Mitsubishi Electric India Pvt. Ltd., Gurgaon V. DCIT Circle-16(2), New Delhi

ITA 7260/DEL/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 9674 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2018-2019
• Appeal Filed On: 01-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S.K. AGGARWAL
• Keywords: Double taxation relief; Permanent establishment; Advance ruling; TDS
• Section: 195; 72

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘D’, NEW DELHI Before Sh. Saktijit Dey, Judicial Member Dr. B. R. R. Kumar, Accountant Member ITA No. 3336/Del/2018 : Asstt. Year : 2016-17 ITA No. 7259/Del/2019 : Asstt. Year : 2017-18 ITA No. 7260/Del/2019 : Asstt. Year : 2018-19 Mitsubishi Electric India Pvt. Ltd., 2 nd Floor, Tower A & B, DLF Cyber Greens, DLF Phase- 3, Gurgaon, Haryana-122002 Vs Commissioner of Income Tax (Appeals)-43, New Delhi-110002 (APPELLANT) (RESPONDENT) PAN No. AAGCM7782A Assessee by : Sh. S. K. Aggarwal, CA & Sh. Paras Sharma, CA Revenue by : Ms. Sapna Bhatia, CIT DR Date of Hearing: 07.07.2022 Date of Pronouncement: 29.09.2022 ORDER Per Dr. B. R. R. Kumar, Accountant Member: The present appeals have been filed by the assessee against the orders of ld. CIT(A)-43, New Delhi dated 28.02.2018 and 26.06.2019. 2. Since, the issues involved in all these appeals are identical, they were heard together and being adjudicated by a common order. 3. In ITA No. 3336/Del/2018, following grounds have been raised by the assessee: “1. That on the facts and in the circumstances of the case and in law, the order passed by the Hon’ble CIT(A) dismissing the appeal filed under section 248 ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 2 of the Act is wrong and bad in law and should be quashed. 2. That on the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) has erred in holding that the following amounts remitted by the Appellant are in the nature of Royalty under Article 12 of India- Singapore Double Taxation Avoidance Agreement (‘DTAA7 Treaty): • Amount on account of implementation of SAP of Rs. 64,73,250 • SAP data center operation cost and SAP license maintenance cost amounting to Rs.78,64,983 3 (i) That on the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) has erred in holding that amount remitted by the Appellant to MEAP under Ground no. 2 are in the nature of 'process’ as envisaged under Article 12 of India- Singapore DTAA and therefore taxable as royalty. (ii) That on the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) has erred in holding the amounts referred to in Ground no. 2 are in the nature of 'information concerning industrial, commercial or scientific experience' and therefore taxable as royalty under Article 12 of India-Singapore DTAA. 4 That on the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) has erred in holding that the following amounts remitted by the Appellant to MEAP are in the nature of Fee for Technical Services (‘FTS’), being ancillary and subsidiary to the payment of royalty and hence taxable under Article 12(4)(a) of India-Singapore DTAA: • Professional services relating to SAP system amounting to Rs. 71,19,645; • Email access services on handheld devices amounting to Rs. 12,61,780; • Providing regional network access and email access services amounting to Rs. 53,63,703; • Firewall and Check point protection services amounting to Rs. 74,66,576. ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 3 5 That the Hon’ble CIT(A) has failed to appreciate that out of the total amount of Rs.3,55,49,941 remitted to MEAP by the Appellant, an amount of Rs. 2,19,57,042 is in the nature of reimbursements and therefore not chargeable to tax and hence should not be subject to withholding tax.” 4. The assessee (MEIPL) was incorporated in 2010 under the Companies Act, 1956 as a private limited company. The Company offers products for the Indian market such as air- conditioners, visual information systems, power devices, photovoltaic solutions, power systems, elevators and escalators, transportation systems, automotive equipment and industrial automation machinery. Mitsubishi Asia Pacific Pte. Ltd. (MEAP), a Singapore based Company is holding 70% of the shares in the Appellant. 5. During F.Y. 2017-18, a sum of Rs. 4,93,68,563/- was paid by the Appellant to MEAP pursuant to a service agreement entered into between MEAP and the Appellant. As per the service agreement, MEAP is providing certain IT support services to the Appellant. 6. These services comprise of following two elements: • Services provided by the IT specialists of MEAP and charged to the Appellant based on number of man hours spent to render the underlying services; and • Services procured by MEAP from the third party vendors for all its group entities including the Appellant and allocated to each group entity including the Appellant proportionately on cost to cost basis. 7. The aforementioned remittance of Rs. 4,93,68,563/- was made under an arrangement with MEAP which required the ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 4 Appellant to bear withholding taxes that would be applicable on such remittances. 8. Accordingly, at the time of making such remittance to MEAP, the Appellant grossed-up the sum of Rs. 4,93,68,563/- and deducted and deposited taxes at source under Section 195 of the Act amounting to Rs. 54,85,396/-. Thereafter, the Appellant duly deposited taxes of Rs.54,85,396/- with the Central Government. Royalty: 9. For the A.Y. 2016-17, the payments made by the assessee are as under: 1. I mplementation of SAP for transportation system at Pune amounting to Rs.64,73,250/- 2. SAP data center operation cost and SAP license maintenance cost amounting to Rs.78,64,983/- 10. The assessee states that the payments neither fall under the purview of Royalty or FTS, under domestic law or as per the India-Singapore Treaty. 11. With regard to the implementation of SAP for transportation system at Pune and SAP data centre operation cost and maintenance cost. The assessee primarily argued before the revenue that there was no transfer of “copy right” by way of services provided and therefore the resultant receipt can in no terms be stated to be covered under the definition of Royalty. ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 5 12. The ld. CIT(A) held that, “the term ‘software’ as it is being used presently has come a long way from its original intention. In the years gone by, say more than 10 years ago, the meaning of the term “software” was basically a set of instructions which included some interaction between the computer and the human being. A set of instructions were laid down in the form of a programme. The programme could be a designated formula to compute or give an output of a certain format. For the purpose of such format, the input was required to be made on the machine. This pre- coded information specifically was written on a CD or a floppy disk and sold “off the shelf’ by a number of companies. There was also a provision of slightly modifying or customizing the software dependent on the language or business of the user. In addition, some updates or debugging was also provided by certain entities who provide of such software programmes. The user could enter into a contract and pay a consideration for which the software or a set of instructions was delivered to him. In the past decade however, the definition of the term ‘software’has expanded enormously. In fact, it is rather difficult to seek the definition of software on this day. The terminologies being used by software development companies clearly indicate the magnitude of the change which has occurred. Earlier what constituted a simple DBM software presently can be marketed by the company as a business solution. There are entities which provide an integrated business processing re-engineering structure through these services and consideration for the same is received. The BPR software, in fact, analyses the requirements of the companies of a client; the process is undertaken by such clients in various operations identifying which processes can be cross linked or ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 6 reduced or eliminated to increase in efficiency. Thereafter, the entities providing such solution softwares also gave ready- made outputs which can be generated by the user clients. The producers of the marketing software offer embedded huge amounts of data in the software which results in giving solutions of unforeseen situations which a client may face at any time of use in the software. The solution providing entities also provide access to an online database where the user clients can search and seek specific solutions for specific reporting, generating outputs. The providers then can modify the structure installed to the user client company to enable the user to improve his efficiency. In most cases, the solution softwares are provided with an online chat mechanism. In such mechanisms direct human interfaces in the form of a text chat is provided by the entity who sells the software. Sum and substance of the above discussion is that the software as it is used nowadays is very different from the earlier definition of a set of programs. Presently any services can be packaged in the form of software and delivered to a client, business, consultancy, secret process, formulae and any other services can be delivered by simply signing up or subscribing to a limited license so as to speak.” 13. The Ld. CIT(A) held that in this case it is seen that a whole set of activities and services is related to the implementation of SAP. The Ld. CIT(A) held the term ‘royalty’ defined in the DTAA relates to the consideration for a number of things. Referring to the definition of Royalty in India – Singapore DTAA, any “copyright” of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 7 or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information. Referring to the words of any patent, trade mark, design or model, plan, secret formula or process, the ld. CIT(A) held that the discussion on the copy right act, copy righted article did not focus on plan and process. The ld. CIT(A) held that the SAP solution software as it is seen in the present context can be classified as a process and therefore applicability of the judgment is not direct is this case. It was further held that the implementation relates to execution of processes for improving efficiencies of business. The consideration for these unique structures and set ups created for a business, is certainly of the nature of “Royalty”. 14. It was held that the SAP solution softwares are basically classifiable as a “process” or plan and the consideration of the same is certainly consideration for a process as included in the definition of Royalty in the DTAA. The term “process” used here is not in the context of the manner of writing a computer program. It was held that the Co-ordinate Bench of Tribunal had discussed the classification of “process” related to software royalty by stating the source code was not transferred therefore there is no royalty as the process was not shared, but what is required to be seen is that the software solution provided by the Company is a restructure of the process of managing operations or doing work in a particular manner. It is that “process” which has been shared through a software implementation. An example is a SAP implementation in an entity, which is a business solution and lays down a specific manner of execution of activities. Or take the case of a Supply Chain Management Solution given by a professional company to ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 8 a user. All these implementations are software solutions, but what they share and convey is not a software program. The consideration for such implementations is not a consideration for software programs but for a “process”. Holding thus, the Ld. CIT(A) did not agree to the view that there was no transfer of copyright and therefore, it was not royalty and held that the applicant was liable to deduct TDS on the same. Fee for Technical Services: 15. With regard to the following four payments, the ld. CIT(A), at the outset, examined the definition. 4.The term "fees for technical services” as used in the treaty means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein ; or (c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. For the purposes of (b) and (c) above, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person. It was held that, notwithstanding paragraph 4, "fees for technical services" does not include payments: ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 9 (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 connection with the operation of ships or aircraft in international traffic; (c) for teaching in or by educational institutions ; (d) for services for the personal use of the individual or individuals making the payment; (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 14 ; (I) for services rendered in connection with an installation or structure used for the exploration or exploitation of natural resources referred to in paragraph 2(g) of Article 5; (g) for services referred to in paragraphs 4 and 5 of Article 5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical 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 right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply. 7. Royalties and fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 10 a political sub-division, a local authority, a statutory body or a resident of that State. Where, however, the person paying the royalties or fees for technical 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 technical services was incurred, and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. 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 royalties or fees for technical 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 this Agreement. 16. Based on the above, the ld. CIT(A) held as under: “Paragraph 4 of Article 12 has 3 parts to it- 4(a) and 4(b) and 4(c). There is a critical difference between the two limbs 4(a) and 4(b). The appellant has argued that the services do not fulfill the conditions required under 4(b). However the two limbs are examined .Whereas 4(b) requires the service rendered to be of such nature that the technology or skill is made available to the recipient and therefore has a make available clause embedded in it, the clause 4(a) does not have it. In order to qualify as FTS under 12(4)(b) the service is ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 11 required to be one which makes available the skill. Therefore by implication 12(4)(b) would be applicable only where services rendered result in making available technical skill or knowledge to the recipient. The appellant has given a number of judgments in his favor where he has argued that make available is not satisfied in the present case. In fact, the entire set of payments fail on the make available clause and therefore cannot be classified as FTS. 5.6.5 It is however seen that article 12(4) of the Treaty has 3 parts. The first part(a) does not have any make available attached to it. In the present case, the consideration for SAP implementation has been held to be liable to deduction of tax under section 195. Therefore the payment is in the nature of Royalty. All the other payments are subsidiary and ancillary to the implementation of SAP in the appellant’s premises. Article 12 (4) (a) refers to payments which are a consideration for services which a. are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or This clearly states and includes consideration for services which are ancillary to the enjoyment of rights referred to in paragraph 3 of article 12. Here since cc consideration for SAP implementation has been held to be liable to deduction of tax under section 195 as royalty in accordance with Article 12(3), all the other considerations are for services rendered by the appellant which are subsidiary and ancillary to the transfer of licenses. Therefore all are required to be classified as fee for technical services under paragraph 4(a) of article 12 of the Indo-Singapore Treaty. ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 12 5.6.6 Theappellantis therefore required to deduct tax on all the payments made to MEAP as under:- Nature Amount 1 Professional services relating to SAP system as per the agreement entered into between MEI and MEAP amounting to Rs. 71,19,645 FTS under Article 12(4) (a) (Ancillary and subsidiary to consideration for Royalty) 2 Email access services on handheld devices amounting to Rs. 12,61,780 FTS under Article 12 (4) (a) (Ancillary and subsidiary to consideration for Royalty) 3 Providing regional network access and email access services amounting to Rs. 53,63,703 FTS under Article 12 (4) (a) (Ancillary and subsidiary to consideration for Royalty) 4 Firewall and Check point protection services amounting to Rs. 74,66,576 FTS under Article 12 (4) (a) (Ancillary and subsidiary to consideration for Royalty); As these are actually resulting from the agreement for implementation of SAP and are also ancillary or subsidiary to the implementation of SAP in the appellants business. Another argument taken by the appellant was that a part of these services are obtained from third party vendors and the payment made by the appellant is only in the nature of reimbursements. The only issue is that this would not have a component of profit so these should not be liable to TDS. It is however seen that the nature of services has been clearly seen to be ancillary and subsidiary to the implementation of SAP. The taxability is determined by the nature of service only. In the absence of a PE the provision is there for taxation on a gross basis. There can’t be a possibility to actually judge that what is the expense going into the delivery of the services while judging its taxability for TDS purposes at the payment end. The provider had utilized the services of a third party to obtain the services and then delivered the same to the client does not render the payments being made immune from the purpose of deduction of tax and neither does it change the ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 13 nature of services which is FTS in the present case. On this argument also the appellant does not succeed.” 17. To conclude, the ld. CIT(A) held that the services mentioned above fall under the category of Article 12(4)(a) as they are ancillary and subsidiary to consideration for Royalty. The ld. CIT(A) also held that the taxability is determined by nature of service only and since there was no PE they have to be taxed on gross basis. 18. Before us, the assessee reiterated the arguments taken before the revenue authorities whereas the ld. DR argued based on the submissions which are reproduced as under: “In the last date of hearing before the Hon’ble ITAT, ‘D’ Bench, New Delhi, the counsel of the appellant had submitted that the case under consideration is covered by the decision of the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited vs. The Commissioner of Income Tax & Anr. in civil appeal nos. 8733-8734 of 2018 dated 02.03.2021 and also by the decision of the Hon’ble ITAT, New Delhi in the case of Perfetti Van Melle ICT & BV vs. ACIT in ITA no. 139/Del/2021 dated 28.02.2022 against the revenue. In this regard, it is submitted that the facts of the present case are distinguishable. This is discussed as under: 2. The “conclusion” of the decision of the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited is reproduced for ready reference: “..CONCLUSION 168. Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 of this judgment, it is clear that there is no obligation on the persons mentioned in section 195 of the Income Tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 14 create any interest or right in such distributors/end- users, which would amount to the use of or right to use any copyright. The provisions contained in the Income Tax Act (section 9(1)(vi), along with explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases. 169. Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non- resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income Tax Act were not liable to deduct any TDS under section 195 of the Income Tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment... ” 3. From the above, it is clearly seen that the decision of the Hon’ble Supreme Court was with regard to royalty relating to software only by the virtue of being under the term- payment of consideration for the use or the right to use any copyright of a literary, artistic or scientific work, which is the first limb of definition of Royalty as per the India-Singapore DTAA in Paragraph 3(a) of Article 12. The decision of the Hon’ble Apex Court examined what constitutes a copyright and referred to the provisions of the Copyright Act. However, any other limb of the definition of royalty as contained in Paragraph 3 of Article 12 of the DTAA apart from the royalty arising out of (transfer of copyright was not discussed/considered. 4. Similarly, in the case of Perfetti Van Melle ICT 86 BV, the ITAT, New Delhi decided the case simply by relying on the aforesaid decision of the Hon’ble Supreme Court in the case of Engineering ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 15 Analysis Centre of Excellence Private Limited wherein the decision pertained only with respect to the first limb of the definition of Royalty relating to the transfer of copyright as mentioned in the previous paragraph. 5. In the present case, the facts are that M/s Mitsubishi Electric India Pvt. Ltd. has made payment to M/s Mitsubishi Electric Asia Pte Ltd. for the implementation of SAP for transportation system and also payment for SAP data centre operation cost and SAP license maintenance. It is pertinent to note that SAP is not a standard pre- coded software which is available off-the-shelf but it is an enterprise resource planning process comprising several processes for large number of corporate functions which are customized after properly evaluating the business requirements before its implementation. Implementation of SAP solution software can be categorized as execution of several processes for managing various corporate functions in a particular manner in order to improve efficiencies of business. Therefore, what is being implemented in the appellant’s premises is a business solution which specifies processes and structure to run a business in a particular manner. The consideration that was paid for the implementation of SAP and for SAP data centre operation cost and SAP license maintenance was basically payment for the transfer of these processes. The software license only enables the client to create a user. The consideration was principally paid for the customized business processes which were delivered through the user. Under Paragraph 3 of Article 12 of India- Singapore DTAA, “Royalty” includes the consideration for the use or right to use a “process”. The present case falls under this limb of Royalty. 