ESSITY HYGIENE AND HELATH AB, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION-4(2)(1), MUMBAI

ITA 7315/MUM/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 9138 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2015-2016
• Appeal Filed On: 21-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief; Permanent establishment; Advance ruling
• Section: 143(3); 195; 144C; 72; 13; 20

Judgement Text

ITA NO. 7315/MUM/2018 ASSESSMENT YEAR: 2015 - 16 PAGE 1 OF 19 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI ' I ' BENCH, MUMBAI [CORAM: PRAMOD KUMAR (VICE PRESIDENT) , AND SAKTIJIT DEY (JUDICIAL MEMBER)] ITA NO. 7315/MUM/2018 ASSESSMENT YEAR: 2015 - 16 SCA HYGIENE PRODUCTS AB . APPELLANT (NOW KNOWN AS ES SITY HYGIENE AND HEALTH AB) C/O SUDIT K PAREKH & CO, URMI AXIS 6 TH FLOOR FAMOUS STUDIO LANE, DR . E MOSES ROAD MUMBAI 400 011, [PAN: AA TCS0899K ] VS . DEPUTY COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION 4(2)(1), MUMBAI RESPONDENT APPEARA N CES BY JITENDRA JAIN FOR THE APPELLANT S S IYENGAR FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : JANUARY 6, 2021 DATE OF PRONOUNCEMENT : JANUARY 8 , 202 1 O R D E R PER PRAMOD KUMAR, VP: 1. THIS APPEAL, FILED BY THE ASSESSEE, CALLS INTO QUESTION THE C ORRECTNESS OF THE ORDER DATED 11 TH OCTOBER 2018 PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) R.W.S. 144C (13) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2015 - 16. 2. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS RAISED THE FOLLOW ING G RI EVANCE: GROUND NO. I - TAXABILITY OF SAP LICENSE CHARGES AS ROYALTY 1.1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED DCIT AND DISPUTE RESOLUTION PANEL ('DRP') HAS ERRED IN NOT CONSIDERING THE FACT THAT APPELLANT HAS O NLY R EC HARGED ACTUAL COST IT INCURRED FOR ACQUIRING SAP LICENSES FROM THIRD PARTY AND SINCE THERE IS NO PROFIT ELEMENT THE SAME IS NOT TAXABLE IN INDIA. 1.2. WITHOUT PREJUDICE TO THE GROUND NO. 1.1 ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED DCIT AND DRP HAS ERRED IN HOLDING THAT THE AMOUNT RECEIVED BY THE APPELLANT FROM SCA HYGIENE PRODUCTS INDIA PRIVATE LIMITED ('SCA INDIA') IN RESPECT OF SAP LICENSE CHARGES AMOUNTING TO INR 1,30,04,613 IS TAXABLE AS ITA NO. 7315/MUM/2018 ASSESSMENT YEAR: 2015 - 16 PAGE 2 OF 19 ROYALTY UNDER ART ICLE 12 (2) OF THE INDIA - SWEDEN DOUBLE TAXATION AVOIDANCE AGREEMENT ('DTAA'). 3 . TO ADJUDICATE ON THIS ISSUE, ONLY A FEW MATERIAL FACTS NEED TO BE TAKEN NOTE OF. THE ASSESSEE BEFORE US IS A COMPANY INCORPORATED, AND FISCALLY DOMICILED, IN SWEDEN. IT HAS A SUB SIDI ARY IN INDIA BY THE NAME OF SCA HYGIENE PRODUCTS INDIA PVT LTD ( SCA - INDIA , IN SHORT). UNDER A SERVICE AGREEMENT DATED 29 TH SEPTEMBER 2014, A COPY OF WHICH WAS PLACED BEFORE US AT PAGES 7 TO 16 OF THE PAPER - BOOK , THE ASSESSEE WAS UNDER AN OBLIGATIO N TO REND ER SERVICES, WHICH INCLUDED ' PROVIDING HARDWARE AND SOFTWARE FOR VARIOUS ERP SYSTEM S, CRM SYSTEMS AND OTHER BUSINESS SYSTEM ' (ANNEXURE B: IT SERVICES, AT PAGE 14 OF THE PAPER - BOOK) T O ITS INDIA SUBSIDIARY ' AT COST ' . IT WAS UNDER THIS ARRANGEMENT T HAT T HE A SSESSEE PROVIDED SAP SOFTWARE AND LICENCE TO THE SCA - INDIA, ON A ' COST TO COST BASIS WITHOUT ANY MARK UP BEING CHARGED ON THE SAME ' , AND RECEIVED AN AMOUNT EQUIVALENT TO RS 1,30,04,613. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASS ESSING OFF ICER NOTICED THESE FACTS AND REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE SAP SOFTWARE LICENCE CHARGES NOT BE BROUGHT TO TAX UNDER ARTICLE 12(3)(A) OF INDIA SWEDEN DOUBLE TAXATION AVOIDANCE AGREEMENT [ (1998) 229 ITR (STATUTES) 11; INDO SWEDI SH TAX TRE ATY , IN SHORT]. IT WAS, INTER ALIA , EXPLAINED BY THE ASSESSEE THAT THIS RECEIPT OF RS 1,30,04,613 REFLECTS A REIMBURSEMENT SIMPLICIT E R , THAT THE SAP LICENCES WERE ACQUIRED FROM A RANK OUTSIDER, THAT AS IT IS PURE REIMBURSEMENT WITHOUT ANY MARK UP, THE RE I S NO INCOME ELEMENT EMBEDDED THEREIN. THE ASSESSEE ALSO ADVANCED CERTAIN ARGUMENTS ON OTHER FACETS REGARDING THE INAPPLICABILITY OF ARTICLE 12(3)(A) TO THE FACTS OF THIS CASE. HOWEVER, SINCE THE ISSUE IN THE APPEAL CAN BE DECIDED ON THE SHORT GROU ND OF ITS B EING PURE REIMBURSEMENT IN NATURE, WE SEE NO NEED TO DEAL WITH THOSE ASPECTS OF THE MATTER. THE ASSESSING OFFICER WAS NOT CONVINCED BY THESE SUBMISSIONS. THE ASSESSING OFFICER NOTED THAT THERE WAS NO EVIDENCE ON RECORD THAT THE MARKET VALUE OF SERVICES TO VARI OUS GROUP ENTITIES IS NOT EQUIVALENT TO THE PAYMENTS RECEIVED BY THE ASSESSEE FROM GROUP ENTITIES. HE WAS FURTHER OF THE VIEW THAT ' ONCE A RIGHT HAS BEEN PROVIDED FOR A COST, THEN THE FACT THAT THERE IS NO MARK UP OR ANY PROFIT WOULD NOT TAK E THE RECEIPT O UT O F INCOME NATURE .' HE REFERRED TO CERTAIN DECISIONS OF THE COORDINATE BENCHES, AS ALSO THE AUTHORITY FOR ADVANCE RULING, IN SUPPORT OF THE PROPOSITION THAT ABSENCE OF MARK UP, BY IT S ELF, WOULD NOT TAKE THE RECEIPT OUTSIDE THE AMBIT OF INCO ME. AGGRIEVED BY T HE STAND SO TAKEN BY THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER, THE ASSESSEE RAISED A GRIEVANCE BEFORE THE DISPUTE RESOLUTION PANEL, BUT WITHOUT ANY SUCCESS. REJECTING THIS LINE OF ARGUMENT, THE DISPUTE RESOLUTION PANEL OBSERV ED AS FOLLOWS: TH E DR P IS NOT CONVINCED BY THIS ARGUMENT. TYPICALLY, A REIMBURSEMENT OF EXPENDITURE WOULD BE AN EXPENDITURE INCURRED BY THE NON - RESIDENT WHICH WAS RESPONSIBILITY OF THE APPELLANT. AN INSTANCE OF SUCH REIMBURSEMENT CAN BE EXPENDITURE INCURR ED ON EMPLOYEES OF IND IAN COMPANY VISITING THE AE FOR BEARING THEIR HOTEL EXPENSES. HOWEVER, IT IS ALSO EQUALLY ACCEPTED THAT A TRANSACTION OF THE INDIAN PARTY WITH A THIRD PARTY CANNOT BE GIVEN A COVER OF REIMBURSEMENT BY ROUTING THIS TRANSACTION WITH THE AE. IN THE PRESEN T CA SE, THE AE HAS PURCHASED LICENCE ON BEHALF OF THE ASSESSEE AND THEN CHARGED THE ASSESSEE FOR THESE AMOUNTS. IN SUCH A SCENARIO, THE AMOUNT CANNOT BE TREATED AS REIMBURSEMENT. THIS IS A CASE OF ROUTING SCA INDIA ' S EXPENSES THE AE AND I S NOT COST REIMBUR SEME NT BUT COST ALLOCATION (AMD RESEARCH AND DEVELOPMENT CENTRE INDIA PVT LTD [(2015) 53 TAXMANN.COM 300 (HYD - TRIB)]. ITA NO. 7315/MUM/2018 ASSESSMENT YEAR: 2015 - 16 PAGE 3 OF 19 4. IT WAS IN THIS BACKDROP THAT THE ASSESSING OFFICER TAXED AN INCOME OF RS 1,30,04,613 UNDER ARTICLE 12(3)(A) OF IND O SWEDISH TAX TREA TY. THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE US. 5. 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. 6. WE FIND THAT IT IS A CASE IN WHICH THE ASS ESSEE HAS PURCHASED THE SAP SOFTWARE LICENCE FROM A THIRD PARTY - NAMELY ' BE ONE SOLUTIONS, SWITZERLAND , ' AND EVEN A COPY OF ONE OF THE PURCHASE INVOICES IS PLACED BEFORE US AT PAGE 17 OF THE PAPER - BOOK. THE FINDING OF THE DRP TO T HE EFFECT THAT IT IS A CASE OF PURCHASE OF SOFTWARE THROUGH AN AE OF THE ASSESSEE IS THUS FACTUALLY INCORRECT. WE HAVE ALSO TAKEN NOTE OF THE CERTIFICATE DATED 18 TH APRIL 2018, SIGNED BY THE FINANCE DIRECTOR OF THE ASSESSEE COMPANY, WHICH STATES THAT ' THI S IS TO CERTIFY THAT WE HAVE PR OVIDED SAP/SAP B1 LICENCES TO SCA HYGIENE PRODUCTS INDIA PVT LTD (SCA - INDIA) DURING YEAR APRIL 2014 TO MARCH 2015 ' AND THAT ' WE FURTHER CERTIFY THAT THE ABOVE - MENTIONED LICENCES ARE PROVIDED TO SCA - INDIA ON COST TO COST BASIS WITHOUT ANY MARK UP BEI NG CHAR GED. ' THERE IS NO, AND PERHAPS RIGHTLY SO, CHALLENGE TO THE FACTUAL ELEMENT OF ITS BEING A COST TO COST REIMBURSEMENT RECEIVED BY THE ASSESSEE. WHAT LEARNED DEPARTMENTAL REPRESENTATIVE CONTENDS IS THAT IF THE INDIAN ENTITY WA S TO BE DIRECTLY SUPPL IED THI S LICENCE BY THE ACTUAL PRODUCT VENDOR SUPPLYING IT TO THE ASSESSEE, THE TAX WITHHOLDING BY INDIAN ENTITY WOULD HAVE COME INTO PLAY, AND THAT TAX WITHHOLDING HAS BEEN AVOIDED BY ROUTING THE PURCHASE THROUGH THE ASSESSEE. THAT I SSUE, WHETHER RIGHT OR NOT, H AS NO BEARING ON TAXABILITY OF AN INCOME IN THE HANDS OF THE ASSESSEE. WE REJECT THIS ARGUMENT. AS REGARDS LEARNED DRP ' S RELIANCE ON A DECISION OF THE COORDINATE BENCH IN THE CASE OF AMD RESEARCH AND DEVELOPMENT CENTRE INDIA P VT LTD (SUPRA) , WE CAN ONLY S AY THAT IT WAS A CASE IN WHICH THE COORDINATE BENCH CAME TO THE CONCLUSION THAT THE PAYMENT FOR A SOFTWARE LICENCE TO THE GROUP COMPANY WAS NOT ON ' COST TO COST BASIS ' , AS EVIDENT FROM THE COORDINATE BENCH OBSERVATIONS TO THE E FFECT THAT ' IN THE ABSEN CE OF T HESE DETAILS AS WELL AS THE BASIS OF ALLOCATION OF COST OF SOFTWARE APPLICATIONS/LICENCES, WE FIND IT DIFFICULT TO ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE AMOUNT IN QUESTION PAID BY IT TO ATI TECHNOLOGIES, CANADA TOWAR DS ITS SHARE OF SOFTWARE APPLIC ATIONS/LICENCES ON COST TO COST BASIS, WITHOUT INVOLVEMENT OF ANY ELEMENT OF PROFIT, SO AS TO SAY THAT THE AMOUNT SO REMITTED IS NOT CHARGEABLE TO TAX IN THE HANDS OF ATI TECHNOLOGIES, CANADA IN INDIA, BEING MERELY IN THE NAT URE OF REIMBURSEMENT OF ACTUAL EXPENSES INCURRED BY THE SAID COMPANY, WITHOUT ANY PROFIT ELEMENT ' . THIS DECISION, THEREFORE, DOES NOT SUPPORT THE CASE OF THE ASSESSING OFFICER ANYWAY INASMUCH AS THIS DECISION SUPPORTS THE PROPOSITION THAT WHEN THE PAYMENT FOR SOFTWARE LICENCE FEE S TO A GROUP ENTITY IS A REIMBURSEMENT PURE AND SIMPLE, IT WILL NOT BE TAXABLE AS INCOME OF TH AT GROUP ENTITY. IT IS QUITE ELEMENTARY THAT WHAT CAN BE TAXED IN THE HANDS OF AN ASSESSEE IS NOT A RECEIPT, BY ITSELF, BUT ONLY THE IN COME ELEMENT, AND, THERE FORE, W HEN A RECEIPT BY THE ASSESSEE IS BEREFT OF INCOME ELEMENT, AS A PURE REIMBURSEMENT INHERENTLY IS, IT CANNOT BE BROUGHT TO TAX IN THE HANDS OF THAT ASSESSEE. HON ' BLE JURISDICTIONAL HIGH COURT, IN THE CASE OF CIT VS SIEMENS AG [(2009) 310 ITR 320 (BOM )], HAV E ACCEPTED THIS PROPOSITION AND OBSERVED AS FOLLOWS: THAT LEAVES US WITH THE LAST CONTENTION AS TO WHETHER THE AMOUNTS BY WAY OF REIMBURSEMENT ARE LIABLE TO TAX. TO ANSWER THAT ISSUE, WE MAY GAINFULLY REFER TO ITA NO. 7315/MUM/2018 ASSESSMENT YEAR: 2015 - 16 PAGE 4 OF 19 THE JUDGMENT O F A DIVISION BENCH OF TH E DELHI HIGH COURT IN INDUSTRIAL ENGINEERING PROJECTS (P.) LTD.'S CASE (SUPRA). THE LEARNED DIVISION BENCH OF THE DELHI HIGH COURT WAS PLEASED TO HOLD THAT REIMBURSEMENT OF EXPENSES CAN, UNDER NO CIRCUMSTANCES, BE REGARDED AS A REVE NUE RECEIPT AND IN THE P RESENT CASE THE TRIBUNAL HAD FOUND THAT THE ASSESSEE RECEIVED NO SUMS IN EXCESS OF EXPENSES INCURRED. A SIMILAR ISSUE HAD ALSO COME UP FOR CONSIDERATION BEFORE THE DIVISION BENCH OF THE CALCUTTA HIGH COURT IN DUNLOP RUBBER CO. LTD.' S CASE (SUPRA). THE LEAR NED DIV ISION BENCH WAS ANSWERING THE FOLLOWING QUESTION: 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AMOUNTS RECEIVED BY THE ASSESSEE (ENGLISH COMPANY) FROM M/S. DUNLOP RUBBER CO. (INDIA) LTD. (INDIAN COMPANY) AS PER AGREEMENT DATED 2 9 - 1 - 195 7 CONSTITUTED INCOME ASSESSABLE TO TAX?' ON CONSIDERING THE ISSUE THE LEARNED BENCH NOTED THAT THE TRIBUNAL WAS OF THE VIEW THAT WHAT WAS RECOUPED BY THE ENGLISH COMPANY WAS PART OF THE EXPENSES INCURRED BY IT. THE LEARNED C OURT UPHELD THE SAID FIN DING. T HE LEARNED BENCH WAS PLEASED TO HOLD THAT SHARING OF EXPENSES OF THE RESEARCH UTILISED BY THE SUBSIDIARIES AS WELL AS THE HEAD OFFICE ORGANISATION WOULD NOT BE INCOME WHICH WOULD BE ASSESSABLE TO TAX. A SIMILAR VIEW WAS TAKEN IN STEWARTS & LLOYDS OF INDIA LTD.'S CASE (SUPRA). WE ARE IN RESPECTFUL AGREEMENT WITH THE VIEW EXPRESSED BY THE DELHI AND CALCUTTA HIGH COURTS. 7. IN VIEW OF THE ABOVE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE HOLD THAT THE RECEIPT OF SOFTWARE LICENCE FEE S BY THE ASSESSEE, FROM ITS INDIAN SUBSIDIARY, IS REIMBURSEMENT OF SOFTWARE LICENCE FEES PAID BY THE ASSESSEE TO A THIRD PARTY, AND, THEREFORE, IT CANNOT CONSTITUTE INCOME TAXABLE IN THE HANDS OF THE ASSESSEE. AS THIS INCOME IS NOT TAXABLE UNDER THE DOME STIC LAW PROVISIONS IN INDIA, WE SEE NO NEED TO DEAL WITH THE OTHER ASPECTS OF THE MATTER WITH RESPECT TO NON - TAXATION OF THIS INCOME UNDER THE PROVISIONS OF THE INDO - SWEDISH TAX TREATY. WE LEAVE IT AT THAT. 8. GROUND NO. 1 IS THUS ALLOWED IN THE TERMS I NDICATED ABOVE. 9. IN GROUND NO. 2 AND 3, WHICH WE WILL TAKE UP TOGETHER, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCES: GROUND NO. II - TAXABILITY OF CONSULTANCY SERVICES AS FTS 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED DC IT AND DRP HAS ERRED IN NOT CONSIDERING THE FACT THAT APPELLANT HAS ONLY RECHARGED THE ACTUAL COST IT INCURRED FOR PROVIDING THE PROJECT CONSULTANCY SERVICES AND SINCE THERE IS NO PROFIT ELEMENT THE SAME IS NOT TAXABLE IN IN DIA. ITA NO. 7315/MUM/2018 ASSESSMENT YEAR: 2015 - 16 PAGE 5 OF 19 2.2 WITHOUT PRE JUDICE TO GROUND NUMBER 2.1 ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED DCIT / DRP HAS ERRED IN HOLDING THAT THE AMOUNT RECEIVED BY THE APPELLANT COMPANY FOR CONSULTING SERVICES AMOUNTING TO INR 1, 97,94,209 FROM SCA IND IA WOULD B E TAXABLE AS FTS UNDER DTAA IN SPITE OF THE FACT THAT SUCH SERVICES DO NOT MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW - HOW OR PROCESSES OR CONSISTS OF THE DEVELOPMENT AND TRANSFER OF TECHNICAL PLAN OR TECHNIC AL DESIGN. ON THE FAC TS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED DCIT/DRP HAS ERRED IN HOLDING THAT THE PROTOCOL GRANTING. MOST FAVORED NATION BENEFIT AVAILABLE IN INDIA - SWEDEN DTAA CAN BE GRANTED ONLY THROUGH GOVERNMENT NOTIFICATION DISREGARDING THE FACT THAT NO S UCH NOTIFICATION IS REQUIRED AS PER DTAA. GROUND NO. III - TAXABILITY OF IT SUPPORT SERVICES AS FEES FOR TECHNICAL SERVICES (FTS)/ ROYALTY 3.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED DCI T/DRP HAS ERRED IN NOT CONSIDERI NG THE FACT THAT APPELLANT HAS ONLY RECHARGED THE ACTUAL COST IT INCURRED FOR PROVIDING THE IT SUPPORT SERVICES AND SINCE THERE IS NO PROFIT ELEMENT THE SAME IS NOT TAXABLE IN INDIA. 3.2 WITHOUT PREJUDICE TO THE GROUND NO. 3.1, ON THE FACTS AND IN THE CI RCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED DCIT/DRP HAS ERRED IN HOLDING THAT THE AMOUNT RECEIVED BY THE APPELLANT FOR IT SUPPORT SERVICES AMOUNTING TO INR 57,47,684 FROM SCA INDIA WOULD BE TAXABLE AS FTS AND ROYALTY UN DER INDIA - SWEDEN DOU BLE TAXATI ON AVOIDANCE AGREEMENT (DTAA) IN SPITE OF THE FACT THAT SUCH SERVICES DO NOT MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW - HOW OR PROCESSES OR CONSISTS OF THE DEVELOPMENT AND TRANSFER OF TECHNICAL PLAN OR TECHN ICAL DESIGN. 3.3 IN ADDITION T O THE ABOVE, DCIT/DRP HAS ERRED IN CONSIDERING A PART OF IT SUPPORT SERVICES ARE BUNDLED WITH SOFTWARE SUPPLIED AND HENCE THE SERVICES ARE ANCILLARY AND SUBSIDIARY TO ENJOYMENT OF SUCH SOFTWARE AND ACCORDINGLY THE SAME IS TA XABLE UNDER ARTICLE 12 (4)(A) OF INDIA - PORTUGUESE REPUBLIC DTAA AS TECHNICAL SERVICES. 10. SO FAR AS THESE TWO GROUNDS OF APPEAL ARE CONCERNED, BRIEFLY THE MATERIAL FACTS OF THE CASE ARE AS FOLLOWS. THE ASSESSEE HAS UNDER THE SAME AGREEMENT, AS IS REFE RRED TO IN PARAGRAPH 3 ABOVE IN C ONNECTION WITH THE FIRST GROUND OF APPEAL, RENDERED SERVICES FOR ' LEADING THE WORK DURING 2014 AND 2015 OF BUILDING UP THE NEW FACTORY SITE AT RANJANGAON, NEAR PUNE ' . THIS WORK WAS TO BE DONE, FOR CONSIDERATION OF ' APPROXIM ATE ACTUAL COST BASE D CHARGES: 16,000 EUR PER MONTH + EXPENSES (MAINLY TRAVELLING COSTS) DURING 2014 UNTIL THE END OF THE PROJECT ' BY ONE NAZIR ALIBAY. THE TOTAL AMOUNT RECEIVED BY THE ASSESSEE UNDER THIS ARRANGEMENT WAS RS 1,97,94,209. THE NATURE OF SERVI CES INCLUDED THE F OLLOWS: F ACTORY PROJECT LEADER: NAZIR ALIBAY ITA NO. 7315/MUM/2018 ASSESSMENT YEAR: 2015 - 16 PAGE 6 OF 19 DESCRIPTION OF SERVICES: LEADING THE WORK DURING 2014 AND 2015 OF BUILDING UP THE NEW FACTORY SITE AT RANJANGAON NEAR PUNE: FULL TIME ASSIGNMENT. AS FACTORY PROJECT LEADER, FOLLOWING SHALL BE THE SERVICES RE NDERED: TO PLAN AND STEER EXECUTION OF ALL THE WORK TO ESTABLISH THE FACTORY (INCLUDING BUILDING, INFRASTRUCTURE AND MACHINERY). RESPONSIBLE FOR ALL ACTIVITIES UNTIL MACHINES ARE RUNNING AT TARGET LEVEL AND TAKEN OVER BY LOCAL MANUFA CTURING MANAGEMENT R ESPONS IBLE TO MANAGE PROJECT SPENDING WITHIN BUDGET. LEADING THE PROJECT TEAM CONSISTING OF BOTH LOCAL RESOURCES AND RESOURCES SUPPORTING FROM OTHER LOCATIONS WITHIN SCA. COORDINATING CONTRACTORS FOR BUILDING AND MACH INERY AND FOLLOW U P THEIR WOR K TO S ECURE EXECUTION ACCORDING TO AGREEMENTS. REGULARLY SPENDING TIME ON SITE TO FOLLOW THE PROGRESS OF ACTIVITIES, BUT ALSO AT SCA INDIA OFFICE IN MUMBAI AS WELL AS IN EUROPE TO SECURE COMMUNICATION AND GOOD FLOW OF INFO RMATION BETWEEN PE OPLE WITHIN THE C OMPANY DIRECTLY OR INDIRECTLY INVOLVED IN THE PROJECT. PREPARATION OF MONTHLY PROJECT REPORTS. INFORMING PROGRESS TO PROJECT STEERING GROUP AS WELL AS MANAGEMENT OF SCA INDIA. 11. YET ANOTHER RECEIPT BY THE AS SESSEE, UNDER THE SAID AGREEM ENT, W AS 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. O BJECT 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 S ERVICES - PRO VIDIN G 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 IM PLEMENTATION OF ER P SYS TEM [SA P 81) FOR PROJECT VINDALOO WHICH INCLUDES SUPPORT FOR O PRE IMPLEMENTATION WORK I.E. APPLYING PER - SETS FOR TEMPLATE (ALL CHANGES NOT IMPACTING THE PRODUCTIVE DATABASE), CLEANSING CURRENT DATABASE, FINALIZING TARGET PROCESSES AND PRE PARIN G INFRA STRUCTURE ITA NO. 7315/MUM/2018 ASSESSMENT YEAR: 2015 - 16 PAGE 7 OF 19 O ASSISTING IN TESTING PHASE I.E. TESTING UPGRADE, TESTING NEW INTEGRATION SCENARIOS, TRAINING USERS TO NEW PROCESSES, TESTING BUSINESS PROCESS ON UPGRADED DATABASE WITH USERS, O POST IMPLEMENTATION WORK WHICH INCLUDES UPGRADING DATABAS E, AP PLYING NEW INTEGRATION SCENARIOS AND APPLYING OTHER PART OF TEMPLATES. O OTHER TASKS INCLUDING CREATION AND TESTING FIXED ASSETS MODULE, ADDITIONAL REPORTING MODULES, RETRAINING NEW USERS TO ERP AND ON SITE SUPPORT POST GO LIVE 2. DETAILS OF THE OBJ ECT OF TH E 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 MANAG EMENT OF ITS WORKFORCE, AND WILL ONLY BE USED TO THAT PURPO SE. T HE PROCESSIN G 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 COLLE CTIO N, 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 A ND CONTROL DATA IN FORMA TION 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 INTERE STED PARTIES CONS UMERS OT HER 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 ARTI CLE 1 2 OF THE INDO SWEDISH TAX TREATY, AS ALSO UNDER THE INCOME TAX ACT. ONE OF THE ARGUMENT S THAT WAS ADOPTED BY THE ASSESSEE WAS THAT UNDER THE RESTRICTED MEANINGS OF THE ' FEES FOR TECHNICAL SERVICES ' UNDER ARTICLE 12 OF THE ITA NO. 7315/MUM/2018 ASSESSMENT YEAR: 2015 - 16 PAGE 8 OF 19 INDO SWEDISH TAX TREATY, AS R EAD W ITH ' 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 A VAILABLE ' TECHNICAL KNOWL EDGE, 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 RAI SED B Y 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 OWN RESERVATIO NS AND FEELS THAT BO TH TH E STA TES 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 MERIT S OF APPLI CABILITY 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, K NOW - HO W 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 PROCES S AND THE S ECOND 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 CLARIFICATIO N THAT WHEN THIRD PA RTY CO NSULT ANTS 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 TH E ASSESSEE. IT IS AL SO NOT ED TH AT 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. 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 B E EXECUTED BY THE AS SESSEE WITH OUT 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 TECH NICAL PLAN OR TECHNI CAL DE SIGN, 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 CONTEMPLAT ED IN THE C ASE 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 ITA NO. 7315/MUM/2018 ASSESSMENT YEAR: 2015 - 16 PAGE 9 OF 19 EXECUTING THE PROJECT BUT IS RENDE RING CONSULTANCY SER VICE T O 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 I T HAS BEEN REPRODUCE D ABOV E. AD MITTEDLY, 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 TH ESE SERVICES ARE REQ UIRED 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. 5.15. THE ASSESSEE IS NOT CORRECT IN CLAIMING THAT THE SERVICES SO RENDERED ARE COVE RED BY ARTI CLE 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, WOUL D FALL WITHIN THE AM BIT OF ARTI CLE 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 T HE ACT AS WELL AS UN DER IN DIA S WEDEN 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 ART ICLE 12 AND RS 57,47 ,684 A S INF ORMATION 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 AP PLICAB LE 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, AN D THE PROVISION FOR F EES FOR TECHN ICAL 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 1. ROYALTIES AND FEES FOR TECHNICAL SERVICES ARIS ING IN A CONTRACTING STATE AN D 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 STAT E IN WHICH THEY ARISE , ITA NO. 7315/MUM/2018 ASSESSMENT YEAR: 2015 - 16 PAGE 10 OF 19 AND AC CORDIN G 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 T ECHNICAL SERVICES. 3 . (A) TH E 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 PA TENT, TRADE MARK, DES IGN OR M ODEL, 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 A NY MANAGERIAL, TECHNI CAL OR C ONSULT ANCY 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 BENE FICIAL 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 PE RMANENT ESTABLISHMENT SITUATE D THER EIN, 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 CON NECTED WITH SUCH PERM ANENT ES TABLIS HMENT 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 S TATE. WH ERE, H OWEVER, 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 ROY ALTIES 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 T O ARISE IN THE STATE IN WHICH THE P ERMANENT 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 SERVIC ES, HAVI NG REG ARD 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 T HE LAST - MENTIO NED 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. 7315/MUM/2018 ASSESSMENT YEAR: 2015 - 16 PAGE 11 OF 19 PROTOCOL TO INDO SWEDISH TAX TREATY AT THE SIGNING OF THE C ONVENTION 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 CAPI TAL, THE UNDERSIGNED HAVE AGREE D 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 SERVI CES) IF UNDER ANY CON VENTION. AGREEME NT 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 RESTRIC TED THAN THE RATE OR SCOPE PRO VIDED F OR 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 WIT NESS WHEREOF THE UNDE RSIGNED B EING DU LY 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 EQUALLY AUTHENTIC. IN CASE OF DIVERGENCE BETWEEN THE TEXTS THE ENGLISH TEXT SH ALL 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 OTH ER CONTRACTING STATE MAY BE TA XED 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 ROY ALTIES AND FEES FOR I NCLUDED S ERVICES 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 APPLIC ATION OF THIS LIMITAT ION. 3. THE TER M '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 ITA NO. 7315/MUM/2018 ASSESSMENT YEAR: 2015 - 16 PAGE 12 OF 19 TAPES OR ANY OTHER ME ANS 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 SCIEN TIFIC EQUIPMENT, OR F OR INFORM ATION C ONCERNING 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 CONVENT ION, TO ANY PERSON IN CONSIDER ATION O F THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THROUGH THE PROVISIONS OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) IF SUCH SERVICES : (A) A RE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYME NT OF THE RIGHT, PROP ERTY OR I NFORMAT ION FOR WHICH A PAYMENT DESCRIBED IN PARAGRAPH 3 IS RECEIVED ; OR (B) M AKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW - HOW OR PROCESSES OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHN ICAL DESIGN WHICH ENA BLES 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 ESS ENTIALLY 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 C RAFT; (C) FOR TEACHI NG IN O R BY EDUC ATIONAL 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 P ROFES SIONAL SERV ICES 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. 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 OTHE R CONTRACTING STATE I N WH ICH THE ROYA LTIES 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 AN D 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. ITA NO. 7315/MUM/2018 ASSESSMENT YEAR: 2015 - 16 PAGE 13 OF 19 7. ROYALTIES AND FEES FOR INCLUDED SE RVIC ES 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 ROYALT IES AND FEES FOR INCL UDED SERVICES, W HETHER 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 I NCURRED, AND SUCH ROY ALTI ES 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. WHER E, B Y 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 P AID, 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 SHA LL REMAIN TA XABLE 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 A S TO WHAT IS THE IM PA CT OF THE MFN CLA USE IN THE INDO SWE D ISH TAX TREATY, READ WITH THE INDO PORTUGUESE TAX TREATY WHICH WAS SUBSEQUENTLY ENTERED INTO BETWEEN INDIA AND PORTUGAL , AN OCED MEMB ER COUNTRY. 17. LET US FI RST UNDERSTAND AS TO W HAT A MOS T FAVOU RED NATION CLAUSE , IN THE TAX TREATIES, I S. ALL IT IMPLIES IS TH AT IN CASE T HE TAX JURISDICTION S ENTERING INTO THE TAX TRE ATY , OR ANY O F THE TREATY PARTNER, EXT EN DS A MORE GENEROUS TAX TREATMENT TO ANY OTHER T AX JURISDICTION, OR ANY OTHER TAX JURISDICTION OF A PARTICULAR N ATUR E - E . G. OECD MEMBE R JURISDICTION, THE SAME TAX TREATMENT WILL BE DUE TO THE TREATY PARTNER IN QUESTION. F OR EXAM PLE, IF X JURISDICTION PROVIDES FOR SOURCE TAXATION @ 1 5 % FOR INTEREST TO Y JURISDICTION , IT ALSO ASSURES , BY INCORPORATIN G A MFN CLAUSE, THA T IN CASE X JURISD ICTION EN TERS INTO A N AGREEMENT PROVIDING FOR A LOWER RATE OF SOURCE TAXATION , OR MORE RESTRICT ED SC OPE FOR TAXATION OF INTEREST, WITH ANY O THER JURISDICTION - OR ANY OTHER OECD MEMBER TAX JURISDICTION , THE SA ME WILL B E EXTENDED TO Y JURISDICTION AS WELL. IN A SENSE, TERMING THIS CLAUSE AS A ' MOST FAVOURED N ATION CLAUSE ' IS A MI SNOMER BECAUSE WHAT THIS CLAUSE ENSURES IS AN EQUAL TREATMENT VIS - - VIS OTHER JURISDICTIONS , OR OTHER JU RISDICTIONS O F A SPECIFIC CATE G ORY , RATHER THAN A F AVOURED TREATMENT FOR THE TREATY PA RTNER JURISDICTION. 18 . IT IS CRUCIAL TO BEAR IN MIND THAT THE IMPLEMENTATION OF A MOST FAVOURED NATION CLAUSE IS NOT ALWAYS IN A H OMOGENOU S MANNER. THERE ARE DIFFERENT WAYS IN W H ICH SUCH AN MFN CLA USE CAN BE I MPLEMENTED. THERE CAN BE SITUATIONS LIKE IN IN D IA SWITZERLAND DOUBLE ITA NO. 7315/MUM/2018 ASSESSMENT YEAR: 2015 - 16 PAGE 14 OF 19 TAXATION A VOIDANCE AGREEMENT [ (1 9 95) 214 ITR STAT 223 @ 246 ; INDO SWISS TAX TREATY , IN SHORT] WHICH ONLY REQUIRES FRESH N E G OTIATIONS TO PROVIDE FOR GIVING EFFECT TO MO ST FAVO URED NATION STA TUS IN EFFECT, AS EVIDENT FROM THE O BSERVATIONS IN THE PROTOCOL TO THE EFFECT THAT ' IF AFTER THE DATE OF SIGN ING THIS AMENDING PROTOCOL, INDIA UNDER ANY CONVENTION, AGREEMENT OR PROTOCOL WITH A THIRD STATE WHICH IS A MEM BER OF THE OECD, RE STRICTS THE SC OPE 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 TREA TMENT TO SWITZERLAND AS THAT PROVIDED TO THE THIRD STAT E ' (EMPHASIS , BY UNDERLINING, SUPP L IED BY US ) . SIMILARLY, IN THE CASE PROTO COL TO THE INDIA PHILIPPINES DOUBLE TAXATION AVOIDANCE AGREEMENT [ (1996) 219 ITR STAT UTES 6 0 @ 83 ; INDO PHI LIPPINES TAX T REATY, IN SHORT] , ALL THAT PROVIDED I S IN THE MFN CLAUSE IS THAT THE TREATY PART NERS I NFORM THE OTHER PARTY SO THAT THE MATTER IS APPROPRIATELY REVIED AS IS E VIDENT FROM THE PROT OCOL OBSERVATION TO THE EFFECT THAT ' WITH RE FERENCE 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 GOVERNME NT OF INDIA THROUGH DIPLOMATIC CH ANNELS AND THE TWO G OVERNMENTS WILL UNDERTAKE TO REVIEW THESE ARTICLES WITH A VIEW TO PROVIDING SUCH LOWER OR NIL RATE TO PROFITS OF THE SAME KIND DERIVED UNDER SIMILAR CIRCUMSTANCES BY ENTERPRISES OF BOTH CONTRACTING STATE S (EMPHASIS , BY UND ERLINING, SUPP L IED BY U S) ' . IN THE CASE O F I NDO SWEDISH TAX TREATY, HOWE VER , THE WORDINGS ARE D IFFERENT INASMUCH AS IT PROVIDES THAT ' IF UNDER ANY CONVENTION. AGREEMENT OR PROTOCOL BETWEEN INDIA AND A THIRD STATE WHICH IS A MEMBER OF T HE OECD, INDIA LIMI TS ITS TAXATIO N 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 PRO VIDED FOR IN THIS CONVENTION ON THE SAID ITEMS OF INCOME, THE SAME RATE OR S COPE AS PROVIDED FO R IN THAT CONV ENTION, AGREEMENT OR PROTOCOL ON THE SAID ITEMS OF INCOME SHALL ALSO APPLY UNDER THIS CONVENTION (EMPHASIS , BY UNDERLINING, SUPP L IED BY U S) ' . THERE ARE THUS THREE DIFFERENT M ODES , IN THE ILLUS TRATIONS THAT WE DISCUSSED, I N WHICH THE MFN CLAU SE CAN BE IMP L EMENTED - FIRST, AS IN INDO SWISS TAX TREATY , WHERE ALL THAT THE MFN CLAUSE ENSURES IS THAT THE NE GOTIATIONS TAKE PLACE, WITHOU T ANY DELAY, TO ENSURE THAT THE SAME TREATMENT IS PROV IDED TO THE TREATY PARTNER; SECOND, AS IN I NDIA PHILIP PINES TA X TREATY, WHER E THE INFORM ATION , ABOUT A MORE GENEROUS TREATMENT FOR ANY ANOTHER TAX JURISDICTION , BY ONE OF THE TREATY PARTNERS IS TO BE PRO VIDED TO THE OTHER TREATY P ARTNER, THROUGH DIPLOMATIC CHANNELS, SO THAT EXISTING PROV ISIONS CAN BE BROUGHT IN PAR W ITH MORE GENER OUS TAX TREATMENT IN THE SOURCE JURISDICTION; AND , THIRD - IN WHICH TH E TREATY DOES NOT PRESCRIBE ANY THING FURTHER THAT IS REQUIRED TO BE DONE, FOR G IVING EFFECT TO THE MFN STATUS, AS THE SAME RATE OR THE SAME SC OPE, AS IS E XTE NDED T O ANY OTHE R OECD COUNTRY SUBSEQUENTL Y, ' SHALL ALSO APPLY ' UNDER THIS TREATY. THERE CAN ALSO BE SITUATIONS IN WHICH A N MFN CLAUS E MAY REQUIRE THE TREATY PARTNER JURISDICTIONS T O ISSUE NOTIFICATIONS TO THE EFFECT THAT THE BENEFIT EXTENDED TO ANOTHER JURISDICTION IS EX T ENDED TO THE TRE ATY PARTNER JURISDICTION AS WELL. THERE CAN BE SEVERAL MO DES FOR IMPLEMENTATION OF THE MFN CLAUSE, BUT ITS NOT REALLY NECESSARY TO EXPLORE THAT ASPECT ANY FURTHER . SUFFIC E TO NOTE THAT THERE ARE DIFFERENT METH O DS IN WHI CH MFN C LAUSE CAN B E IMPLEMENTED , AND THERE CANNOT, T HEREFORE, BE A ' ONE SIZE FITS ALL ' APPROAC H. AS FAR AS THE SITUATION THAT WE ARE DEALI NG WITH, I,E. MFN CLAUSE IN IND O SWEDISH TAX TREATY , IS CONCER NED, IT IS A SIT UATION IN WHICH THE ACTION OF LIMITING THE SOURCE TAXATION , FOR DI VIDEN DS, INTEREST, ROYALTIES OR FEES FOR TECHNICAL SER VICES, TO ANY OTHER O ECD MEMBER JU RISDICTION , BY ITSELF, IS ENOUGH TO TRIGGER THAT THE SAME PROVISIONS ' SHALL ALSO APPLY ' UNDER IN DO SWEDISH TAX TREATY . NO FURTHER ACTIONS ON THE PART OF INDIA A RE EN VISAGED IN THE INDO SWEDISH TAX TREATY T O TRIGGER THE APPLICATION OF THE SAME PROVISIONS IN I NDO SWEDISH TAX TREATY AS WELL. ITA NO. 7315/MUM/2018 ASSESSMENT YEAR: 2015 - 16 PAGE 15 OF 19 19 . ELABORATING UPON THE SCOPE OF THIS P ECULI AR MANNER IN WHICH MFN C LAUSE OPERATES IN IND IA FRA NCE DOUBLE TA XATION A VOIDANCE AG REEMENT [ ( 1994) 209 ITR STATUES 130 @ 159; INDO FRENCH TAX TREATY , IN SHORT) THE RELEVANT PORTION OF PROTOCOL CLAUSE IN WHICH IS IDENTI CALLY WO RDED IN EFFECT AS IN THE CASE OF INDO SWE D ISH TAX T REATY, A COORDINATE BENCH OF THIS TRIBUNAL, SP EAKING THROUGH ONE OF US (I.E. THE VICE PRESIDENT ), IN THE JUDGM ENT 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 GOO D EVEN TODA Y: I N OUR CON SIDERED VIE W, T HE 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 IN, FOR EXAMPLE, PARA 4 OF PROTO COL TO INDO - PHI LIPPINES DTAA OR PARA 3 OF PROTOCOL TO INDO - SWISS . 2 0 . IT IS INTERESTING TO NOTE THAT THE COORDINATE BENCH DID TAKE NOTE OF THE NOTIFICATION ISSUED BY THE GOVERNMENT OF I NDIA , GIVING EFFECT TO , WHAT IT PERCEIVED AS, THE IMPACT OF THE PROT OCOL CLA U SE AS A RESULT OF A SUBSEQUENT TAX TREATY BEING ENTERED INTO BY INDIA. T HE CONTROVERSY ABOUT THE GOVERNMENT NOTIFICATION WAS ON ACCOUNT OF THE FACT THAT IT DID I MPLEMENT THE P RO T OC O L CLAUSE , BUT IT EXTENDED L ESSER EFFECT TO IT THAN AS VISUALIZED B Y A PLAIN READI NG OF THE PROTOCOL CLAUSE - I.E. , ABOU T THE RATE OF TAXATION IN THE SUBSEQUENT TREATY PR OVISION ONLY AND NOT ABOUT THE RESTRICTED SCOPE OF THE RELATED TREATY PROV ISION . HOWEVER, THE COORDINATE BENCH WAS OF THE VIEW THAT NOTHING TURNED ON TH IS NOT IFICATION A ND IGNORED T HE SAME. T HE PLEA THAT ISSUANCE OF N OTI FICATION WAS AT BEST DO NE AS A MEASURE OF AB UNDANT CAUTION BY THE CBDT, A ND IT DID NOT HAVE ANY LEGAL EFFECT ON THE IMPLEMENTATION OF THE PROTOCOL C L A USE , WAS , IN EFFECT , ACCEPTED . HOWEVER , WH EN AN IDENTI CAL ISSUE, IN THE CASE OF INDO FRENCH TAX TREATY ITSELF, CAME UP BEFORE THE AUTHORITY FOR ADVAN CE RULING, IN THE CASE OF S TERIA INDIA L TD IN RE [(2014 ) 72 TAXMANN.COM 1 (A AR)], THE APPROACH ADOPTED , ON THIS ISSUE, BY THE AUTHORITY FOR AD VAN CE RULING WAS E NTIRELY D IFFERENT , AS IT HELD NOT IFICATION TO BE A CRUCIAL AN D LEGAL SOURCE OF THE RIGHTS BY THE IMPLE MENTATION OF PROTOCOL, HON' BLE AUTHORITY FOR ADV ANCE RULING OBSERVED AS FOLLOWS: .. WHAT IS STATED BY THE PROTOCOL IS FOR INDIA TO LIMIT ITS TAXATION A T 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 AS AMENDED BY NOTIFICATION N O. SO 650(E), DATED 10. 7.2000. WAS ISSUED BY GO VT. 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 T HE TAX TREATY B ET WEEN INDIA AND FRANCE , IT SHOULD HAVE BEEN DO NE 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 TH E BASIS OF THE PR OTOCOL WERE GIVEN EFF ECT BY NOTIFICATION ONLY . WE DO NOT SEE ANY REASON AS TO WHY DIFFERENT TREATMENT WILL BE GIVEN IN THE PRESENT CASE. ITA NO. 7315/MUM/2018 ASSESSMENT YEAR: 2015 - 16 PAGE 16 OF 19 2 1 . IN OTHER WORDS, IT WAS THUS HELD , AS HAS BEEN HELD BY THE LEARNED DRP IN THE IMP UGNED ORDER, THA T THE EFFECT OF THE P ROTOCOL CLAUSE IS TO B E GIVEN BY A FORMAL NOTIFICATION , AND UNLESS THAT HAPPENS, THE PROTOCOL IS T OO TH LESS. THAT LEGAL POSITION HAS, HOWEVER, BEEN REVERSED IN THE CASE OF STERIA INDIA LTD VS CIT [ (2016) 72 TAXMANN.COM 1 (DEL ) ] AND THEI R LORDSHI PS HA VE , R EF ERRED TO , WITH APPROVA L, THE DECISION OF A COORDINATE BENCH IN THE CASE OF ITC LTD (SU PRA) AND CONCLUDED AS FOLLO WS: THE COURT IS .. UNABLE TO AGREE WITH THE CONCLUSION OF THE AAR THAT THE CLAUSE 7 OF THE PROTOCOL, WHICH FORMS P ART OF THE DTAA BET WE EN INDIA AND FRANCE, D OES 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 . . .. A REFERENC E 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 TH E ITAT, AND IN THE VI EW OF THIS COURT CORRE CTLY, 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 MOR E RESTRICTED SCOPE OF FEE FOR TECHNICAL SER VICES AS PROVIDED FOR IN A DTAA ENTERED INT O 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. TH E VIEWS SO EXPRESSED BY HON ' BLE DELHI H I GH COURT, IN THE ABSENCE OF AN YTHING CONTRARY THERETO BY HON ' BLE JURISDICTIONAL H I GH CO URT, OR, FOR THAT PURPOSE, EVEN ANY OTHER HON ' BLE HIGH COU RT , BI ND US. THE AAR DECISIONS, AS IS THE WELL - SETTL ED LEGAL POSITION, DO NOT CONSTITUTE BINDIN G JUDICIAL PRECEDENTS FOR US. IT IS ALSO NOT IN DISPUTE THAT PORTUGAL IS AN OECD JURISDICTION, THAT THE INDO PORTUG UESE TAX TREATY WAS ENTERED INTO AFTER THE INDO SWEDISH TAX TREATY WAS ENTERED INTO, AND THAT THE INDO PORTUGUE SE T AX T REATY PROVIDES FAR MOR E RESTRICTED SCOPE OF ' FEES FOR TECHNICAL SERVICES ' IN ASMUCH AS IT ADOPTS THE ' MAKE A VAILABLE ' CLAUSE WHICH RESTRICTS THE TAXATION OF FEES FOR TECHNICAL SERV I CES ONLY IN SUCH CASES WH ICH ' MAKE AVAILABLE ' TECHNICAL KNOWLEDGE, EXPERIE NCE, SKILL, KNOW - HOW O R 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, R ESPECT FULLY FOL L O WING THE COORDINATE BE NCH DECISION IN THE CASE 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 PROV ISIONS OF ARTICLE 12 (4 )(B) OF THE INDO PORTUGUESE TAX TREATY, B EING MO RE RES TRIC TED IN S C OPE VIS - - VIS ARTICLE 12 (3)(B) OF INDO SWE DISH 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 - JURIS DICTIONAL HIGH COURT DEC ISIONS, 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 CARPENT ER & 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 SERV ICE 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 A T AND RESULT IN TRA NSMITTING TECHNICAL KNOWL EDGE, ETC., SO THAT THE PAYER OF THE SERVICE COULD DERIV E 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 TE RMINOLOGY 'MAKING A VAILABLE', THE TECHNICAL KNOWLEDGE, SKILL , ETC., MUST REMAIN WITH THE PERSON REC EIVING 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 E FFORT AND A LOT OF TECHNICAL KNOWLEDGE AND E XPERIENCE OF THE SERVICE PROVIDER HAVE GONE INTO IT. TH E 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 TECH NIQUES IN THE FUTUR E WITHOUT DEPENDING UPON THE PROVIDER. TECHNOLOGY WILL BE CONSIDERED 'MADE AVAIL ABLE' WHEN THE PERSON ACQUIRING THE SERVICE IS ENABLED TO APPLY THE TECHNOLOGY. THE FACT THAT THE PROVISION OF THE SERVICE THAT MAY REQUIRE TECHNICAL KNOWLED GE, SKILLS, ETC., D OES NOT MEAN THAT TECHNOL OGY IS MADE AVAILABLE TO THE PERSON PURCHASING THE SERV ICE, 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 CONSID ERATION WOULD BE REGARDED AS 'FEE FOR TECHNICAL/INCLUDE D 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 WHE THER OR NOT THE SER VICES RENDERED BY THE ASSE SSEE FIT THE DEFINITION OF ' FEES FOR TEC HNICAL SERVICES ' , AS APPLICABLE UNDER THE INDO SWEDISH TAX TREATY, T HE Q UESTION THAT WE MUST A SK OURSELVES IS NOT ONLY WH ETHER THE TECHNICAL SERV ICES ARE PERFORMED ON THE FACTS OF THIS CASE, BUT WHETHER ' T HE TECHNICA L 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 I N THE FUTURE WITHOUT DEPENDING UPON THE PROVIDER .' IN T H IS LIGHT WHEN WE AN ALYZE THE N ATURE OF SERVIC ES, WHICH ARE SET OUT IN DETAIL EARLIER IN THIS ORDER, WE FIND THAT IN NONE OF THE CASES, THESE SERVICE S ENABLE THE REC IPIENT OF THE SE SERVICES TO P ERFORM THE SAME SERVICES , IN THE FUTURE, WITHOUT RECOURSE TO TH E ASSESSEE . THE CO N SU LT ANCY SERVICES ARE IN THE N AT URE OF LEADING THE SETTI NG UP OF FACTORY, INCLUDING PLA NNING AND STEER ING EXEC UTION OF WORK, BEING RE SPONSIBLE FOR MANAGING PROJECT WITHIN BUDGET CONSTRA INTS, LEADING THE PROJECT TEAM FROM DIFFERENT LOCATI ONS, COORDINATI ON A ND F OLLOW UP WITH THE CONTRACT ORS, SECURING COMMUNICATION AND GOOD FLOW OF INFORMATION BETWEEN TH OSE DIRE C TLY OR INDIRECTLY INVOLVED WITH THE PROJECT, PREPARING PROJECT PROGRESS REPORT AND UP DATING ALL CONCERNED WITH THE PROJECT PROGRES S . JUST BECAUSE THE ASS ESSEE RENDERS THESE SERVIC ES DOES NOT MEAN , AND BY NO STR ETCH CAN IMPLY, T HAT THE REC IPIENT CAN NEXT TIME DO ALL THIS WORK WITHOUT RECOURSE TO THE ASSESSEE. AS REGARDS LEARNED D RP ' S OBSERVATIONS THAT THE PROJECT LEADING WORK ' WILL I NCLUDE ITA NO. 7315/MUM/2018 ASSESSMENT YEAR: 2015 - 16 PAGE 18 OF 19 SCHEDULING C HART S, TIME LINES, BAR CHARTS WHICH ARE CONTEMPLATED IN THE CASE OF THE ASSESSEE UNDER PROJECT ADMINISTRATION . PROJECT AND FINANCING CONTROLS INCLUDING N ECESSARY CHARTS AND CONTROLS FOR IMPLEMENTATION OF THE PROJECT ' , THAT ' T HE ASSESSEE I S NOT EXECUTING THE PRO JE CT BUT IS RENDERING CONSUL TANCY SERVICE TO THE AE ' , AND THAT ' W HEN PROJECT IMPLEMENTATION TOOLS ARE PROVIDE D TO THE EMPLOYEES OF THE AE, THEY ARE ENABLE D TO EMPLOY THESE TOOLS IN IMPLEMENTING THEIR OWN PROJECT ,' THESE OBSER VATIONS ARE FAC TUALLY INCORRECT IN ASMUCH AS THE ASSESSEE ' S R EPRESENTATI V E IS EXEC UTING THE WORK AND IS THE KE Y PERSON AT THE FACTORY SITE WHO IS DO ING ALL THE NEED FUL AND INASMUCH AS THERE IS NO MENTION ANY WHERE OF DE VELOPING THESE TOOLS AND HANDING OV ER THE SAME TO THE RECIPIENT OF SER VIC ES. IN ANY CASE, JUST BECA USE THE INDIAN ENTITY IS INTERACTING WITH THE PROJECT LEADER AND GETTING INPUTS FROM HIM D O ES NOT MEAN THAT THE IN D IAN ENTITY IS TRANSFERRED THE TECHNOLOGY OF BEING A PROJECT LEADER OF THIS TYPE AND NEXT TIME INDIAN ENTITY CAN PERFORM SIMILAR SERVICES WITHOUT RE COURSE TO THE SAME - WHICH IS THE CORE TEST FOR THE FULFILMENT OF ' MAKE AVAILABLE ' C LAUSE. WE ARE UNABLE TO APPROVE THE STAND OF THE AUTHORITIES BELOW ON THIS P OIN T. IN OUR CONSIDERED VIEW, IN THE LI GHT OF THE DISCUSSIONS ABO VE, THE MAKE AVAILABLE CLA USE IS N OT SATIS FIED, 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 ASSESSE E , UNDER ARTICLE 12 OF INDO SWE DISH TAX TR EATY. 25. THAT LEAVES U S W ITH THE TAXABILITY OF RS 57,47,684 ON ACCOUNT OF I NFORMATION TECHNOLOGY SERVICES. THE MAIN REASON FOR ITS TA XABILITY BY THE DRP IS STATED TO BE THAT ' T HE SERVICES IS FOUND TO BE INTRINSICALLY LINKED WITH ENJOYMENT OF THE SAP SY STEM AND HE NCE, WOULD FALL WITHIN THE AMBIT OF ARTICLE 12(4)(A) ' . IN THE ASSESSMENT ORDER, THERE IS ALSO MENTION ABOUT ' RESULTING IN O VERALL IMPROVEMENT IN BUSINESS AND THE INCOME GENERATIN G CAPACITY OF SCA INDIA, WHICH I S A CLEAR EN D URING BENEFIT ' AND ABO UT THE STAN D THAT THE RENDITION OF T H ESE SERVICES ARE ' A LSO PROVIDING A SKILL LEVEL AND RELEVANT TRAINING WHICH WILL BE READILY AVAILABLE TO PERSONNEL OF S CA INDIA AND THERE BY A CLEAR ENDURING BENEFIT IS PROV IDED ' . IT IS ALSO MENTIO NED THAT ' SPECIFIC SUPP ORT IN THE FORM OF IMPLEMENTATION OF SAP PROJECT AMD PROJECT VINADALLO I N THE FORM OF P RE - 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 S O FAR AS THE ENDURING BENEFIT AND INCREASE OF EFFICIENC Y IN THE RECIPIENT ENTITY IS CONCERNED, THAT HAS NOTHING TO DO WITH THE SATISFACTION OF ' MAKE AVAILABLE ' CLAUSE. AS WE HAVE SEEN IN OUR A NALYSIS EARLIER, WHAT IS IMPORT ANT IS TRAN SFER OF TEC HNOLO GY AND NOT TH E INCIDENTAL BENEFIT. UNLESS THE REC IP IENT OF A SERVICE IS NOT ENABLE D T O PERFORM THAT SERVICE ON HIS OWN, WITHOUT RECOURSE TO THE SERVICE PRO VIDER, TH E REQUIREMENTS OF THE MAKE AVAILAB LE CLA USE ARE NOT SATISFIED . THE CO NCEPT OF EN DURING BENEFIT, INC REASE I N EFFICIENCY , IMPROVEMENT IN INCOME - G ENERATING CAPA CI TY AND INCI DENTAL SKILL DEVELOPMENT IS WHOLLY IRRELEVANT FOR THIS PU RPOSE. THE AUTHORITIES BELOW HAVE BEEN THUS SWAYED BY CO NSIDERA TIONS NOT GE RMANE IN THIS CONTEX T. SO FAR A S THESE SERVICES BEING INC IDE NT AL TO SAP SYSTEM BEING THE REASON FOR TAXATION UNDER ARTICLE 12(4)(A) IS CONCERNED, WE HA VE NOTED THAT PROV IDING SUPP ORT SERVICES F OR SAP IMPLEMENTATION IS A SMALL PART OF THE SERVIC ES AND I N ANY CASE WHAT AR TICLE 12(4)(A) CO VER S IS THE SERVICES WHICH ' ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMEN T OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT DESCRIBED IN PARAGRAPH 3 IS RECEIVED ' AND THE INFORMATION TECHNOLO GY S ER VICES , AS SET OUT IN ANNEX URE B TO TH E AGREEMENT, CANNOT BE DES CRIBED AS ANCI LLARY AND SUBSIDIARY TO THE SAP SYS TEM . AT BEST, A SMALL PART OF T HESE SERVICES COULD FALL IN THAT CATE GORY , BUT THAT PAYMENT IS NOT EVEN SEPARATELY IDENTIFIED. THESE THINGS APART, 12(4)( A) WOULD COME INT O PLAY WHEN THE ASSESSEE REC EIVES A PAYM ENT 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 DE SCRIBED IN ART ICLE 12( 3 ). IN OTHER WORDS, THE PERSON REC EIVING THE MONEY AS ROYALT Y , 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 SA ME. T HAT ' S NOT THE CASE HERE. IN T HE PRESENT CASE, THE PAYMENT RE C EIVED BY THE ASSESSEE H AS BEEN HELD TO BE IN THE NATURE OF REIMBURSEMENT , WHICH IS OUTSIDE THE AMB IT O F TAXATION. THE PERSON SELLING THE SAP SOFTWARE I S BE ONE SOLUTION, SW ITZERLAN D, W HEREAS THE PERS ON PROV IDING THE SERV ICE S IN QUESTION IS THE ASSESSEE. A RTICLE 12(4)(A) WILL NOT , THEREFORE, COME INTO P LAY AT ALL. IN OUR CONSIDERED VIEW, THERE FORE, T HE TAXATION UNDER A RTICLE 12 IN THE PRESENT CASE CAN COME INTO PLAY ONLY WHEN THE ' MAKE AVAILABLE ' CLAUSE IS SATISFIED , BUT THEN THE A SSESS I NG OFFICER ' S JUSTI FI CA TION FOR THE SATISFACTION OF ' MAKE AV AILABLE ' CLAUSE , FOR THE DETAILED REASONS SET OUT EARLIER I N THIS PA RAGRA PH, DOES NOT MEET OUR JUDICIAL APPROVAL. IN VIE W OF TH ESE DISCUSSIONS, AS ALSO BEARING IN MIND THE ENT I RETY OF THE CASE, WE UPHOLD THE PLEA OF THE ASSESSEE ON THIS POINT AS WE LL. ACCORDINGLY, WE HOLD THAT THE INCOME OF RS 57,47,684 ON ACCOUNT OF I NFORMATION TECHNOLOGY SERVICES IS ALSO N OT TAXABLE U N D E R A R T I C L E 1 2 . 26. GROUND NOS. 2 AND 3 ARE ALSO THUS A LLOWED. 27 . IN THE RESU LT, THE APPEAL IS A LLOWED. P RONOUNCED IN THE OPEN C OURT TODAY ON THE 8 TH DAY OF JANUARY, 20 21. SD/ - SD/ - SAKTIJIT DEY PRAMOD KUMAR ( JUDICIAL MEMBER ) (VICE PRESIDENT) MUMBAI, DATED THE 8 TH DAY O F JANUARY, 2021 COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BE NCHES, MUMBAI