DCIT CIRCLE-1(2)(1), New Delhi V. Converteam Group, Gurgaon

ITA 8112/DEL/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 3993 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2015-2016
• Appeal Filed On: 08-10-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief
• Section: 250; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘D’, NEW DELHI BEFORE SH. SAKTIJIT DEY, JUDICIAL MEMBER AND SH. N. K. BILLAIYA, ACCOUNTANT MEMBER ITA No.8112/Del/2019 Assessment Year: 2015-16 DCIT Circle – 1 (2) New Delhi Vs Converteam Group 6 th Floor, Building No.7A, Standar Chartered Building, DLF Cyber City, Phase-III, Gurgaon PAN No.AAECC1864F (APPELLANT) (RESPONDENT) Appellant Sh. Sanjay Kumar, Sr. DR Respondent Sh. Ravi Sharma, Advocate Sh. Rishabh Malhotra, AR Date of hearing: 15/09/2022 Date of Pronouncement: 23/09/2022 ORDER PER N.K. BILLAIYA, AM: This appeal by the revenue is preferred against the order of the CIT(A)-42, Delhi dated 26.07.2019 for A.Y.2015-16. 2. The substantive grievance of the revenue read as under :- 1. Whether the Ld. CIT(A) has erred in fact and in law in 2 holding that the support services rendered by the assessee are excluded from the ambit of FTS since the “make available” clause under the India- France DTAA even after amendment notification So No. 650 (E). dated 10.07.2000? 2. Whether the ld. CIT(A) has erred in law in applying the “make available” clause when the India- France DTAA does not include the same and the conduct of the parties by way of amendment notification SO No.650 (E). dated 10.07.2000 show that (i) there was no intention to change the scope and make it more restrictive and (ii) Protocol, ipso- facto cannot be given effect to, in absence of the notification? 3. Whether the Ld. CIT(A) has erred in law in not passing a speaking order and not discussing the main issue i.e. whether the provision of “most favoured nation” in protocol 7 of India-France DTAA shall become automatically applicable without a separate notification incorporating the beneficial provision of India. UK DTAA in the India-France DTAA particularly keeping in view that the decision in the case of Steria (India) Ltd. Vs. Commissioner of Income Tax [ 2016] (386 ITR 390) (Delhi HC), the fact of issue of notification So No. 650 (E), dated 10.07.2000 was not even argued and thus the decision of Hon’ble High Court in Steria India (supra) does not take into account full facts of the case ? 3 4. Whether the Ld. CIT(A) has erred in law in not providing the reasonable opportunity to the assessing officer to examine the additional evidence submitted by the assessee to the Ld. CIT(A) as referred by him in para 6.5 of his order dated 26.07.2019, which is in violation of the Rule 46A of the Income Tax Rules, 1962? 5. The appellant craves leave to add, modify, amend or alter any grounds of appeal at the time of, or before the hearing of the appeal. 3. Representatives of both the sides were heard at length. Case record carefully perused. The relevant documentary evidences brought on record duly considered in the light of rule 18 (6) of the ITAT Rules. 4. Briefly stated the facts of the case are that the assessee company was incorporated on 16.07.2004 and is a tax resident of France. The assessee is engaged in the electrification business and the assessee is a part of GE Power Conversion. 5. During the year under consideration the assessee received charges for the management support services amounting to Rs.5,57,14,648/- from GE Power Conversion India Private Limited and Converteam EDC Private Limited. The said management charges was treated as non taxable in India by the assessee claiming it to be in accordance with Article 13 of the 4 India France Tax Treaty read with protocol to the tax treaty that prescribes the most favoured nation (MFN) clause which restricts the scope of taxation of fees for technical services (FTS) under the tax treaty. 6. During the assessment proceeding the assessee was asked to explain why the services in the nature of support services should not be treated as fees for technical services (FTS) and why the same should not be considered as taxable. 7. In its reply the assessee placed reliance on agreement with Indian entity and submitted that it has provided services in respect of routing corporate and public relations support, accounting and auditing support, health, safety, environmental and regulatory affairs support and legal support. 8. The assessee claimed benefit of the provisions of Article 13 of India UK DTAA read with Article 13 of India France DTAA. Reliance was also placed upon protocol -7 of the treaty according to which if the scope of taxability of FTS is restricted on account of agreement between India and other state which is a member of the OECD then such limited scope would apply to France treaty in the same manner. 9. The contention of the assessee were dismissed by the AO who was of the opinion that the nature of support services 5 provided by the assessee to Indian entities is not disputed and these are admittedly in the nature of FTS as per the provisions of the Act. 10. The AO further observed that the protocol could not be treated as forming part of the DTAA itself unless there is a notification issued by the Government to incorporate the less restrictive provisions of the other treaty available. Accordingly the AO treated the revenue amounting to Rs.55714648/- received on account of intermediary services taxable as FTS. 11. Assessee challenged the assessment before the CIT(A) and reiterated its contention that the management charges are not taxable in India. 12. After considering the facts and the submissions the CIT(A) directed the assessee to furnish supporting documentation/ electronic mails to substantiate the nature of services provided by the assessee. 13. The assessee furnished the information/documents required by the CIT(A) and the CIT(A) after examining the documents was convinced with the contention of the assessee and held that the amount received by the assessee during the year for provision of management support services shall not be taxable as FTS under the tax treaty since the make available test imported from India 6 UK tax treaty into the India France treaty had not been satisfied in this case. 14. The bone of contention is the importing of “make available” test from the India UK tax treaty read with the protocol. The main contention of the revenue is that protocol ipso facto cannot be given effect to in absence of the notification and this has been supported by the DR referring to Circular No.3/2022 dated 03.02.2022. The relevant part of the circular read as under :- 7 15. The coordinate Bench in the case of GRI Renewable Industries S.L. in ITA No.202/PUN/2021 has answered this quarrel as under :- 8 9 16. Having said all that now the issue which needs specific mention is whether protocol to tax treaty is an integral part there 10 to with equal binding force with tax treaty. 17. In our understanding of the law the protocol to a tax treaty is an indispensable part of a tax treaty with the same binding force as the main clauses of the tax treaty. In our considered opinion the provisions of the tax treaty are, therefore, required to be read with the protocol and are subject to the provisions contained in such protocol without there being a need of a separate notification for enforcing the provisions of the protocol, this has been settled by the decision of the Hon’ble Jurisdictional High Court of Delhi in the case of Steria (India) Ltd. 386 ITR 390. The relevant findings of the Hon’ble High Court read as under :- 11 xxxxx 10. At the outset, the Court would liked to refer to the definition of ‘fee for technical services’ occurring in the DTAA between India and France which reads as under :- 12 13 14 xxxxx 15 the DTAA between India and UK as forming part of the India- France DTAA. 18. A similar view was taken by the Hon’ble High Court of Delhi in the case of Galderma Pharma SA Vs. ITO in W.P. (C) 14206/2021 order dated 14.12.2021 and the judgment read as under :- 16 17 18 19. It would be pertinent to refer to Article -13 of the India UK Tax Treaty which is as under :- 20. A perusal of the above Article show that the term FTS has a more restrictive scope in so far as the absence of the term “managerial” and further existence of the “make available” condition are embedded therein. 21. In our understanding under the India UK tax treaty for a payment to quality as FTS both the following conditions need to be cumulative satisfied : (i) The services need to be “technical” or “consultancy” in nature. (ii) The services need to make available technical knowledge, 19 experience, skill, know-how or processes, which enables the persons acquiring the services to apply the technology contained therein. 22. Considering the factual matrix of the case in hand in the light of the judicial decisions discussed here in above we do not find any error or infirmity in the findings of the CIT(A) which need interference. 23. In so far as the contention that the CIT(A) has admitted additional evidences in violation of rule 46 A of the Income Tax Rules 1962 is concerned we do not find any merit in this contention of the revenue because the CIT(A) invoking the powers conferred upon him u/s. 250 (4) of the Act called for certain information/ documents and based his findings on such information / documents. In our considered opinion in the light of section 254 (4) of the Act the CIT(A) is free to conduct the enquiry to dispose of the appeal as he deems fit. We, therefore, decline to interfere with the findings of the CIT(A). The appeal filed by the revenue is dismissed. Order pronounced in the open court on 23.09.2022 Sd/- Sd/- (SAKTIJIT DEY) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER *NEHA, Sr. Private Secretary* Date:- .09.2022