6. Additionally, the transfer of these processes also result in sharing of information concerning industrial, commercial or scientific experience since the solutions which are provided for improving business efficiency are based on innumerous case studies of similar entities. Therefore, the possible outputs/efficiency improvements ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 16 suggested in such solutions are a result of industrial scientific or commercial experience. Paragraph 3 (a) of Article 12 of India- Singapore DTAA provides for consideration for information concerning industrial, commercial or scientific experience to be included under “Royalty”. Therefore, the payments for the implementation of SAP and for SAP data centre operation cost and SAP license maintenance fall under this limb of royalty as well. 7. Further, the payments made for professional services relating to SAP system, email access services on handheld devices, regional network access and email access services and firewall and check point protection services provided by M/s Mitsubishi Electric Asia Pte Ltd. are all ancillary and subsidiary to the transfer of the customized processes through the implementation of SAP. Accordingly, the payment for these services is covered under Paragraph 4(a) of Article 12 of the DTAA and is taxable as Fee for Technical Services.” Sd/- (Garima Sharma/Sapna Bhatia) JCIT / CIT 19. As per provisions of Section 195 of the Act, the requirement to withhold tax arises only when the sum payable to a non-resident, including a foreign company, is chargeable to tax under the provisions of the Act. However, the above payments does not result into any income of “MEAP” in India as per the provisions of the Act read with relevant Double taxation avoidance agreement (‘DTAA’), as the amounts are not chargeable to tax in India. Hence, the Appellant has incorrectly borne and paid taxes of Rs.54,85,396/- by grossing up payments of Rs. 4,93,68,563/- made to MEAP. 20. Accordingly, against the above payment of taxes at source the Appellant is in appeal before ITAT under Section 248 of the Act for a declaration that no taxes are deductible at source and ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 17 consequently the sum of Rs. 54,85,396/- representing taxes incorrectly deducted and deposited at source by the Appellant deserve to be refunded to the Appellant, along with applicable interest. 21. It was submitted that the assessee in the grounds of appeal and statement of facts had inadvertently mentioned amount of payments to MEAP as Rs.5,11,46,485/- and TDS thereon as Rs.56,82,945/-. However, as mentioned above the correct amount of payment to MEAP is Rs. 4,93,68,563/- and TDS thereon is Rs. 54,85,396/- which deserve to be refunded to the Appellant, along with applicable interest. 22. Heard the arguments of both the parties and perused the material available on record. 23. On the above factual matrix, in our consider opinion, the quarrel /is squarely covered in favour of the assessee and against the Revenue by the decision of the Hon'ble Supreme Court in a land mark judgment in the case of Engineering Analysis Center of Excellence Pvt. Ltd. [2021] 432 ITR471 has laid down the following: "Given the definition of royalties contained in article 12 of the DTAAs 168 mentioned in paragraph 41 of this judgment, it is clear that there is no obligation on the persons mentioned in section 195 of the Income-tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end- users, which would amount to the use of or right to use any copyright. The provisions contained in the Income-tax Act (section 9(1)(vi), along with ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 18 Explanations 2 and 4 thereof), which deal with royalty, not being beneficial to the assessees, have no application in the facts of these cases. "Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non- resident computer s. manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the pay of royalty for the use of copyright in the computer software, and that same does not give rise to any income taxable in India, as a result of the persons referred to in section 195 of the Income-tax Act were not liable to deduct any TDS under section 195 of the Income- tax Act. The answer to this question will apply to all four categories of cases enumerated by paragraph 4 of this judgment. "The appeals from the impugned judgments of the High Court of Karnataka are allowed, and the aforesaid judgments are set aside. The rule the AAR in Citrix Systems (AAR) (supra) is set aside. The appeals from impugned judgments of the High Court of Delhi are dismissed." 14. The factual matrix involved in the case in hand, read with the ratio laid down by the Hon'ble Supreme Court [supra], we are of the considered view that no right in copy right is being transferred and accordingly, consideration received by the assessee cannot be brought to tax as per India - USA DTAA. 24. Hence, we hold that the appeal of the assessee on the ground of “Royalty” is allowed. ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 19 25. Further, with regard to the provisions of FTS, we find the similar matter has been adjudicated by the Co-ordinate Bench of ITAT Mumbai in the case of SCA Hygiene Products AB Vs. DCIT in ITA No. 7315/Mum/2018 vide order dated 08.01.2021. For the sake of ready reference, the relevant part of the order is reproduced as under: “11. Yet another receipt by the assessee, under the said agreement, was for Information Technology Services. These payments aggregated to Rs 57,47,684 during the relevant financial period. The nature of these services, as set out in Annexure B to the said agreement, is as follows: 1. Object and Term of the Services - SCA Sweden shall perform the following Services for SCA India; - Providing hard and software for various ERP systems, CRM systems and other business systems - Providing hard and software for various internet services - Providing data communication services - Providing management of workplace environment - Providing data processing of above systems - Providing operations, support and consulting services for the above - Providing support for implementation of ERP system [SAP 81) for project Vindaloo which includes support for • Pre implementation work i.e. applying per-sets for Template (all changes not impacting the productive Database), Cleansing current Database, finalizing target processes and preparing Infrastructure, • Assisting in Testing Phase i.e. testing upgrade, testing new integration scenarios, training users to new ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 20 processes, testing business process on upgraded Database with users, • Post implementation work which includes upgrading Database, applying new integration scenarios and applying other part of templates. • Other tasks including creation and testing Fixed Assets module, additional reporting modules, retraining new users to ERP and onsite support post GO live 2. Details of the object of the Services Scope, type and purpose of the intended collections, processing, or use of data Data managed is related to the operations of the SCA business and to the management of its workforce, and will only be used to that purpose. The processing and use of the date is restricted to the territory of a member state of the European Union or another state party to the Agreement of the European Economic Area. Relocation to other countries is subject to SCA India's prior approval. Type of Data The collection, processing and/or use of personal data refers to the following types/categories of data:- • Personal data • Communication data (e.g. Telephone/e-mail) • Contractual accounting and payment data • Financial and non-financial planning and control data ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 21 • Information obtains from third parties, e.g. credit inquiry agencies or public directories • Statistical data The group of data subjects affected by the use of their personal data hereunder comprises: • Employees • Customers and Vendors • Interested parties • Consumers • Other contract persons 12. During the course of the scrutiny assessment proceedings, the Assessing Officer, noticed the above payments and required the assessee to show cause as to why these receipts not be taxed in the hands of the assessee under article 12 of the Indo Swedish tax treaty, as also under the Income Tax Act. One of the arguments that was adopted by the assessee was that under the restricted meanings of the 'fees for technical services' under article 12 of the Indo Swedish tax treaty, as read with "most favoured nation (MFN) clause" in protocol thereto and read with India Portugal Double Taxation Avoidance Agreement [(2016) 244 ITR (Stat) 57; Indo Portuguese tax treaty, in short], unless a technical service "makes available" technical knowledge, experience, skill, knowhow or process, it cannot be brought to tax as fees for technical service. The Assessing Officer, however, did not accept this contention. When the matter travelled to the Dispute Resolution Panel, on objections being raised by the assessee, learned Dispute Resolution Panel did reject the invocation of MFN clause and observed that "with regard to automatic application of the MFN clause available in the India Sweden Treaty, the DRP has its ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 22 own reservations and feels that both the states are required to invoke the MFN clause through issuance of notifications" and that "in the absence of such notifications, benefits of other treaties cannot be extended automatically to a third state". Without prejudice to this stand, on merits of applicability of "make available" clause, learned Dispute Resolution Panel observed as follows: 4.17 The relevant clause of the Article 12(4) relied on by the assessee is reproduced below: - -make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of technical plan or technical design. 4.18. There are two clear components in this clause – One which requires making available of technical knowledge, experience, skill, know how or process and the second which consists of the development and transfer of technical plan or technical design. The DRP finds that the case of the assessee is to be examined with reference to both these requirements. 4.19 It needs clarification that when third party consultants are operating on behalf of the assessee and the amount received by it include payments for these excerpts, the character of their service needs to be elaborated for purpose of deciding the character of fee received by the assessee. It is also noted that the assessee is operating in project monitoring and project scheduling and budgeting which require development of elaborate plans which are subsequently transferred to the Indian party for execution. ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 23 4.20. It is not the case of the assessee that these services are provided in isolation of the employees of SCA India who are involved in project execution, whether it is pre-development stage or subsequent stage. We are not convinced that the project execution service could be executed by the assessee without active involvement of project related employees of SCA India. It is not merely engineering or architectural designs which are contemplated under Article 12(4)(b) of the Treaty but also development and transfer of any technical plan or technical design, Technical does not mean technological. It only means specialized- the area may be finance, legal, commerce, arts, science or project implementation as in the case. This will include scheduling charts, time lines, bar charts which are contemplated in the case of the assessee under Project Administration. This also includes project and financing controls including necessary charts and controls for implementation of project. The assessee is not executing the project but is rendering consultancy service to the AE. When project implementation tools are provide to the employees of the AE, they are enable to employ these tools in implementing their own project. 5.14. The nature of service rendered by the assessee as detailed by it has been reproduced above. Admittedly, these vacancies are effectively connected with the SAP system implemented by the Group as a whole and have been made towards effective utilisation and efficient working of the SAP system. The assessee admits that these services are required on an annual basis and are meant for maintenance and upkeep of the system. The procurement of licences for SAP system has been held to be in the nature of royalty. ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 24 5.15. The assessee is not correct in claiming that the services so rendered are covered by Article 12(4)(b) of the India Portugal Treaty, even if the claim of automatic application of MFN clause is allowed to the assessee. The services is found to be intrinsically linked with enjoyment of the SAP system and hence, would fall within the ambit of Article 12(4)(a) of the Article where there is no requirement of making available of any knowledge, skill or experience. 5.16. In light of the above discussion, the DRP is of the view that these services constitute. FTS under the Act as well as under India Sweden DTAA and are required to be taxed in India under Article 12 of the India Sweden DTAA. 13. Accordingly, the Assessing Officer proceeded to make the additions of Rs 1,97,94,209 as consultancy services taxable under article 12 and Rs 57,47,684 as information technology support services taxable under article 12. The assessee is aggrieved and is in appeal before us. 14. We have heard the rival contentions, perused the material on record, and duly considered facts of the case in the light of the applicable legal position. 15. Let us first take a look at the provisions with respect to taxability of fees for technical services under the Indo Swedish tax treaty, the related protocol clause of the Indo Swedish tax treaty, and the provision for fees for technical services under the Indo Portuguese tax treaty. These provisions are set out below: ARTICLE 12 OF INDO-SWEDISH TAX TREATY ROYALTIES AND FEES FOR TECHNICAL SERVICES ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 25 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. Notwithstanding the provisions of paragraph (1), 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 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 per cent of the gross amount of the royalties or fees for technical services. 3. (a) The term 'royalties' as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. (b) The term 'fees for technical services' means payment of any kind in consideration for the rendering of any managerial, technical or consultancy services including the provisions of services by technical or other personnel but does not include payments for services mentioned in Articles 14 and 15 of this Convention. 4. The provisions of paragraphs (1) and (2) shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise, through a permanent ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 26 establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply. 5. Royalties or fees for technical services shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the royalties or fees for technical 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 technical services was incurred, and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. 6. 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 technical services, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner 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 this Convention. ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 27 PROTOCOL TO INDO SWEDISH TAX TREATY At the signing of the Convention between the Government of the Republic of India and the Government of the Kingdom of Sweden for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, the undersigned have agreed that the following shall form 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 under any Convention. Agreement or Protocol between India and a third State which is a member of the OECD, India limits its taxation at source on dividends, interest, royalties, or fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said 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. ............................ IN WITNESS whereof the undersigned being duly authorised thereto have signed this Protocol. DONE in duplicate at New Delhi, this 24th day of June, 1997, in the Swedish, Hindi and English languages, all three texts being ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 28 equally authentic. In case of divergence between the texts the English text shall be the operative one. ARTICLE 12 OF INDO PORTUGESE TAX TREATY 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 Contracting 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 and fees for included services is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation. 3. The term "royalties" as used in this article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films and films or tapes or any other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial, or scientific experience. 4. For the purposes of this article, "fees for included services" means payments of any kind, other than those mentioned in articles 14 and 15 of this Convention, to any person in ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 29 consideration of the rendering of any technical or consultancy services (including through the provisions of services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property 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 which enables the person acquiring the services to apply the technology contained therein. 5. Notwithstanding paragraph 4, "fees for included services" does not include payments: (a) For services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property; (b) For services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international craft; (c) For teaching in or by educational institutions; (d) For services for the personal use of the individual or individuals making the payment; (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 14; (f) For services rendered in connection with an installation or structure used for the exploration or exploitation of natural resources referred to in paragraph 2, f), of article 5; (g) For services referred to in paragraph 3 of article 5. ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 30 6. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties and fees for included services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties and fees for included 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 right or property in respect of which the royalties and fees for included services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of article 7 or article 14, as the case may be, shall apply. 7. Royalties and fees for included services shall be deemed to arise in a Contracting State where the payer is that State itself, a political or administrative subdivision thereof, a local authority or a resident of that State. Where, however, the person paying the royalties and fees for included services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or fixed base in connection with which the obligation to pay the royalties and fees for included services was incurred, and such royalties and fees for included services are borne by that permanent establishment or fixed base, then such royalties and fees for included services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. 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 and fees for included services, having regard to the use, right or information for which they are paid, exceeds the amount which would have ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 31 been agreed upon by the payer and the beneficial owner 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 this Convention. [Emphasis, by underlining, supplied by us] 16. The question that we first need to deal with is as to what is the impact of the MFN clause in the Indo Swedish tax treaty, read with the Indo Portuguese tax treaty which was subsequently entered into between India and Portugal, an OCED member country. 17. Let us first understand as to what a most favoured nation clause, in the tax treaties, is. All it implies is that in case the tax jurisdictions entering into the tax treaty, or any of the treaty partner, extends a more generous tax treatment to any other tax jurisdiction, or any other tax jurisdiction of a particular nature- e.g. OECD member jurisdiction, the same tax treatment will be due to the treaty partner in question. For example, if X jurisdiction provides for source taxation @ 15% for interest to Y jurisdiction, it also assures, by incorporating a MFN clause, that in case X jurisdiction enters into an agreement providing for a lower rate of source taxation, or more restricted scope for taxation of interest, with any other jurisdiction or any other OECD member tax jurisdiction, the same will be extended to Y jurisdiction as well. In a sense, terming this clause as a 'most favoured nation clause' is a misnomer because what this clause ensures is an equal treatment vis-à-vis other jurisdictions, or other jurisdictions of ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 32 a specific category, rather than a favoured treatment for the treaty partner jurisdiction. 18. It is crucial to bear in mind that the implementation of a most favoured nation clause is not always in a homogenous manner. There are different ways in which such an MFN clause can be implemented. There can be situations like in India Switzerland Double Taxation Avoidance Agreement [(1995) 214 ITR Stat 223 @ 246; Indo Swiss tax treaty, in short] which only requires fresh negotiations to provide for giving effect to most favoured nation status in effect, as evident from the observations in the protocol to the effect that "If after the date of signing this Amending Protocol, India under any Convention, Agreement or Protocol with a third State which is a member of the OECD, restricts the scope in respect of royalties or fees for technical services than the scope for these items of income provided for in Article 12 of this Agreement, then Switzerland and India shall enter into negotiations without undue delay in order to provide the same treatment to Switzerland as that provided to the third State" (Emphasis, by underlining, supplied by us). Similarly, in the case protocol to the India Philippines Double Taxation Avoidance Agreement [ (1996) 219 ITR Statutes 60 @ 83 ; Indo Philippines tax treaty, in short], all that provided is in the MFN clause is that the treaty partners inform the other party so that the matter is appropriately revied as is evident from the protocol observation to the effect that "With reference to Articles 8 and 9 if at any time after the date of signature of the Convention the Philippines agrees to a lower or nil rate of tax with a third State the Government of the Republic of the Philippines shall without undue delay inform the Government of India through diplomatic channels and the two Governments will undertake to review these Articles with a ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 33 view to providing such lower or nil rate to profits of the same kind derived under similar circumstances by enterprises of both Contracting States (Emphasis, by underlining, supplied by us)". In the case of Indo Swedish tax treaty, however, the wordings are different inasmuch as it provides that "if under any Convention. Agreement or Protocol between India and a third State which is a member of the OECD, India limits its taxation at source on dividends, interest, royalties, or fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said 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 (Emphasis, by underlining, supplied by us)". There are thus three different modes, in the illustrations that we discussed, in which the MFN clause can be implemented- first, as in Indo Swiss tax treaty, where all that the MFN clause ensures is that the negotiations take place, without any delay, to ensure that the same treatment is provided to the treaty partner; second, as in India Philippines tax treaty, where the information, about a more generous treatment for any another tax jurisdiction, by one of the treaty partners is to be provided to the other treaty partner, through diplomatic channels, so that existing provisions can be brought in par with more generous tax treatment in the source jurisdiction; and, third- in which the treaty does not prescribe anything further that is required to be done, for giving effect to the MFN status, as the same rate or the same scope, as is extended to any other OECD country subsequently, "shall also apply" under this treaty. There can also be situations in which an MFN clause may require the treaty partner jurisdictions to issue notifications to the effect that the benefit extended to another jurisdiction is extended to ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 34 the treaty partner jurisdiction as well. There can be several modes for implementation of the MFN clause, but its not really necessary to explore that aspect any further. Suffice to note that there are different methods in which MFN clause can be implemented, and there cannot, therefore, be a 'one size fits all' approach. As far as the situation that we are dealing with, i,e. MFN clause in Indo Swedish tax treaty, is concerned, it is a situation in which the action of limiting the source taxation, for dividends, interest, royalties or fees for technical services, to any other OECD member jurisdiction, by itself, is enough to trigger that the same provisions "shall also apply" under Indo Swedish tax treaty. No further actions on the part of India are envisaged in the Indo Swedish tax treaty to trigger the application of the same provisions in Indo Swedish tax treaty as well. 19. Elaborating upon the scope of this peculiar manner in which MFN clause operates in India France Double Taxation Avoidance Agreement [(1994) 209 ITR Statues 130 @ 159; Indo French tax treaty, in short) the relevant portion of protocol clause in which is identically worded in effect as in the case of Indo Swedish tax treaty, a coordinate bench of this Tribunal, speaking through one of us (i.e. the Vice President), in the judgment reported as DCIT Vs ITC Ltd [(2002) 82 ITD 239 (Kol)] made following observations around two decades back, in late 2001, and these observations, as we will see a little later, hold good even today: ......in our considered view, the benefit of lower rate of or restricted scope of 'fees for technical services' under the Indo-French DTAA is not dependent on any further action by the respective Governments, unlike the situation envisaged ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 35 in, for example, para 4 of protocol to Indo-Philippines DTAA or para 3 of protocol to Indo-Swiss.... 20. It is interesting to note that the coordinate bench did take note of the notification issued by the Government of India, giving effect to, what it perceived as, the impact of the protocol clause as a result of a subsequent tax treaty being entered into by India. The controversy about the Government notification was on account of the fact that it did implement the protocol clause, but it extended lesser effect to it than as visualized by a plain reading of the protocol clause- i.e., about the rate of taxation in the subsequent treaty provision only and not about the restricted scope of the related treaty provision. However, the coordinate bench was of the view that nothing turned on this notification and ignored the same. The plea that issuance of notification was at best done as a measure of abundant caution by the CBDT, and it did not have any legal effect on the implementation of the protocol clause, was, in effect, accepted. However, when an identical issue, in the case of Indo French tax treaty itself, came up before the Authority for Advance Ruling, in the case of Steria India Ltd In Re [(2014) 72 taxmann.com 1 (AAR)], the approach adopted, on this issue, by the Authority for Advance Ruling was entirely different, as it held notification to be a crucial and legal source of the rights by the implementation of protocol, Hon'ble Authority for Advance Ruling observed as follows: ........What is stated by the Protocol is for India to limit its taxation at source for the detail items mentioned therein. The restrictions are on the rates and 'make available' clause cannot be read in the items. On the basis of the Protocol, notification No.9602 [F.No.501/16/80-FTD], dated 6.9.1994 ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 36 as amended by Notification No. SO 650(E), dated 10.7.2000. was issued by Govt. of India. The said Notification does not include anything about the 'make available' provision. Had the intention of the Protocol or the Government is to include 'make available' clause in the Tax Treaty between India and France, it should have been done so in the said Notification. We have taken note of the Notification issued in the case of India Netherland Tax Treaty whereby the Protocol was given effect to. The changes in the Treaty on the basis of the Protocol were given effect by Notification only. We do not see any reason as to why different treatment will be given in the present case. 21. In other words, it was thus held, as has been held by the learned DRP in the impugned order, that the effect of the protocol clause is to be given by a formal notification, and unless that happens, the protocol is toothless. That legal position has, however, been reversed in the case of Steria India Ltd Vs CIT [(2016) 72 taxmann.com 1 (Del)] and Their Lordships have, referred to, with approval, the decision of a coordinate bench in the case of ITC Ltd (supra) and concluded as follows: .........The Court is ........ unable to agree with the conclusion of the AAR that the Clause 7 of the Protocol, which forms part of the DTAA between India and France, does not automatically become applicable and that there has to be a separate notification incorporating the beneficial provisions of the DTAA between India and UK as forming part of the India- France DTAA ....................... ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 37 ........... a reference to the decision of the ITAT in Dy. CIT v. ITC Ltd. [2002] 82 ITD 239 (Kol.), where the Protocol separately executed between the India and France which formed part of the DTAA between the two countries was interpreted. It was held by the ITAT, and in the view of this Court correctly, that the benefit of the lower rate or restricted scope of fee for technical services under the Indo- French DTAA was not dependent on any further action by the respective governments. It was held that the more restricted scope of fee for technical services as provided for in a DTAA entered into by India with another OECD member country shall also apply under the Indo-French DTAA with effect from the date on which the Indo-French DTAA or such other DTAA enters into force. 22. The views so expressed by Hon'ble Delhi High Court, in the absence of anything contrary thereto by Hon'ble jurisdictional High Court, or, for that purpose, even any other Hon'ble High Court, bind us. The AAR decisions, as is the well-settled legal position, do not constitute binding judicial precedents for us. It is also not in dispute that Portugal is an OECD jurisdiction, that the Indo Portuguese tax treaty was entered into after the Indo Swedish tax treaty was entered into, and that the Indo Portuguese tax treaty provides far more restricted scope of 'fees for technical services' inasmuch as it adopts the 'make available' clause which restricts the taxation of fees for technical services only in such cases which "make available" technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or technical design which enables the person acquiring the services to apply the technology contained therein. Therefore, respectfully following the coordinate bench decision in the case ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 38 of ITC Ltd (supra), which has been specifically approved by Hon'ble Delhi High Court in the case of Steria India Ltd (supra), we hold that the provisions of article 12 (4)(b) of the Indo Portuguese tax treaty, being more restricted in scope vis-à-vis article 12(3)(b) of Indo Swedish tax treaty, apply in the Indo Swedish tax treaty as well. 23. As for the connotations of 'make available' clause in the treaty, this issue is no longer res integra. There are at least two non-jurisdictional High Court decisions, namely Hon'ble ITA No. 7315/Mum/2018 Assessment year: 2015-16 Page 17 of 19 Delhi High Court in the case of DIT v. Guy Carpenter & Co Ltd. [(2012) 346 ITR 504 (Del)] and Hon'ble Karnataka High Court in the case of CIT v. De Beers India (P.) Ltd. [(2012) 346 ITR 467 (Kar)] in favour of the assessee, and there is no contrary decision by Hon'ble jurisdictional High Court or by Hon'ble Supreme Court. In De Beers India (P.) Ltd. case (supra), their Lordships posed the question, as to "what is meaning of 'make available'", to themselves, and proceeded to deal with it as follows: '......The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology "making available", the technical knowledge, skill, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 39 effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as "fee for technical/included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied.' 24. In order to decide whether or not the services rendered by the assessee fit the definition of 'fees for technical services', as applicable under the Indo Swedish tax treaty, the question that we must ask ourselves is not only whether the technical services are performed on the facts of this case, but whether "the technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider." In this light when we analyze the nature of services, which are set out in detail earlier in this order, we find that in none of the cases, these services enable the recipient of these services to perform the same services, in the future, without recourse to the assessee. ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 40 The consultancy services are in the nature of leading the setting up of factory, including planning and steering execution of work, being responsible for managing project within budget constraints, leading the project team from different locations, coordination and follow up with the contractors, securing communication and good flow of information between those directly or indirectly involved with the project, preparing project progress report and updating all concerned with the project progress. Just because the assessee renders these services does not mean, and by no stretch can imply, that the recipient can next time do all this work without recourse to the assessee. As regards learned DRP's observations that the project leading work "will include scheduling charts, timelines, bar charts which are contemplated in the case of the assessee under Project Administration....project and financing controls including necessary charts and controls for implementation of the project", that "the assessee is not executing the project but is rendering consultancy service to the AE", and that "when project implementation tools are provided to the employees of the AE, they are enabled to employ these tools in implementing their own project," these observations are factually incorrect inasmuch as the assessee's representative is executing the work and is the key person at the factory site who is doing all the needful and inasmuch as there is no mention anywhere of developing these tools and handing over the same to the recipient of services. In any case, just because the Indian entity is interacting with the project leader and getting inputs from him does not mean that the Indian entity is transferred the technology of being a project leader of this type and next time Indian entity can perform similar services without recourse to the same- which is the core test for the fulfilment of 'make available' clause. We are unable to approve the stand ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 41 of the authorities below on this point. In our considered view, in the light of the discussions above, the make available clause is not satisfied, in the course of rendition of services by the assessee, and, as such, the consultancy fees of Rs 1,97,94,209 cannot be brought to tax, in the hands of the assessee, under article 12 of Indo Swedish tax treaty. 25. That leaves us with the taxability of Rs 57,47,684 on account of Information Technology Services. The main reason for its taxability by the DRP is stated to be that "the services is found to be intrinsically linked with enjoyment of the SAP system and hence, would fall within the ambit of Article 12(4)(a)". In the assessment order, there is also mention about "resulting in overall improvement in business and the income generating capacity of SCA India, which is a clear enduring benefit" and about the stand that the rendition of these services are "also providing a skill level and relevant training which will be readily available to personnel of SCA India and thereby a clear enduring benefit is provided". It is also mentioned that "specific support in the form of implementation of SAP project amd Project Vinadalloin the form of pre- implementation, testing, post implementation is also provided which is clearly technical in nature and intended to increase the efficiency and improve the functioning of SCA India". It is to be noted that so far as the enduring benefit and increase of efficiency in the recipient entity is concerned, that has nothing to do with the satisfaction of "make available" clause. As we have seen in our analysis earlier, what is important is transfer of technology and not the incidental benefit. Unless the recipient of a service is not enabled to perform that service on his own, without recourse to the service provider, the requirements of the make available clause are not satisfied. ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 42 The concept of enduring benefit, increase in efficiency, improvement in income generating capacity and incidental skill development is wholly irrelevant for this purpose. The authorities below have been thus swayed by considerations not germane in this context. So far as these services being incidental to SAP system being the reason for taxation under article 12(4)(a) is concerned, we have noted that providing support services for SAP implementation is a small part of the services and in any case what article 12(4)(a) covers is the services which "are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received" and the information technology services, as set out in Annexure B to the agreement, cannot be described as ancillary and subsidiary to the SAP system. At best, a small part of these services could fall in that category, but that payment is not even separately identified. These things apart, 12(4)(a) would come into play when the assessee receives a payment in the nature of royalties under article 12(3) and the services ancillary and subsidiary to the ITA No. 7315/Mum/2018 Assessment year: 2015-16 Page 19 of 19 application or enjoyment of that right, payment for which is described in article 12(3). In other words, the person receiving the money as royalty, such as the actual seller of the software in this case, and the person providing service ancillary or subsidiary to the enjoyment of that right, must be the same. That's not the case here. In the present case, the payment received by the assessee has been held to be in the nature of reimbursement, which is outside the ambit of taxation. The person selling the SAP software is Be One Solution, Switzerland, whereas the person providing the services in question is the assessee. Article 12(4)(a) will not, therefore, come into play at all. In our considered view, ITA No.3336/Del/2018 ITA Nos. 7259 & 7260/Del/2019 Mitsubishi Electric India Pvt. Ltd. 43 therefore, the taxation under article 12 in the present case can come into play only when the "make available" clause is satisfied, but then the Assessing Officer's justification for the satisfaction of 'make available' clause, for the detailed reasons set out earlier in this paragraph, does not meet our judicial approval. In view of these discussions, as also bearing in mind the entirety of the case, we uphold the plea of the assessee on this point as well. Accordingly, we hold that the income of Rs 57,47,684 on account of Information Technology Services is also not taxable under article 12.” 26. Since, the issue has been squarely covered by the judgment of Co-ordinate Bench of ITAT as mentioned above, in the absence of any change in the material facts and legal proposition, the appeal of the assessee on the ground of FTS is hereby allowed. 27. In the result, the appeals of the assessee are allowed. Order Pronounced in the Open Court on 29/09/2022. Sd/- Sd/- (Saktijit Dey) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 29/09/2022 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR