF TH E ISSUE. MAIN THRUST OF THE ARGUMENT OF THE LD. COUNSEL IS THAT I T IS NOT ONLY SUFFICIENT TO RENDER THE SERVICES BUT THE SAME SHOU LD BE MADE AVAILABLE TO THE RECIPIENT AND THIS PARTICULAR IMPO RTANT ASPECT IS MISSED BY THE DRP/TPO. WE FIND THAT THE EXPRESSION MAKING AVAILABLE IS VERY MUCH IMPORTANT TO DECIDE IN WHIC H CONTRACTING STATE THE AMOUNT RECEIVED FOR RENDERING THE SERVICE S RELATING TO THE TECHNICAL KNOW-HOW IS TO BE TAXED. THE EXPRES SION MAKE AVAILABLE IS USED IN THE CONTEXT OF SUPPLYING OR T RANSFERRING TECHNICAL KNOWLEDGE OR TECHNOLOGY TO ANOTHER. IT I S DIFFERENT THAN THE MERE OBLIGATION OF THE PERSON RENDERING THE SER VICES OF THAT PERSONS OWN TECHNICAL KNOWLEDGE OR TECHNOLOGY IN PE RFORMANCE OF THE SERVICES. THE TECHNOLOGY WILL BE CONSIDERED AS MADE AVAILABLE WHEN THE PERSON RECEIVING THE SERVICES IS ABLE TO A PPLY THE TECHNOLOGY BY HIMSELF. 14. THE EXPRESSION MAKE AVAILABLE HAS COME FOR CONSIDERATION BEFORE THE HON'BLE HIGH COURT OF KARN ATAKA IN THE CASE OF M/S.DE BEERS INDIA MINERALS PVT. LTD. (SUPR A). IN THE SAID CASE, THE TREATY BETWEEN INDIA AND NETHERLANDS WAS FOR THE CONSIDERATION OF THEIR LORDSHIPS. THE ASSESSEE IN THAT APPEAL WAS A PROVIDING COMPANY ENGAGED IN THE BUSINESS OF PROSPECTING AND MINING FOR DIAMONDS AND OTHER MINERALS. THEY HA VE BEEN GRANTED LICENCES (RECONNAISSANCE PERMITS) BY THE ST ATE GOVERNMENT OF KARNATAKA, ANDHRA PRADESH AND CHHATTI SGARH. DURING THE EARLY STAGE, VARIOUS TECHNIQUES WERE EMP LOYED FOR THE PURPOSE OF CARRYING OUT GEOPHYSICAL SURVEY, THE ASS ESSEE ENTERED INTO AGREEMENT WITH M/S.FUGRO ELBOCON B.V. NETHERLA NDS, WHO HAD A TEAM OF EXPERTS SPECIALISED IN AIR BORNE GEOP HYSICAL SERVICES FOR CLIENTS. FOR THE TECHNICAL SERVICES R ENDERED BY THEM THE SAID ASSESSEE HAD PAID CONSIDERATION. THE ASSE SSING OFFICER APPLIED ARTICLE 12 OF THE INDO-NETHERLANDS TREATY A ND HELD THAT THE SAME WAS TAXABLE IN THE HANDS OF THE NETHERLAND S COMPANY. AS THE WORDINGS OF ARTICLE 12 IN THE INDO-NETHERLAN DS TREATY ARE ANALOGOUS TO ARTICLE 12 OF THE INDIA AUSTRALIA TREA TY, AS EXPRESSION MAKE AVAILABLE IS ALSO USED WHILE DETE RMINING FISCAL JURISDICTION OF THE CONTRACTING STATE, THE HON'BLE HIGH COURT EXPLAINED THE MEANING OF THE EXPRESSION MAKE AVAIL ABLE WHICH WAS APPEARING IN THE INDO-NETHERLANDS TREATY, THE L ORDSHIPS EXPLAINED THE EXPRESSION AS UNDER: 13. UNDER THE ACT IF THE CONSIDERATION PAID FOR RE NDERING TECHNICAL SERVICES CONSTITUTE INCOME BY WAY OF FEES FOR TECHNICAL SERVICES, IT IS TAXABLE. HOWEVER, ARTICLE 12 OF T HE AFORESAID INDIA- NETHERLANDS TREATY DEFINES FEES FOR TECHNICAL SERVI CES FOR THE PURPOSE OF ARTICLE 12 WHICH DEALS WITH ROYALTIES AN D FEES FOR 13 TECHNICAL SERVICES. THE FEES FOR TECHNICAL SERVICE S MEANS THE PAYMENT OF ANY AMOUNT TO ANY PERSON IN CONSIDERATIO N FOR RENDERING OF ANY TECHNICAL SERVICES ONLY, IF SUCH S ERVICES MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERTISE, SKILL, KN OW-HOW OR PROCESSES. IF THE TECHNICAL KNOWLEDGE EXPERTISE, S KILL, KNOW HOW OR PROCESS IS NOT MADE AVAILABLE BY THE SERVICE PRO VIDER, WHO HAS RENDERED TECHNICAL SERVICE FOR THE PURPOSE OF ARTIC LE 12 OF DTAA IT WOULD NOT CONSTITUTE FEES FOR TECHNICAL SERVICES. TO THAT EXTENT THE DEFINITION OF FEE FOR TECHNICAL SERVICES FOUND IN THE AGREEMENT IS INCONSISTENT WITH THE DEFINITION OF FEES FOR TEC HNICAL SERVICES PROVIDED IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SE CTION (1) OF SECTION 9. IN VIEW OF SECTION 90 THE DEFINITION OF FEES FOR TECHNICAL SERVICES CONTAINED IN THE AGREEMENT OVERR IDES THE STATUTORY PROVISIONS CONTAINED IN THE ACT. IN FACT , THE LATEST AGREEMENT BETWEEN INDIA AND SINGAPORE FURTHER CLARI FIES THIS POSITION, WHERE THEY HAVE EXPLAINED THE MEANING OF THE WORD MAKE AVAILABLE. ACCORDING TO THE AFORESAID DEFIN ITION FEES FOR TECHNICAL SERVICE MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR SERVICES OF TECHNICAL NATURE IF S UCH SERVICES MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKI LL, KNOW HOW OR PROCESSES WHICH ENABLES THE PERSON ACQUIRING THE SERVICE TO APPLY TECHNOLOGY CONTAINED THEREIN. THOUGH THIS PR OVISION IS NOT CONTAINED IN INDIA NETHERLANDS TREATY, BUT VIRTUE O F PROTOCOL IN THE AGREEMENT, CLAUSE (IV)(2) READS AS UNDER: IF AFTER THE SIGNATURE OF THIS CONVENTION UNDER AN Y CONVENTION OR AGREEMENT BETWEEN INDIA AND THIRD STATE WHICH IS A MEMBER OF THE OECD INDIA SHOULD LIMIT ITS TAXATION AT SOURCE ON DIVIDENDS, INTERESTS, ROYALTIES, FEES FOR TECHNICAL SERVICES O R PAYMENTS FOR THE USE OF EQUIPMENT TO A RATE LOWER OR A SCOPE MORE RE STRICTED THAN THE RATE OR SCOPE PROVIDED FOR IN THIS CONVENTION O N THE SAID ITEMS OF INCOME, THEN AS FROM THE DATE ON WHICH THE RELEVANT INDIAN CONVENTION OR AGREEMENT ENTERS INTO FORCE TH E SAME RATE OR SCOPE AS PROVIDED FOR IN THAT CONVENTION OR AGRE EMENT ON THE SAID ITEMS OF INCOME SHALL ALSO APPLY UNDER THIS CO NVENTION. 14. THEREFORE THE CLAUSE IN SINGAPORE AGREEMENT WHI CH EXPLICITLY MAKES IT CLEAR THE MEANING OF THE WORD MAKE AVAILABLE, THE SAID CLAUSE HAS TO BE APPLIED, AND TO BE READ I NTO THIS AGREEMENT ALSO. THEREFORE, IT FOLLOWS THAT FOR ATT RACTING THE LIABILITY TO PAY TAX NOT ONLY THE SERVICES SHOULD B E OF TECHNICAL IN NATURE, BUT IT SHOULD BE MADE AVAILABLE TO THE PERS ON RECEIVING THE TECHNICAL SERVICES. THE TECHNOLOGY WILL BE CON SIDERED MADE AVAILABLE WHEN THE PERSON WHO RECEIVED SERVICE IS ENABLED TO APPLY THE TECHNOLOGY. THE SERVICE PROVIDER IN ORDE R TO RENDER TECHNICAL SERVICES USES TECHNICAL KNOWLEDGE, EXPERI ENCE, SKILL, KNOW HOW OR PROCESSES. TO ATTRACT THE TAX LIABILIT Y, THAT TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW HOW OR PROCESS W HICH IS USED BY SERVICE PROVIDER TO RENDER TECHNICAL SERVICE SHO ULD ALSO BE MADE AVAILABLE TO THE RECIPIENT OF THE SERVICES, SO THAT THE RECIPIENT ALSO ACQUIRES TECHNICAL KNOWLEDGE, EXPERI ENCE, SKILL, KNOW HOW OR PROCESSES SO AS TO RENDER SUCH TECHNICA L SERVICES. ONCE ALL SUCH TECHNOLOGY IS MADE AVAILABLE IT IS OP EN TO THE RECIPIENT OF THE SERVICE TO MAKE USE OF THE SAID TE CHNOLOGY. THE TAX IS NOT DEPENDENT ON THE USE OF THE TECHNOLOGY B Y THE RECIPIENT. THE RECIPIENT AFTER RECEIVING OF TECHNO LOGY MAY USE OR MAY NOT USE THE TECHNOLOGY. IT HAS NO BEARING ON T HE TAXABILITY ASPECT IS CONCERNED. WHEN THE TECHNICAL SERVICE IS PROVIDED, THAT TECHNICAL SERVICE IS TO BE MADE USE OF BY THE RECIP IENT OF THE SERVICE IN FURTHER CONDUCT OF HIS BUSINESS. MERELY BECAUSE HIS BUSINESS IS DEPENDENT ON THE TECHNICAL SERVICE WHIC H HE RECEIVES FROM THE SERVICE PROVIDER, IT DOES NOT FOLLOW THAT HE IS MAKING USE OF THE TECHNOLOGY WHICH THE SERVICE PROVIDER UTILIS ES FOR RENDERING TECHNICAL SERVICES. THE CRUX OF THE MATTER IS AFTER RENDERING OF SUCH TECHNICAL SERVICES BY THE SERVICE PROVIDER, WH ETHER THE 14 RECIPIENT IS ENABLED TO USE THE TECHNOLOGY WHICH TH E SERVICE PROVIDER HAD USED. THEREFORE, UNLESS THE SERVICE P ROVIDER MAKES AVAILABLE HIS TECHNICAL KNOWLEDGE, EXPERIENCE, SKIL L, KNOW HOW OR PROCESS TO THE RECIPIENT OF THE TECHNICAL SERVICE, IN VIEW OF THE CLAUSES IN THE DTAA, THE LIABILITY TO TAX IS NOT AT TRACTED. 11. NOW, THE NEXT QUESTION IS WHETHER THE ASSESSEE IS ENTITLED FOR THE BENEFITS OF DTAA BETWEEN INDIA-PORTUGUESE A S SECOND CONDITION MAKE AVAILABLE IS NOT FULFILLED. THERE IS A PROTOCOL TO THE TREATY BETWEEN INDIA AND SWEDEN WHICH IS AS UNDER: AT THE SIGNING OF THE CONVENTION BETWEEN THE GOVERN MENT OF THE REPUBLIC OF INDIA AND THE GOVERNMENT OF THE KINGDOM OF SWEDEN FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVEN TION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND ON CAPI TAL, THE UNDERSIGNED HAVE AGREED THAT THE FOLLOWING SHALL FO RM AN INTEGRAL PART OF THE CONVENTION : WITH REFERENCE TO ARTICLES 10, 11 AND 12 : IN RESPECT OF ARTICLES 10 (DIVIDENDS), 11 (INTEREST ) AND 12 (ROYALTIES AND FEES FOR TECHNICAL SERVICES) IF UNDE R ANY CONVENTION. AGREEMENT OR PROTOCOL BETWEEN INDIA AND A THIRD STATE WHICH IS A MEMBER OF THE OECD, INDIA LIMITS I TS TAXATION AT SOURCE ON DIVIDENDS, INTEREST, ROYALTIES, OR FEES F OR TECHNICAL SERVICES TO A RATE LOWER OR A SCOPE MORE RESTRICTED THAN THE RATE OR SCOPE PROVIDED FOR IN THIS CONVENTION ON THE SAI D ITEMS OF INCOME, THE SAME RATE OR SCOPE AS PROVIDED FOR IN THAT CONVENTION, AGREEMENT OR PROTOCOL ON THE SAID ITEMS OF INCOME SHALL ALSO APPLY UNDER THIS CONVENTION. 11.1 AN MFN CLAUSE REFERS TO A SITUATION WHEREIN TW O NON- RESIDENT TAX PAYERS ARE GIVEN IMPARTIAL TREATMENT B Y THE CONCERNED COUNTRY. IN DTAAS, MFN CLAUSE FIND PLACE WHEN COUNTRIES ARE RELUCTANT TO FOREGO THEIR RIGHT TO TA X SOME ELEMENTS OF THE INCOME. AN MFN CLAUSE CAN DIRECT MORE FAVOU RABLE TREATMENT AVAILABLE IN OTHER TREATIES ONLY IN REGAR D TO THE SAME SUBJECT MATTER, THE SAME CATEGORY OF MATTER OR THE SAME CLAUSE OF THE MATTER. THE PROTOCOL ATTACHED TO THE TREATY TA KE CARE OF A SITUATION WHERE IN CASES EITHER OF THE CONTRACTING STATES ENTER INTO A BILATERAL AGREEMENT INTO THE NATURE OF DTAA WITH THE ANOTHER SOVEREIGN STATE AND WHERE THE SAME SUBJECT MATTER HAS BEEN GIVEN MORE FAVOURABLE TREATMENT BY WAY OF A DE FINITION OR MODE OF TAX THEN THE PARTIES CAN CLAIM THE BENEFIT ON THE RECOGNIZED PRINCIPLE OF MFN CLAUSE. IN HIS INTRODU CTION TO DOUBLE TAXATION CONVENTIONS (THIRD EDITION) KLAUS VOGEL HAS EXPLAINED THE ROLE OF THE PROTOCOL AND ITS ROLE IN INTERPRETING THE TREATY. THE SAME HAS BEEN CONSIDERED BY THE ITAT, CALCUTTA IN THE CASE OF DCIT V. ITC LTD., 76 TTJ 323. 11.2 IN THE CASE OF MARUTI UDYOG LTD., VS. ADIT RE PORTED IN (2010) 37 DTR 85 (DELHI) EXPLAINING THE SCOPE OF TH E PROTOCOL IT IS HELD AS UNDER : 11.1 IT IS SETTLED POSITION IN LAW THAT PROTOCOL IS AN INDISPENSABLE PART OF THE TREATY WITH THE SAME BIND ING FORCE AS THE MAIN CLAUSES THEREIN, AS PROTOCOL IS AN INTEGRA L PART OF THE TREATY AND ITS BINDING FORCE IS EQUAL TO THAT OF TH E PRINCIPAL TREATY. THE PROVISIONS OF THE AFORESAID DTAA ARE, THEREFORE , REQUIRED TO BE READ WITH THE PROTOCOL CLAUSES AND ARE SUBJECT T O THE PROVISIONS CONTAINED IN SUCH PROTOCOL. EXAMINED IN THE LIGHT OF DTAAS BETWEEN INDIA AND UK, USA AND SWITZERLAND, WE FIND THAT IN THE CASE BEFORE US THE ASSESSEE HAD NOT PURCHASE D ANY PROPERTY FROM UTAC FRANCE. THEREFORE, NONE OF THE F EES I.E., 15 IMPACT TESTING FEES OR FEE PAID FOR TEST REPORTS IS ANCILLARY AND SUBSIDIARY AS WELL AS INEXTRICABLY AND ESSENTIALLY LINKED TO THE SALE OF A PROPERTY. THEREFORE, THE DECISION OF THE TRIBUNAL, CALCUTTA BENCH IN THE CASE OF DY. CIT VS. ITC LTD. (SUPRA) RELIED UPON BY THE ASSESSEE IS NOT APPLICABLE TO THE FACTS OF THE CASE. IN THIS CASE THE ASSESSEE HAD PURCHASED MACHINES FROM UK AND PAYMENTS WERE MADE TO FOREIGN PARTY FOR INSTALLATIO N AND COMMISSIONING OF THE MACHINES. THE FOREIGN PARTY DI D NOT HAVE ANY PE IN INDIA TO WHICH SUCH INCOME COULD BE ATTRI BUTED. IN THIS VIEW OF THE MATTER IT WAS HELD THAT THE PAYMENTS MA DE TO FOREIGN PARTY FOR INSTALLATION AND COMMISSIONING OF THE MAC HINES WERE RELATED TO TECHNICAL SERVICES, WHICH WERE ANCILLARY AND SUBSIDIARY AS WELL AS INEXTRICABLY AND ESSENTIALLY LINKED TO T HE SALE OF THE PROPERTY. HENCE, THE PAYMENTS MADE TO THE FOREIGN P ARTY WERE NOT LIABLE TO BE TAXED IN INDIA. IN THE DECISION RE LIED UPON BY THE ASSESSEE IN THE CASE OF RAYMOND LTD. VS. DY. CIT (S UPRA), IT WAS HELD THAT NO TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL S, KNOW-HOW OR PROCESS ETC. WAS MADE AVAILABLE TO THE ASSESSEE COM PANY BY THE NON-RESIDENT MANAGERS OF THE GDR ISSUE WITHIN THE M EANING OF ART. 13(4)(C) OF THE DTAA. LIKEWISE, DECISIONS IN T HE CASES OF SKYCELL COMMUNICATIONS LTD. (SUPRA) AND NQA QUALITY SYSTEMS REGISTRAR LTD. (SUPRA) ARE DISTINGUISHABLE ON FACTS , HENCE, ARE NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. 11.3 IT IS ALSO WORTHWHILE TO REFER TO THE RULING G IVEN IN THE CASE OF AUTHORITY FOR ADVANCED RULING (AAA) IN THE CASE OF POONAVALA AVIATIONS REPORTED IN 343 ITR 381 THOUGH IT IS HAVI NG PERSUASIVE VALUE WHICH READS AS UNDER : 16. IN HIS INTRODUCTION TO DOUBLE TAXATION CONVENT IONS (THIRD EDITION), KLAUS VOGEL, HAS CLARIFIED THE ROLE OF A PROTOCOL AND ITS ROLE IN INTERPRETING A TREATY. HE SAYS, 'PROTOCOLS AND IN SOME CASES OTHER COMPLETING DOCUMENTS ARE FREQUENTLY ATT ACHED TO TREATIES. SUCH DOCUMENTS ELABORATE AND COMPLETE THE TEXT OF A TREATY, SOMETIMES EVEN ALTERING THE TEXT. LEGALLY T HEY ARE A PART OF THE TREATY, AND THEIR BINDING FORCE IS EQUAL TO THA T OF THE PRINCIPAL TREATY TEXT. WHEN APPLYING A TAX TREATY, THEREFORE, IT IS NECESSARY CAREFULLY TO EXAMINE THESE ADDITIONAL DOCUMENTS'. A PROTOCOL IS SAID TO BE A TREATY BY ITSELF THAT AMENDS OR SUPPOR TS THE EXISTING TREATY. WE CANNOT ALSO FORGET THE OBSERVATIONS OF T HE SUPREME COURT IN UNION OF INDIA VS. AZADI BACHAO ANDOLAN (2 003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC) AT P. 751 TH AT 'AN IMPORTANT PRINCIPLE WHICH NEEDS TO BE KEPT IN MIND IN THE INTERPRETATION OF THE PROVISIONS OF AN INTERNATIONA L TREATY, INCLUDING ONE FOR DOUBLE TAXATION RELIEF, IS THAT T REATIES ARE NEGOTIATED AND ENTERED INTO AT A POLITICAL LEVEL AN D HAVE SEVERAL CONSIDERATIONS AS THEIR BASES'. SO THE ARGUMENT OF THE REVENUE THAT THE PROTOCOL CANNOT BE RELIED ON TO UNDERSTAND THE SCOPE OF TAXATION CANNOT BE ACCEPTED. 12. SO FAR AS THE PRESENT CASE BEFORE US IS CONCERN ED, ON THE BASIS OF THE PROTOCOL TO THE DTAA BETWEEN THE INDIA AND SWEDEN THE ASSESSEE CAN CLAIM THE BENEFIT OF THE CONDITION S IMPOSED FOR BRINGING TO TAX THE FEES FOR TECHNICAL SERVICES IN THE TREATY BETWEEN THE INDIA AND PORTUGUESE. WE, THEREFORE, H OLD THAT ON THE PRINCIPLE OF THE MOST FAVOURED NATION (MFN) CLA USES THE PAYMENT OF RS.5.93 CRORES RECEIVED BY THE ASSESSEE COMPANY FROM ITS INDIAN SUBSIDIES CANNOT BE BROUGHT TO TAX. WE, THEREFORE, ALLOW THE GROUNDS TAKEN BY THE ASSESSEE ON THE ABOVE REASONS. 16 11. SINCE THE NATURE OF SERVICES PROVIDED BY THE ASSESS EE COMPANY TO ITS AFFILIATES DURING A.Y. 2007-08 AND 2008-09 AR E SIMILAR, THEREFORE, FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING ASSESS MENT YEAR AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE WE HOLD THAT THE MANAGEMENT SERVICE FEES OF INR 8,60,02,251/- RECEIVED BY THE ASSESSEE IS NOT TAXABLE IN INDIA ON THE PRINCIPLE OF MOST FAVOURED NATION CLAUSE. WE HOLD AND D IRECT ACCORDINGLY. THE GROUNDS RAISED BY THE ASSESSEE ARE AC CORDINGLY ALLOWED ON THE ABOVE REASONS. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 22-05-2015. SD/- SD/- (VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER SATISH PUNE DATED: 22 ND MAY, 2015 COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. DRP, PUNE 4. THE D.R, B PUNE BENCH 5. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE