Belgacom International Carrier Services SA, Belgium V. Assistant Commissioner Of Income Tax (International Taxation), Circle-2(2), Bengaluru

ITITA 825/BANG/2022

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 9486 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 17 day(s)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 30-10-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 19-10-2022
• Assessment Year: 2012-2013
• Appeal Filed On: 13-09-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NEETHU JAMES
• Keywords: Capital asset; Transfer pricing; Double taxation relief; Retrospective amendment; Permanent establishment; TDS; Capital Gains
• Section: 147; 6; 195; 144C; 191; 43; 48; 9(1); 9(1); 9(1); 73; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE BEFORE SMT. BEENA PILLAI, JUDICIAL MEMBER AND SHRI. LAXMI PRASAD SAHU, ACCOUNTANT MEMBER IT(IT)A No. 825/Bang/2022 Assessment Year : 2012-13 M/s. Belgacom International Carrier Services SA, Rue Lebeau 4, 1000 Brussels, Belgium. Vs. The Assistant Commissioner of Income-tax (International Taxation), Circle – 2(2), Bangalore. APPELLANT RESPONDENT Assessee by : Smt. Neethu James, Advocate Revenue by : Smt. Vandana Sagar, CIT-DR Date of Hearing : 20-10-2022 Date of Pronouncement : 31-10-2022 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by non resident assessee against order dated 08.07.2022 passed by ACIT (IT), Circle -2(2), Bangalore on following grounds of appeal: “Being aggrieved by the order of the learned Assessing Officer ("AO"), read with the order of the learned Dispute Resolution Panel ("DRP"), Bengaluru, the Assessee begs to prefer the present appeal on the following grounds: 1. That on the facts and in the circumstances of the case, the lower authorities erred in exercising and confirming the jurisdiction u/s. 147 of the Act in the case of the Assessee. 2. That on the facts and in the circumstances of the case, the lower authorities erred in holding that the sum of Rs.85,23,68,804/- received by the Assessee from its customer in India is the income of the Assessee sourced from India and thus, accrues in India, being liable to tax in India. Page 2 IT(IT)A No. 825/Bang/2022 3. That on the facts and in the circumstances of the case, the lower authorities erred in holding that the sum of Rs.85,23,68,804/- received by the Assessee from its customer in India is in the nature of 'royalty' within the meaning of section 9(1)(vi) of the Act and is, accordingly, taxable in India under the Act. 4. That on the facts and in the circumstances of the case, the lower authorities erred in holding that the sum of Rs.85,23,68,804/- received by the Assessee from its customer in India is in the nature of 'royalty' within the meaning of Article 12(3) of the Double Taxation Avoidance Agreement (to which the Assessee is entitled to) and is, accordingly, taxable in India. 5. That on the facts and in the circumstances of the case, the lower authorities erred in holding that the retrospective amendment to section 9(1)(vi) of the Act would apply in interpreting the Article 12(3) of the Double Taxation Avoidance Agreement between India and Belgium. 6. That on the facts and in the circumstances of the case, the lower authorities erred in relying on the order of the Hon'ble Tribunal in the case of Vodafone South Ltd [2015] 44 ITR(T) 330 (Bang), when the order does not deal with interpretation of DTAA, and in any case, is contrary to the judgment of the Supreme Court in Engineering Analysis Centre of Excellence (P.) Ltd. [2021] 432 ITR 471 (SC). 7. That on the facts and in the circumstances of the case, the lower authorities erred in relying on the judgment of Verizon Communications Singapore Pte Ltd. [2014] 361 ITR 575 (Mad), which is no more a good law, and in any case, does not apply to the facts of the Assessee. 8. That on the facts and in the circumstances of the case and without prejudice, the lower authorities erred in holding that the income earned by the Assessee is Fees for Technical Services, taxable under the Act as well as under the DTAA. 9. That on the facts and in the circumstances of the case, the lower authorities erred in concluding the re- assessment basis best judgment, when the Assessee has in fact fully co-operated and duly filed its submissions in response to the notices issued by the AO. Page 3 IT(IT)A No. 825/Bang/2022 10. That, without prejudice, on the facts and in the circumstances of the case, the lower authorities erred in holding that the tax determined in the assessment of the Assessee is entirely payable by the Assessee, despite the fact that the amount so determined is fully recoverable from the payer of the sum in India. 11. That on the facts the circumstances of the case, the lower authorities erred in levying interest under section 234A of the Act, as the Assessee was not required to file a tax return in India. 12. That on the facts and in the circumstances of the case, the lower authorities erred in levying interest under section 234B of the Act, as according to the Revenue Authorities, the levy of tax itself has arisen only due to a retrospective amendment in the Act. 13. That, without prejudice, on the facts and in the circumstances of the case, the lower authorities erred in computing the interest leviable under section 234A and 234B of the Act. 14. The Assessee craves leave to, add to, alter, amplify, modify or delete all or any of the aforesaid grounds at or before the hearing.” 2. Identical issue has been remanded by Coordinate Bench of this Tribunal in assessee’s own case for A.Y. 2008-09 in IT(IT)A No. 2884/Bang/2017 by order dated 26/04/2022 by observing as under: “2.1 The assessee is a tax resident of Belgium. The assessee is a telecommunication operator headquartered in Belgium. 2.2 The Ld.AO observed that during the relevant assessment year, the assessee provided services specified to Hutch as specified in CSA from outside India, in lieu of which consideration was received from Hutch without deduction of tax. 2.3 The Ld.AO noted that assessee did not file return of income in India, on its income that was taxable in India for year under consideration. The Ld.AO this issued notice u/s.148 of Act after forming a belief that the sum received by the assessee from Hutch was income chargeable to tax in India that escaped assessment. 2.4 In the draft assessment order passed by the Ld.AO, the assessee was held to be a resident of Belgium and Page 4 IT(IT)A No. 825/Bang/2022 based on the order passed by Coordinate Bench of this Tribunal in TDS proceedings in case of Vodafone South Ltd. vs. DDIT reported in (2015) 44 ITR 330, treated the sums received by the assessee as ‘royalty’ under the Act as well as the DTAA. The Ld.AO thus proposed addition in the hands of non resident assessee at Rs.6,87,13,119/- u/s.143(3) r.w.147 r.w.s. 144C in the Draft Assessment Order. 2.5 Aggrieved by the order passed by the Ld.AO, the assessee filed objections before the DRP. 3. Before DRP assessee raised objection alleging that the amount received by assessee cannot be considered neither to be ‘royalty’ under section 9(1)(v) r.w.Expl. 5 & 6, nor Fee for technical services under section 9(1)(vii) or the Act. It submitted that even as per the DTAA the amount cannot be taxable unless there is a usage of secret formula by the Hutch. The DRP vide order dated 02.03.2017 upheld the sums received by the assessee from Hutch as royalty and taxable in India, u/s.9(1)(vi) of the Act as well as under Article 12 of the India Belgium DTAA relying on Explanation 5 and 6 to section 9(1)(vi) of the Act which has retrospective effect. The DRP did not decide the applicability of section 9(1)(vii) of the act considering it to be academic in nature. 4. On receipt of the DRP directions, the Ld.AO passed the final assessment order dated 30.10.2017 and held the assessee to be taxable in India. Aggrieved by the final assessment order passed by the Ld.AO, the assessee is in appeal before this Tribunal. 5. Before this Tribunal the assessee raised additional ground vide application dated 16/11/2021, raising following issue: Additional ground of appeal:- “1. That the payments received by the assessee cannot be treated as Fees for Technical Services (FTS) as defined under Section 9(1)(vii) of the Income-tax Act, 1961 as well as within the meaning of Article 12(3) of the India-Belgium Double Taxation Avoidance Agreement. The assessee craves leave to, add to, alter, amplify, modify or delete all or any of the grounds at or before the hearing.” Ld.AR submitted that no new evidences need to be looked into to adjudicate these issues. He submitted that this issue though was by assesse as an alternative ground, it was not adjudicated by the DRP as the Page 5 IT(IT)A No. 825/Bang/2022 payment received by assessee was upheld to be ‘Rotalty’ in the hands of assessee. He thus prayed for its admission. The Ld.Sr.DR objected for admission of the same but couldn’t controvert that, the additional ground raised is a legal issue. We have perused the submissions advanced by both sides. We note that the additional ground is connected with the main issue of challenge by assessee regarding the nature of payment and no new facts needs to be investigated for adjudicating the same except for analysing the law under section 9(1)(vii) of the Act, for its application. Considering the submissions and respectfully following the decisions of Hon’ble Supreme Court in case of National Thermal Power Co. Ltd. Vs. CIT reported in (1998) 229 ITR 383 and Jute Corporation of India Ltd. Vs. CIT reported in 187 ITR 688, we are admitting the additional grounds raised by the assessee. Accordingly, the additional ground raised stands admitted. 6. The Ld.Counsel submitted that assessee in the present appeal is a tax resident of Belgium, and amount received by the assessee from Hutch(Vodafone South) was towards provision of Internet Services. He submitted that the authorities below held the payments received are taxable in India under section 9(1)(vi) of the Act, as well as Article 12(3) of India Belgium DTAA. He summarised his arguments and submitted that the payment received by assessee is not taxable in India. He put forth following propositions in support:  The Ld.Counsel submitted that the authorities below in coming to such conclusion, relied on the decision of coordinate bench of this Tribunal in case of Vodafone South Ltd. vs. DDIT reported in (2015) 44 ITR(T) 330. He submitted that the issue considered by this Tribunal in case of Vodafone South Ltd. vs. DDIT was in respect of proceedings under section 195 of the Act. The Ld.Counsel submitted that, there is a categorical observation by this Tribunal in Vodafone South Ltd. vs. DDIT(supra), that the view taken therein will not apply to the substantive assessment proceedings of assessee as the applicability of DTAA would have to be examined. He submitted that the decision in Vodafone South Ltd. vs. DDIT(supra) was not concerned with the interpretation of DTAA. It is also the submission of the Ld.Counsel that assessee was not a party to the Page 6 IT(IT)A No. 825/Bang/2022 dispute in case of Vodafone South Ltd. vs. DDIT(supra) and therefore the view taken in Vodafone South Ltd. vs. DDIT(supra) would not be ipso facto applicable to the present assessee. 7. The Ld.Counsel submitted that the view taken by authorities below is therefore entirely based on the amendment made to section 9(1)(vi) of the Act by introduction of Explanation 5 and Explanation 6 by 2012. He submitted that prior to 2012, the Delhi High Court in Asia Telecommunications Co. Ltd. vs. DIT reported in (2011) 332 ITR 340 held that for a payment to be regarded as ‘royalty’ under the IT Act or under the DTAA, there has to “use” of the intellectual property by the payer. It is submitted that the Explanation 5 seeks to treat any payment as royalty, whether or not the payer uses the process. The Ld.Counsel submitted that prior to 2012, the Delhi Tribunal in Asia Satellite Telecommunications Co. Ltd. vs. DCIT reported in (2003) 85 ITD 478 held that the word “secret” does not qualify the word “process” in the Act. Subsequently, in DCIT vs. PanAmSat International Systems Inc. reported in (2006) 9 SOT 100, the Delhi Tribunal held that process should be a 'secret process' for the payment thereof to constitute royalty under the DTAA. The issue was subsequently referred to a Special Bench of the Tribunal in New Skies Satellite NV vs. ACIT reported in (2009) 121 ITD 1 and the Hon’ble Special Bench held that the term 'secret' appearing in phrase 'secret formula or process' in Explanation 2 to Section 9(1)(vi) and in relevant article of DTAA would not qualify word `process'. However, the Delhi High Court in Asia Satellite Telecommunications Co. Ltd. (supra) decided otherwise. This part of the judgment has been sought to be overcome by introduction of Explanation 6 to Section 9(1)(vi) of the IT Act. Explanation 6 seeks to say that consideration for use of a 'non secret process' would not be regarded as royalty. It is undisputed that the definition of 'royalty' in the DTAA has not been amended. The Ld.Counsel submits that the orders proceeded on the premise that the Explanation to IT Act would automatically apply to the DTAA as well. Undisputedly, the DTAA between India and Belgium has not been amended. 8. He also submitted that in the present facts, the provisions of the DTAA are clearly more favourable to the assessee for following reasons:  Firstly, the definition of ‘royalty’ under the DTAA covers within its ambit consideration paid for “use” of a Page 7 IT(IT)A No. 825/Bang/2022 process alone, while the amended definition of IT Act includes within the meaning of royalty, any consideration paid by a payer “whether or not there is use by the payer” of any process;  Secondly, under the DTAA, to be royalty, the process has to be a secret process, whereas under the domestic law, consideration for payment of any process, whether secret or not, would be regarded as royalty; and  Thirdly, the definition of royalty under the DTAA does not cover consideration for use of Industrial, Commercial or Scientific (‘ICS’) Equipment, while the definition under the IT Act cover such consideration for use of ICS equipment. 9. The Ld.Counsel submitted that this Tribunal while considering the issue in case of Vodafone South Ltd. vs. DDIT(supra), relied on the decision of Hon’ble Madras High Court in case of Verizon Communications Singapore Pte.Ltd. vs. ITO reported in (2014) 361 ITR 575, to hold that the consideration paid by Vodaforn South, falls within the ambit of ‘process’ and therefore amounts to Royalty as per Explanation 5 &6 to section 9(1)(vi) of the Act. He submitted that in a later decision of Hon’ble Delhi High Court in case of DDIT vs.New Skies Satellite BV reported in (2016) 68 taxmann.com 8 has held that the judgment in case of Verizon Communications Singapore Pte.Ltd. vs. ITO(supra) does not reflect the correct law on interpretation of DTAA. 10. The Ld.Counsel placed reliance on following observation by Hon’ble Delhi High Court in case of DDIT vs.New Skies Satellite BV(supra): “31. In a judgment by the Madras High Court in Verizon Communications Singapore Pte Ltd v. ITO, International Taxation [2014] 361 ITR 575, the Court held the Explanations to be applicable to not only the domestic definition but also carried them to influence the meaning of royalty under Article 12. Notably, in both cases, the clarificatory nature of the amendment was not questioned, but was instead applied squarely to assessment years predating the amendment. The crucial difference between the judgments however lies in the application of the amendments to the DTAA. While TV Today Network Ltd's case (supra) recognizes that the question will have to be decided and the submission argued, Verizon Communications Singapore Pte. Ltd's case (supra) cites no reason for the extension of the amendments to the DTAA.” Page 8 IT(IT)A No. 825/Bang/2022 11. The Ld.Counsel submitted that the above view has been considered by Hon’ble Supreme Court in case of Engineering Analysis Center of Excellence (P.) Ltd. vs.CIT reported in (2021) 432 ITR 471. The Ld.Counsel further submitted that the view of Hon’ble Delhi High Court in case of DDIT vs.New Skies Satellite BV(supra) has been approved by observing as under: “155. In Director of Income Tax v. New Skies Satellite BV, (2016) 382 ITR 114 ["New Skies Satellite V, a Division Bench of the High Court of Delhi correctly observed that mere positions taken with respect to the OECD Commentary do not alter the DTAA's provisions, unless it is actually amended by way of bilateral re- negotiation ... 156. It is significant to note that after India took such positions qua the OECD Commentary, no bilateral amendment was made by India and the other Contracting States to change the definition of royalties contained in any of the DTAAs that we are concerned with in these appeals, in accordance with its position..... 159. Viewed from another angle, persons who pay TDS and/or assessees in the nations governed by a DTAA have a right to know exactly where they stand in respect of the treaty provisions that govern them.... " 22.7. The Supreme Court has thus emphasised that interpretation of DTAA shall go hand in hand with OECD commentary. This is so because non-resident tax payers should not be made to linger in uncertainties on their tax liability in the source country. The OECD commentary specifically states that income earned by providing standard telecommunication services does not involve secret process nor there is use or right to use given to payer by payee.” 27.2. The Supreme Court in Engineering Analysis Centre18 expressed this position in the following words: "101. Also, any ruling on the more expansive language contained in the explanations to section 9(1)(vi) of the Income Tax Act would have to be ignored if it is wider and less beneficial to the assessee than the definition contained in the DTAA, as per section 90(2) of the Income Tax Act read with explanation 4 thereof, and Article 3(2) of the DTAA.”” 27.4. It is also relatively well settled that definition in the domestic law or amendment thereto cannot apply to interpretation terms of a DTAA. Particularly when there Page 9 IT(IT)A No. 825/Bang/2022 is a definition of that term in the treaty. The Bombay High Court in Siemens Aktiongesellschaft observed as under in this regard: “....... by an unilateral amendment it is not possible for one nation which is party to an agreement to tax income which otherwise was not subject to tax. Such income would not be subject to tax under the expression "laws in force". ..." 27.5. The Delhi High Court in New Skies Satellite BV, after quoting the Bombay High Court further explained the principle in the following words: "41. This Court is of the view that no amendment to the Act, whether retrospective or prospective can be read in a manner so as to extend in operation to the terms of an international treaty. In other words, a clarificatory or declaratory amendment, much less one which may seek to overcome an unwelcome judicial interpretation of law, cannot be allowed to have the same retroactive effect on an international instrument effected between two sovereign states prior to such amendment. In the context of international law, while not every attempt to subvert the obligations under the treaty is a breach, it is nevertheless a failure to give effect to the intended trajectory of the treaty. Employing interpretive amendments in domestic law as a means to imply contoured effects in the enforcement of treaties is one such attempt, which falls just short of a breach, but is nevertheless, in the opinion of this Court, indefensible. This part of the judgment of Delhi High Court has been expressly approved by the Supreme Court in Engineering Analysis Centre at para 155.” The Ld. Counsel elaborated on his propositions and submitted as under: 12. The Ld. Counsel submitted that assessee received payments during the year under consideration for services rendered to Indian Company, as per Carrier Service Agreement(CSA). The Ld.Counsel placed reliance on following clauses in the Carrier Service Agreement(CSA) dated 13/07/2007 entered between the assessee and the Indian company are as under: ARTICLE 2 RIGHTS AND OBLIGATIONS 2.1. The Parties shall supply the Carrier Service in accordance with the provisions of the General Terms and Conditions of the Carrier Service Agreement along with its Annex A and connect their respective Network in accordance with the technical conditions set out in Annex B of the Agreement. Page 10 IT(IT)A No. 825/Bang/2022 2.2. The Parties can subcontract the performance of Carrier Services to third parties. However, the Party remains liable for its respective obligations as also for the subcontracted work. 2.3. The Parties shall co-operate to prevent and eliminate any kind of fraud or abuse that involves the Parties' respective Network or Carrier Service. If any Party suspects any kind of fraud or abuse which involves the Parties' respective Network or Carrier Service, the Parties shall co-operate and use all appropriate means to identify, eliminate and prevent the fraud or the abuse concerned. ARTICLE 4 FINANCIAL TERMS 4.1 Any prices and service areas for the Carrier Services is mentioned in Annex A. A Party may alter, withdraw, adjust or modify the prices or service areas for the Carrier Service it supplies at any time during the term of this Agreement with seven CSA/Main Body/Confidential (7) days advance notice to the other Party. The Parties may notify each other of any such modifications to their respective prices / service areas by an electronic message In case there is a failure in electronic message service or delivery failure of the sent electronic message then the notifying party shall notify the same through fax. Similarly the other Party shall acknowledge their acceptance of such new prices by an electronic message. In case there is a failure in electronic message service or delivery failure of the sent electronic message then the other party shall send their acceptance through fax. If the receiving Party does not confirm acceptance as aforesaid within seven (7) days from the receipt of the first transmittal, and continues to send traffic, such Party's consent to such new prices / service areas shall be deemed given, Further, if at any point of time the prices / service areas remain undetermined due to disagreement by either Party or for any other reason, then in such case and under such circumstances the Party initiating such modification may suspend the Carrier Service till the time such prices / service areas are finally settled and agreed between the Parties. The altered price shall supersede the previous price. In case of reduction in the prices, the reduction shall be effective one (1) day from the date of the notice. Page 11 IT(IT)A No. 825/Bang/2022 4.2 The prices offered by both service suppliers are inclusive of VAT, similar transfer tax (if any) or any other taxes applicable in the respective area of operation (i.e. India for Hutch and Belgium for BICS). However, the service taker will bear any taxes (except withholding tax) levied in its own country of residence and if any, possibly gross-up the fee to be paid to the service provider, to guarantee the net payment of the price agreed upon. In the event that payment of any amount of the Charges becomes subject to withholding tax, levy or similar payment obligation on sums due to the Service Provider under this Agreement such withholding tax amounts shall be borne and paid for by the Purchaser in addition to the sums due to the Service Provider. Should the Purchaser withhold any amounts and request that the Service Provider gross up its Charges to reflect such withholding, or otherwise make reference to such amounts on its Monthly Accounts, the Purchaser will provide the Service Provider free of charge with the appropriate certificate(s) from the relevant authorities confirming the amount of the withholding taxes, levies or similar payments borne and paid for by the Purchaser. Page 12 IT(IT)A No. 825/Bang/2022 Page 13 IT(IT)A No. 825/Bang/2022 Page 14 IT(IT)A No. 825/Bang/2022 Page 15 IT(IT)A No. 825/Bang/2022 13. He submitted that both assessee and Indian company needed to avail services of each other in relation to international calls originating from their respective network for destination in the other country, where they did not own a telecom network. It is submitted that the services rendered by both parties to each other is on non-exclusive basis. Ld. Counsel submitted that the Ld.AO proceeded on the footing that the payments are made for use of process and hence in nature of royalty under clause (iii) of 9(1)(vi) of the Act. The Ld.Counsel submitted that the Ld.AO was of the view that the payments in question may be treated as "Royalty" for "use of process" in terms of Section 9(1)(vi) of the Act, and also holds that the payment to assessee are in the nature of "Fee for Technical Services" in terms of Section 9(1)(vii) of the Act. He submitted that the DRP only adjudicated objection raised by assessee in respect of the payments being ‘Royalty’, but left the objection regarding payment to be FTS as academic in nature. 14. The Ld.Counsel taxability of services fees received by assessee submitted as under: I Whether payment received by assessee could be considered as Royalty as per section 9(1)(vi) read with Explanation 2, 5 & 6 of the Act ? The Ld.AO and DRP held the payment received to be ‘Royalty’ as they are of the view that there is use of process by Hutch in terms of Section 9(1)(vi) of the Act, r.w.Expl. 5 & 6. The term "Process" occurs under clause (i), (ii) and (iii) to Explanation 2 to Section 9(vi). It reads as under:— Page 16 IT(IT)A No. 825/Bang/2022 'Explanation 2.: For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for— (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property;' 15. He submitted that the term "process" used under Explanation 2 to section 9(1)(vi) in the definition of 'royalty' does not imply any 'process' which is publicly available. The term "process" occurring under clauses (i), (ii) and (iii) of Explanation 2 to section 9(1)(vi) means a "process" which is an item of intellectual property. Clause (iii) of the said Explanation reads as follows: "(iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property" He submitted that Clauses (i) & (ii) of the said explanation also use the same coinage of terms. The words which surround the word 'process' in clauses (i) to (iii) of Explanation 2 to section 9(1 )(vi) refer to various species of intellectual properties such as patent, invention, model, design, formula, trade mark etc. It is the submission of the Ld.Counsel that the expression 'similar property' used at the end of the list further fortifies the stand that the terms 'patent, invention, model, design, secret formula or process or trade mark' are to be understood as belonging to the same class of properties viz. intellectual property. 16. The Ld.Counsel argued that 'Intellectual property' as understood in common parlance means: Knowledge, creative ideas, or expressions of human mind that have commercial value and are protectable under copyright, patent, service mark, trademark, or trade secret laws from imitation, infringement, and dilution and that the Intellectual property includes brand names, discoveries, formulas, inventions, knowledge, registered designs, software, and works of artistic, literary, or musical nature. Page 17 IT(IT)A No. 825/Bang/2022 He placed reliance on the commentary Prof. Klaus Vogel's Commentary on Double Taxation Convention, wherein, Royalty is defined as under: “Paragraph 2 contains definition of the term ‘royalties’. These relate, in general, to rights or property constituting different forms of literary and artistic property, the elements of intellectual property specified in the text and information concerning industrial, commercial or scientific experience. The definition applies to payments for the use of, or the entitlement to use, rights of the kind mentioned, whether or not they have been, or are required, registered in a public register. The definition covers both payments made under a license and compensation which a person would be obliged to pay for fraudulently copying or infringing the right.” 17. He thus submitted that the word "process" must also refer to specie of intellectual property, applying the rule of, ejusdem generis or noscitur a sociis, as held by Hon’ble Supreme Court in case of CIT vs.Bharti Cellular reported in (2011) 330 ITR 239. The Ld. Counsel relied on the following observation by Hon’ble Madras High Court in case of CIT vs. Neyveli Lignite Corpn. Ltd. (supra). "10.The term (royalty' normally connotes the payment made to a person who has exclusive right over a thing for allowing another to make use of that thing which may be either physical or intellectual property or thing. The exclusivity of the right in relation to the thing for which royalty is paid should be with the grantor of that right. Mere passing of information concerning the design of machine which is tailor-made to meet the requirement of a buyer does not by itself amount to transfer of any right of exclusive user, so as to render the payment made therefor being regarded as royalty". He thus submitted that the services provides by assessee to Hutch cannot fall within the ambit of ‘Royalty’ under section 9(1)(vi) by virtue of Explanation 2. 18. Ld.Counsel then referred to Finance Act, 2012, by which Explanation 5 & 6 were added with retrospective effect from 1.6.1976 which reads as under:— "Explanation 5: For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not - (a) The possession or control of such right, property or information is with the payer; Page 18 IT(IT)A No. 825/Bang/2022 (b) Such right, property or information is used directly by the payer; (c) The location of such right, property or information is in India. Explanation 6: For the removal of doubts, it is hereby clarified that the expression "process" includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret." 19. He submitted that by insertion of Explanation 5 & 6, meaning of word 'Process' has been widened. As per these explanations, the word 'Process' need not be ‘secret’, and situs of control & possession of right, property or information has been rendered to be irrelevant. He submitted that, all these changes in the Act, do not affect the definition of ‘Royalty’ as per DTAA. The word employed in DTAA is 'use or right to use', in contradistinction to, “transfer of all or any rights” or 'use of', in the domestic law. It is his submission that as per Explanation 5 & 6, the word 'process' includes and shall be deemed to included, transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret, however, the Explanation does not do away with the requirement of successful exclusivity of the right in respect of such process being with the person claiming 'royalty' for granting its usage to a third party. 20. The Ld.Counsel contended that reliance placed by the authorities below on decision in case of Verizon Communications Singapore Pvt. Ltd. v. ITO(supra) is misplaced. We have gone through facts of of Verizon Communications Singapore Pvt. Ltd. v. ITO(supra). He submitted that in that case, the Indian payer company obtained 'leased lines' on hire basis under a contract from non-resident Verizon Communication. When an Indian company takes leased line on hire, then it can be said that it had 'used' it as observed by Hon’ble Madras High Court therein. He submitted that in present facts of the case, the assessee has neither leased nor has given on hire its network to Hutch. Therefore it cannot be said that Hutch has 'used' the network belonging to assessee. Therefore, reliance of the Ld.AO on the said case law is factually distinguishable. Page 19 IT(IT)A No. 825/Bang/2022 21. He referred to the commentary form Prof. Klaus Vogel's Commentary on Double Taxation Convention, wherein ‘Secrete formulae or process’ is defined as under: Secret formulae or processes: This covers Know-how in the narrower sense of the term viz., all business, secrets of a commercial or industrial nature. In most of the countries, they enjoy at least relative protection or are capable of being protected. That is why Article 12(2) very properly use, in connection with such formulae, etc., the criterion ‘right to use’, which is pertinent to them (letting) as it is in the case of absolute proprietary rights. As a rule, the ‘right to use’ already come into existence in these instance by authorized information(legitimate disclosure of secrets) . It may be restricted in the point of time in respect of the period following the expiry of the license. On the difference between a product with relatively simple technology, and a business secret. 22. The Ld.Counsel submitted that the meaning attached to phrase 'use or right to use' has been explained in following decisions:  Decision of Authority For Advance Ruling(hereinafter referred to as AAR), in case of Cable & Wireless Networks India(P.)Ltd., In re, reported in (2009) 182 Taxman 76  Decision of AAR in case of ISRO Satellite Centre reported in 2008) 307 ITR 59  Decision of AAR in case of Dell International Services (India) P. Ltd.In.re. reported in (2008) 172 Taxman 418. He submitted that the above decisions, lay down that, in order to satisfy 'use or right to use', the control and possession of right, property or information should be with payer. 23. He submitted that, in case of DCIT v. PanAmSat International Systems Inc., reported in (2006) 9 SOT 100 , Hon’ble Delhi High Court distinguished the decision of Asia Satellite Telecommunication Co. Ltd. v. Dy. CITT reported in (2003) 85 ITD 478 and held as under:— 19. The question that first comes up for consideration is whether section 9(1)(vi) of the Income-tax Act, read with the Explanation 2 below thereto, is applicable. This also involves the subsidiary question whether the issue is covered by the order of the Delhi Bench of the Tribunal in the case of Asia Satellite Telecommunication Co. Ltd. (supra) which is also a case of a non-resident company based in Hongkong which owned a Page 20 IT(IT)A No. 825/Bang/2022 transponder and allowed it to be used by broadcasters. Both issues are interlinked in the sense that in the above order the Tribunal has held in the context of the provisions of clause (iii) of Explanation 2 below section 9(1)(vi), that a "process" is involved when the signals that are uplinked through the earth stations to the transponder get converted into different frequencies and fit for being down-linked via earth stations over the footprint area. It was therefore held that the payment was for the use of a "process" and hence royalty within the meaning of the aforesaid clause. The clause reads as follows : "(iii) the use of any patent, invention, model, design, secret formula or process or trademark or similar property;" It was not disputed before us on behalf of the assessee that the nature of the activity carried on by it is the same as in the case of Asia Satellite Telecommunication Co. Ltd. (supra). If that is so, we have to hold, respectfully following the order of the co-ordinate Bench, that there is a "process" involved in the activity carried on by the assessee before us. In Asia Satellite Telecommunication Co. Ltd.’s case (supra) it was further held that the word "secret" appearing in clause (iii) above qualifies only the word "formula" but not the word "process" and therefore even if the process involved in the operation of the transponder is in the public domain and no longer a secret known only to a few, the payment for the process would still be taxable as royalty. The reason or logic given in paragraph 6.18 of the order by the Tribunal to hold that the word "secret" does not qualify the word "process" is that "there is no comma after the use of the word ‘secret’ till the end of clause (iii) and if the intention has been to apply the word ‘secret’ before the word ‘process’ also, then a comma would have been used after the word ‘formula’" and further that the word "secret" cannot also be applied to the word "trademark" because once registered there is nothing secret about the trademark and the impossibility of reading the word "secret" before the word "trademark" further strengthens the view that the word "secret" cannot be read before the word "process" also. This naturally takes us to the question whether there is anything in article 12.3(a) of the DTAA between India and USA which militates against such a view. It must be remembered that India had no DTAA with Hongkong and hence the view taken by the Tribunal (supra) with regard to the clause (iii) of Explanation 2 below section 9(1)(vi) would apply if Page 21 IT(IT)A No. 825/Bang/2022 we were to also interpret the same provision. But article 12.3(a) is worded as below : "The term ‘royalties’ as used in this article means : (a)payments of any kind received as consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use or disposition thereof; and" In Asia Satellite Telecommunication Co. Ltd.’s case (supra) the Tribunal pointed out, while repelling the argument that the word "secret" also qualifies the word "process" appearing in clause (iii) of Explanation 2, that there is no comma after the word "secret" till the end of the clause and had the intention been to qualify the word "process" also with the word "secret" there would have been a comma after the word "process" (by mistake mentioned in the order as "formula"). The Tribunal was thus prepared, with respect, to accept the argument that both the words "formula" and "process" can be said to be qualified by the word "secret" had the clause been drafted as under : "the use of any patent, invention, model, design, secret formula or process, or trademark or similar property" What the Tribunal has pointed out stands fulfilled in article 12.3(a) of the treaty with USA. From the article quoted above, it may be seen that there is a comma after the words "secret formula or process" which indicates that both the words "formula" and "process" are qualified by the word "secret". The requirement thus under the treaty is that both the formula and the process, for which the payment is made, should be a secret formula or a secret process in order that the consideration may be characterised as royalty. We do agree with the argument of the Special Counsel for the Department, on the strength of the several authorities cited by him, that normally punctuation by itself cannot control the interpretation of a statutory provision and in fact the learned counsel for the assessee did not seriously dispute the proposition. However, the punctuation—the use of the comma—coupled with the setting and words surrounding the words under Page 22 IT(IT)A No. 825/Bang/2022 consideration, do persuade us to hold that under the treaty even the process should be a secret process so that the payment therefor, if any, may be assessed in India as royalty. The Tribunal in Asia Satellite Telecommunication Co. Ltd.’s case (supra) have recognized that all the items referred to in clause (iii) of Explanation 2 such as patent, invention, model, formula and process etc. are intellectual properties. Similarly, the words which surround the words "secret formula or process," in article 12.3(a) of the treaty refer to various species of intellectual properties such as patent, trademark, design or model, plan, etc. Thus the words "secret formula or process" must also refer to a specie of intellectual property applying the rule of ejusdem generis or noscitur a socii. 20. That takes us to a consideration of the question whether the process carried on by the assessee is a secret process. On this question, we have weighed the elaborate arguments advanced by both the sides carefully and hold that so far as the transponder technology is concerned there appears to be no "secret technology", known only to a few. There is evidence adduced before us to show that the technology is even available in the form of published literature/book from which a person interested in it can obtain knowledge relating thereto. There is no evidence led from the side of the Department to show that the transponder technology is secret, known only to a few, and is either protected by law or is capable of being protected by law. This aspect of the matter was not required to be considered by the Tribunal in the case of Asia Satellite Telecommunication Co. Ltd. (supra) because the view taken by the Tribunal was that there was no requirement in clause (iii) of Explanation 2 below section 9(1)(vi) of the Act that the process involved, for which the payment is being made, should be a secret process. But in the view we have taken on the language employed by article 12.3(a) of the treaty coupled with the punctuation and the setting and surrounding words, the payment would be considered as royalty only if it is made for the use of a secret process. Since there is nothing secret about the process involved in the operation of a transponder, the payment for the use of the process—assuming it to be so—does not amount to royalty. 24. The Ld. Counsel submitted that each party under the agreement remains responsible for its own network and for the provision of services related to it in its Page 23 IT(IT)A No. 825/Bang/2022 respective agreed jurisdiction. He submitted that the assessee merely delivers the call that originates on its network to one of the inter connection locations and carries and terminates the call on its network. Hutch is nowhere concerned with the route, equipment, process or network elements used by the assessee in the course of rendering such services. He further submitted that the assessee and Hutch provides connecting, transit and termination services to each other on a reciprocal basis, and neither of the parties shall have any rights in the equipments or in the network of each other. He emphasised that the charges under the agreement are also levied for the services provided under the agreement, based on the actual call duration and number of calls successfully delivered by the parties to other parties. It is thus submitted by the Ld. Counsel that the agreement are not for renting, hiring, letting or leasing out of any of the network elements or resources to the other parties or for rendering telecommunication services on a reciprocal basis. He further submitted that identical issue came up before Hon’ble Delhi Tribunal in case of Bharti Airtel vs.ITO (TDS) reported in (2016) 67 taxmann.com 223. He submitted that the issue considered therein was in respect of payment towards call interconnectivity charged for call transmission on foreign network. He submitted that the Tribunal therein, on applying ratios pronounced in the above referred decisions, held it not as Royalty. 25. Whether the serviced rendered could be treated as Royalty under Article 12(3) of the DTAA between India and Belgium? The Ld. Counsel submitted that the DTAA between India and Belgium dated 07/02/1974 came into force notified date being 06/06/1975, wherein Article 12 dealt with ‘Royalties’. A supplementary Protocol dated 23/01/1988 was passed modifying DTAA that came into force on notified date being 02/03/1988. He submitted that, thereafter the DTAA was entered into between India and Belgium on 26/04/1997, which was notified on 31/10/1997. Article 12 deals with ‘Royalties and Fees for Technical Services’, that reads as under: ARTICLE 12:ROYALTIES AND FEES FOR TECHNICAL SERVICES 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. Page 24 IT(IT)A No. 825/Bang/2022 2. However, 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 beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State, 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, plant, secret formula or process, or for information concerning industrial, commercial or scientific experience. (b) The term "fees for technical services" as used in this Article means payments of any kind to any person, other than payments to an employee of the person making the payments and to any individual for independent personal services mentioned in Article 14, in consideration for services of a managerial, technical or consultancy nature, including the provision of services of technical or other personnel. 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 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, or the contract under 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 and fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the royalties or fees for 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 make the payments was incurred and the payments are borne by such permanent establishment or fixed base, then the royalties or fees Page 25 IT(IT)A No. 825/Bang/2022 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, information or technical services 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 royalties or fees for technical services shall remain taxable according to the laws of each Contracting State. He submitted from the above that the wording in Article 12(3)(a) shows that, only payments received as consideration for the "use of", or "the right to use" any ‘secret formula or process’ is necessary for the payment to be termed as ‘Royalty’. This is much narrower to the definition of royalty under the Act. 26. Ld. Counsel submitted that similar situation was analysed by the AAR in case of Dell International Services India (p.) Ltd.In.re.(supra), as under: “14. Whether the payment made by the applicant to BTA is in the nature of royalty falling under clause (iii) of Explanation 2 and/or Article 12(3) of the Treaty? 14.1 It is one of the contentions of the Revenue that the applicant makes use of or is conferred with the right to use a 'process' within the meaning of clause (iii) to Explanation (2) to section 9(1) of the Act. That clause speaks of "the use of any patent, invention, model, design, secret formula or process or trade mark or similar property". It is contended, relying on the decision of ITAT in the case of Asia Satellite Telecommunications Co. Ltd. v. Dy.CIT [2003] 85 ITD 478 (Delhi) that the word 'secret' only qualifies the expression 'formula' and cannot be read before the word 'process'. On such interpretation, it is submitted by the Revenue in its comments that the services provided to the applicant are clearly in the nature of a process and not in the nature of standard facility and the applicant has used and has been conferred with the right to use such process. However, this contention has not been urged before us by the learned Counsel for the Department for the obvious reason that the language used in the relevant clause of the Treaty does not support any such interpretation. The expression in Page 26 IT(IT)A No. 825/Bang/2022 article 12(3) (referred to at para 7.1 supra) is 'for the use of or the right to use any copyright, patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience.' It is thus clear that formula/process are part of the same group and the adjective 'secret' governs both. The reasoning of ITAT in the aforementioned case, based on the absence of comma after process and the impact of the immediately following word, 'trade mark', does not hold good in view of the clear language in article 12(3) of the Treaty. It has been so pointed out very rightly by another Bench of ITAT in Panamsat International Systems Inc.v. Dy. CIT [IT Appeal No. 1796 (Delhi) of 2001 dated 11-8- 2006] at paragraph 6.18. Going by such interpretation, it cannot be held that there is, in the instant case, the use of or the right to use a secret process. In fact it is nobody's case that any secret process is involved here and the applicant makes use of it. The use of secret process is alien to the minds of contracting parties. Incidentally, we may mention that it was brought to our notice that similar bandwidth services through private circuits are being provided by many other telecom operators. Hence, the royalty definition under the Treaty relating to secret process is not attracted here. We may mention that the applicant contended that the decision of ITAT in Asia Satellite Telecommunications Co. Ltd.'s case (supra) is distinguishable on facts. It is unnecessary to deal with this aspect.” 27. Ld. Counsel submitted that, interpretation of the term, ‘process’ under Explanation 6 cannot be read into DTAA as the term used in DTAA under Article 12(3) is, ‘secret process’. He further submitted that, the term, ‘secret process’ as per DTAA is a valuable right, the consideration for which is to be regarded as ‘royalty’. In support he relied on the decision of Hon’ble Calcutta High Court in case of M.V.Philips vs.CIT(supra) has held as under: “14. Relying on the aforesaid, the learned advocate for the assessee contended that in the instant case under the agreement between the assessee and the Indian company, the assessee had made available to the Indian company technical information and know-how. Such information and know-how as contemplated in the agreement do not stand in the same footing as protected rights under a registered patent. It was contended that there was no property right on such technical information and know-how until such special Page 27 IT(IT)A No. 825/Bang/2022 knowledge and skill exclusive to the person concerned could form the subject-matter of a patent. In such a case, the special knowledge and skill would come to constitute a property in the hands of the person who acquired or obtained such special knowledge or skill. Otherwise, mere imparting know-how for reward cannot be held to be conferring of any property right as such as in the case of a teacher who imparts his knowledge or skill to his pupils. Technical knowledge and advice cannot be treated as capital assets. The learned advocate for the assessee next contended that the Tribunal itself had held that some of the information to be imparted by the assessee to the Indian company under the agreement would be of the nature of technical assistance and payment received, therefore, would be in the nature of fees for such assistance. In that view, there was no reason why other technical information and knowledge to be made available by the assessee to the Indian company should be treated differently and payment made, therefore, should be held to be a royalty. The learned advocate for the assessee contended last that the fact that payment was being made to the assessee by the Indian company of a fixed percentage of the net selling price of the products manufactured and sold by the Indian company would not make any difference to the quality and character of payment. The measure or method of payment cannot determine the nature of the transaction involved. 15. The learned advocate for the revenue contended on the other hand that on a proper construction of the agreement between the assessee and the Indian company it would appear clearly that the assessee had at its disposal information regarding working methods and manufacturing processes of its various products which was being made available by the assessee to the Indian company. It would appear from clause (4) of the agreement that the information disclosed by the assessee to the Indian company under the agreement was meant solely for the use of the Indian company. The said clause further recorded that such information was being disclosed by the assessee in confidence to the Indian company and would not become the property of the Indian company till such information would become public. The Indian company was obliged to obtain similar undertakings of secrecy in respect of the information imparted by the assessee from its Page 28 IT(IT)A No. 825/Bang/2022 employees to the extent the latter would come to know of the same. The learned advocate for the revenue contended that it was apparent that such information made available to the assessee regarding methods and manufacturing processes were exclusive to the assessee and not available to the public in general. The assessee treated such information as its own property and made it clear that such information to the extent made available to the Indian company would not become the property of the latter. The same was not meant to be disclosed to third party. It was contended that, under the agreement, the Indian company was permitted to utilise such information to be imparted by the assessee for the period of the agreement and the Indian company would pay for the use thereof at an agreed rate. If such information was not meant to become the property of the Indian company, the same necessarily remained the property of the assessee of which the Indian company had limited use for the specified period against periodical payment. It was contended in the aforesaid facts that part of the payment made by the Indian company to the assessee referable for user of such exclusive information would have the character of a royalty though the assessee did not have a registered patent in respect of such methods and manufacturing processes. 16. In support of the respective contentions of the parties, a number of decisions were cited at the bar which are considered hereafter: (a) Mills v. Jones ( Inspector of Taxes)14 TC 769:In this case, the taxpayer had made certain improvements on a handgrenade and had obtained a number of patents in respect of such improvements. During the great war, British Government used the said invention and a large number of handgrenades were manufactured. After the end of the war, a Royal Commission was set up to deal with the question, inter alia, of payment to be made to inventors whose patent had been utilised by the Government during the war. The taxpayer received substantial payment from the Government in respect of the user, past, present and future for his patented improvements. The amount received by the taxpayer in the award was brought to tax. It was contended by the taxpayer that as the payment was being made, inter alia, for right to use the invention in the future a part of the said amount was capital receipt in his hands and could not be taxed. The matter was finally disposed of Page 29 IT(IT)A No. 825/Bang/2022 in the House of Lords. The facts found by the General Commissioners that large stocks of grenades were still in existence after manufacture and that the amount of the award attributable to future use was negligible were accepted and it was held that the taxpayer had been correctly charged to income-tax. This decision was cited for the following observations made by Bomer, LJ. in the Court of Appeal which were relied on by the revenue. "A patentee has, of course, a monopoly, and that monopoly, which is a right of preventing other people utilising his invention, is a capital asset in his hands. He may exploit that capital asset in either or both of the following ways: he can himself exercise his invention for profit, or he can grant licences to others to do so on payment of royalty. The profit he derives by exercising the invention himself or the profit he derives from the royalty are profits and gains within the meaning of Schedule D, notwithstanding the fact that every year his capital asset is diminishing in value. The owner of a secret process, such as was possessed by Mr. Handley Page, stands in a very analogous position; he has not a monopoly at law, but he has a monopoly in fact-a monopoly in fact arising from the possession by Mm of the secret knowledge of the process that he is carrying: on. That secret knowledge is as much his capital asset as is the patent monopoly the capital asset of the patentee, and, like the patent, he can use that capital asset in either or both of the following ways; he can himself carry on the secret process or he may-it is very seldom done owing to the obvious danger involved- grant a licence to a third person to carry on the secret process, securing himself against Ms secret process being divulged by that third party to others. In both these cases the profits he derives from carrying on the secret process himself and the royalty he might derive from the licensee would be annual profits or gains, within the meaning of Schedule D." (b) Musker (H.M. Inspector of Taxes)v. English Electric Co. Ltd. [1964] 41 TC 556 (HL): In this case, the taxpayer a manufacturer of engineering products acquired specialised information and technique in engineering processes which it kept with itself. At the request of the British Admiralty, the taxpayer entered into an agreement with the former whereby it agreed to design and develop a marine turbine and to licence the manufacture of turbines to other companies in the United Kingdom, Australia and Canada. Page 30 IT(IT)A No. 825/Bang/2022 Later, the taxpayer at the request of the Ministry of Supply of the British Government entered into agreements with the Government of Australia and an American Corporation under which the taxpayer granted licences to the latter to manufacture a bomber plane which the taxpayer had designed and developed. Under all the aforesaid agreements the taxpayer agreed to impart manufacturing technique to the licensees in consideration of which the taxpayer received specified lump sum payment. On these facts it was held by the House of Lords that the payments received by the taxpayer were trading and not capital receipts. The following observations in the judgment of Viscount Redcliffe were relied on by the assessee: "There is no property right in 'know-how' that can be transferred, even in the limited sense that there is a legally protected property interest in a secret process, special knowledge or skill can indeed ripen into a form of property in the fields of commerce and industry, as in copyright, trademarks and designs and patents, and where such property is parted with for money what is received can be, but will not necessarily be, a receipt on capital account. But imparting 'know-how' for reward is not like this, any more than a teacher sells his knowledge or skill to his pupil.... The other point is that 'know-how', though very naturally looked upon as part of the capital equipment of a trade, is a fixed asset only by analogy and, as it were, by metaphor. The nature of receipts from it depends essentially, I think, upon the transaction out of which they arise and the context in which they are received." (c ) P.H. Divecha v. CIT [1963] 48 ITR 222 (SC): This decision of the Supreme Court was cited for the proposition laid down as follows: ". . . It may also be stated as a general rule that the fact that the amount involved was large or that it was periodic in character have no decisive bearing upon the matter. A payment may even be described as 'pay', 'remuneration', etc., but that does not determine its quality, though the name by which it has been called may be relevant in determining its true nature, because this gives an indication of how the person who paid the money and the person who received it viewed it in the first instance. The periodicity of the payment does not make the payment a recurring income because periodicity may be the result of convenience and not necessarily the result of the establishment of a source Page 31 IT(IT)A No. 825/Bang/2022 expected to be productive over a certain period. These general principles have been settled firmly by this Court in a large number of cases. ..." (p. 232) (d) CIT v. Cilag Ltd. [1968] 70 ITB 760 (Bom.): In this case a foreign company entered into an agreement with it a 60 per cent Indian subsidiary under which the Indian company was appointed the sole importer, distributor, processors and manufacturers of the products of the foreign company in India. The agreement further provided that the foreign company would provide the Indian subsidiary the know-how for manufacture of the active substances required for the conditioning of the products of the foreign company and also of the products in consideration of payment of 5 per cent of the actual cost to be computed on an agreed basis by way of compensation fee or royalty. On these facts it was held by a Division Bench of the Bombay High Court that the royalties received by the assessee were income from business. The observation of Romer, LJ. in the case of Handley Page v. Butterworth (Inspector of Taxes)[1935] 19 TC 328 noted earlier was quoted in the judgment of Desai, J. (e) CIT v. Hindusthan General Electrical Corpn. Ltd. [1971] 81ITR 243 (Cal.): In this case one of the questions which arose before a Division Bench of this Court was whether know-how made available and utilised for a long period by the person to whom it was made available would constitute a permanent benefit and the consideration received for such know-how would be capital or revenue receipt. Following the decision of the House of Lords in the case of Musker ( supra), it was held that by obtaining know- how no capital asset would be acquired. The Division Bench observed as follows: ". . . Royalties, usually, are periodical payments for continuous enjoyment of certain benefits under a contract. In every case payment of royalty is not a capital expenditure. In our case the various types of payments that the assessee has to make seem to be closely related to the assessee's manufacturing processes of 'Simple' products. In other words, these payments are intimately linked up with the manufacturing activities of the assessee and not with the capital values of the assets that the assessee would require. They cannot, strictly speaking, be said to be the purchase price of these assets. It is true that the assessee's foreign principals would be imparting their 'know-how' to the assessee for a reward : but that is Page 32 IT(IT)A No. 825/Bang/2022 assessee's foreign principals were merely supplying technical information to enable the assessee to carry on business in terms of the agreement." (p. 257) (f ) CIT v. Gilbert & Barker Mfg. Co. [1978] 111 ITR 529 (Bom.): In this case, it was held by a Division Bench of the Bombay High Court on facts that it was possible to make available know-how by one person to another on the basis of a licence and the same would be a method of carrying on a business by the person who has the know-how. The Court quoted with approval the observation of Romer, LJ., in the case of Handley Page (supra) which has been noted earlier (g ) CIT v. Ahmedabad Mfg. & Calico Printing Co. [1983] 139 ITR 806 (Guj.): In this case, the assessee, an Indian company, entered into an agreement with an English company under which the foreign company granted to the assessee sole and exclusive right and licence to manufacture, sell, distribute and exploit the products of the English company with improvements and modifications in India and the use of any Indian patent owned by the English company in respect of the said products. The English company also agreed to make available to the assessee or its authorised agents know-how within the knowledge of the English company for use by the assessee for manufacture of the products of the English company in India. The English company also agreed to make available to the assessee benefits or results of future research and development by the English company relating to its products and to furnish to the Indian company at the execution of the agreement secret or patent formulations used by the English company for the manufacture of its products. The assessee undertook to maintain secrecy of the formulation, methods and processing of products of the English company and all improvements or modifications thereof and further agreed not to disclose or give any other person in India the benefits of such research, invention or patents relating to the said know-how. Under the agreement, the assessee was required to pay 1 per cent of the net sale proceeds of the products manufactured by the assessee in India to the English company. Such payment was described as research contribution. No further fee or remuneration was payable by the assessee to the English company. The assessee contended that what it had paid to the English company under the head 'Research contribution' were, in fact, payments of royalty and Page 33 IT(IT)A No. 825/Bang/2022 liable to deduction of tax at source at a lower rate. The revenue contended to the contrary. On these facts, it was held by a Division Bench of the Gujarat High Court that the agreement between the assessee and the English company was only for a period of 10 years and provided for exploitation of secret formulation, patent and various other rights of the English company by the assessee in India exclusively. The payment was a payment of royalty. The High Court considered the meaning of the expression 'royalty' as appearing in various dictionaries as also in foreign law on international commercial agreements. (h) CIT v. Dunlop Rubber Co. Ltd. [1983] 142 ITR 493 (Cal.): In this case the assessee was a non-resident English company and had a network of subsidiaries and associate companies all over the world. The assessee maintained technical research establishments in the U.K. from which latest information, processes and invention relating to goods manufactured by the assessee were communicated to its subsidiaries and associate companies. Under an agreement entered into by and between the assessee and its Indian subsidiary, the latter agreed to pay to the assessee a proportionate part of the cost and expenses including salaries and research and development expenditure incurred by the assessee for acquisition, discovery and development of information, processes and invention. The Government of India permitted the Indian subsidiary to pay to the assessee research contribution to be paid on the volume of sales by the Indian company subject to a ceiling. The question arose whether the amounts paid by the Indian subsidiary to the assessee were payments of or in the nature of royalty or the same were merely being reimbursement of expenses. It was held by a Division Bench of this Court on the facts as found that payment was made by the Indian subsidiary to the assessee for sharing of expenses of research. It was noted that the agreement did not provide as to ultimately what would happen to the information furnished by the assessee to the Indian subsidiary and it was observed that if the agreement provided that the information would belong either to the assessee or to the subsidiary on payment then it could have been contended that the payments were either royalty or hiring charges for such information and as such taxable income. (I ) CIT v. Stanton & Stavely (Overseas) Ltd. [1984] 146 ITR 405 (Cal.): In this case, the assessee a non-resident Page 34 IT(IT)A No. 825/Bang/2022 company incorporated in the U.K. entered into an agreement with the Indian Iron & Steel Co. Ltd. under which the assessee authorised the Indian company to use during the continuance of the agreement the information to hecommunicated to the Indian company for manufacture of the products of the assessee in a specified territory. The agreement further provided that the assessee would act as consultants of the Indian company on the manufacture of products of the assessee and would advise the Indian company on problems of technical nature and impart to the Indian company particulars of all improvements in the manufacturing technique of such product which would result from research carried out by the assessee during the continuance of the agreement. The assessee also agreed to provide to the Indian company during the continuance of the agreement a licence and authority to use its patents in respect of products manufactured by it. In consideration of the aforesaid, the Indian company agreed to pay to the assessee-commission at a specified date to be calculated on the net selling price of the products of the assessee manufactured and sold by the Indian company during the continuance of the agreement. The question which arose was whether the amounts paid by the Indian company to the assessee by way of commission were in the nature of royalty and fees within the meaning of rule 1(ix) and rule 1( x) of the First Schedule to the Companies (Profits) Surtax Act, 1964, and were required to be excluded from the total income of the assessee in computing its chargeable profits. A Division Bench of this Court affirmed the finding of the Tribunal on these facts and held that the amounts described as commission in the agreement between the assessee and the Indian company were in the nature of royalties and fees and were entitled to the exemption provided by the said rules of the said Act. This Court considered the dictionary meaning of the terms 'royalty' and 'fee'. It was observed that the 'nomenclature' used by the parties which were not defined in the statute were required to be construed on the basis of commercial principles and concepts as understood generally by people in trade or commerce. The nomenclature given by the parties would not be conclusive or decisive of the matter. (j ) Citizen Watch Co. Ltd. v. IAC [1984] 148 ITR 774 (Kar.): This judgment is that of a learned Judge of the Karnataka High Court delivered in a writ petition. In this case the assessee, a non-resident company, Page 35 IT(IT)A No. 825/Bang/2022 incorporated in Japan entered into a collaboration agreement with the Government of India under which the assessee agreed to supply technical know-how to the Government for establishment of a modern watch factory in India. The Government set up a company known as Hindusthan Machine Tools Ltd. wholly owned by the Government and transferred its rights, obligations and responsibilities under the agreement with the assessee to the Indian company. The agreement provided for payment of various amounts to the assessee for services and the technical know-how to be provided by the assessee to the Government or the Indian company. The said payments were respectively for supply of drawings and other information, a fee for technical and other assistance as agreed as also a royalty at a specified rate to be calculated on the price of the watches to be manufactured by the Indian company. It was held by the learned Judge that the amounts paid to the assessee by the Indian company on account of documentation and technical assistance fees were separate and were not payments of royalty or in the nature of royalty within the meaning of the double taxation agreement entered into by and between the Government of India and Japan. The Court considered the meaning of the term 'royalty' from the English and legal dictionaries and held that royalty is a payment made for the use of patents, etc., but did not include a fee payable for supply of document and information. 17. In the instant case, in the agreement dated 8-7- 1964, the assessee agreed, inter alia, to furnish information to the Indian company from time to time in respect of the following: (a) working methods, (b) manufacturing processes including indications, instructions, specifications, standards and formulas, (c ) methods of analysis, and formulas (d) quality control. The agreement provided that any information disclosed by the assessee to the Indian company would be solely for the use of the Indian company. The same would be considered as having been disclosed in confidence and would not become the property of the Indian company till such information would otherwise before public by application and user. The agreement further provided that the Indian company would take all reasonable care to keep such Page 36 IT(IT)A No. 825/Bang/2022 information supplied by the assessee as confidential and would not disclose the same to the third party. 18. It appears to us from the aforesaid provisions of the agreement that the assessee considered the information to be supplied to the Indian company by the assessee under the said agreement as exclusive and not generally available. The fact that the agreement required the Indian company not to treat the information furnished by the assessee as its own property indicates further that the assessee intended and treated the information to be supplied by it as its own property. Under the agreement the assessee would be entitled to utilise and use such information for the period of the agreement. 19. From the dictionary meaning of the term 'royalty', it appears that the said term connotes payments periodic or at a time for user by one person of certain exclusive rights belonging to another person. The examples of such exclusive rights are rights in the nature of a patent, mineral rights or right in respect of publications. It appears to us that the person who grants the user of the exclusive right might have the sanction of law which guarantees the exclusiveness. Such sanction may be obtained by taking out a patent in respect of an invention. In other cases, such exclusive right would arise from the ownership of mineral rights, protected by the laws relating to property. In respect of books and publication the exclusive right of the author is protected and sanctioned by the laws of copyright. 28. The Ld. Counsel submitted that the Hon’ble Delhi High Court in case of DCIT vs.New Skies Satallite BV (supra), while considering the taxability of transmission of signals through satellite under India Thailand DTAA held that, any sum received could be treated as ‘Royalty’ under the DTAA if it is received for use of ‘secret process’. He relied on following observations by the Hon’ble Court. 55. The slight but apparently vital difference between the definitions under the DTAA and the domestic definition is the presence of a comma following the word process in the former. In the initial determinations before various ITATs across the country, much discussion took place on the implications of the presence or absence of the "comma". A lot has been said about the relevance or otherwise of punctuation in the context of statutory construction. In spoken English, it would be unwise to argue against the importance of punctuation, where the placement of commas is Page 37 IT(IT)A No. 825/Bang/2022 notorious for diametrically opposite implications. However in the realm of statutory interpretation, courts are circumspect in allowing punctuation to dictate the meaning of provisions. Judge Caldwell once famously said "The words control the punctuation marks, and not the punctuation marks the words." Holmes v. Pheonix Insurance Co. [1899] 98 F 240 It has been held in CGT v. Budur Thippaiah [1976] 103 ITR 189 (AP) and Hindustan Construction Co. Ltd. v. CIT [1994] 208 ITR 291/[1993] 68 Taxman 471 (Bom.) that while punctuation may assist in arriving at the correct construction, yet it cannot control the clear meaning of a statutory provision. It is but, a minor element in the construction of a statute, Hindustan Construction Co. Ltd's case (supra). 56. The courts have however created an exception to the general rule that punctuation is not to be looked at to ascertain meaning. That exception operates wherever a statute is carefully punctuated. Only then should weight undoubtedly be given to punctuation; CIT v. Loyal Textile Ltd. [1998] 231 ITR 573/[1997] 95 Taxman 293 (Mad.); Sama Alana Abdulla v. State of Gujarat AIR 1996 SC 569; Mohd Shabbir v. State of Maharashtra AIR 1979 SC 564; Lewis Pugh Evans Pugh v. Ashutosh Sen AIR 1929 SC 69; Ashwini Kumar Ghose v. Arbinda Bose AIR 1952 SC 369; Pope Alliance Corpn. v. Spanish River Pulp & Paper Mills Ltd. AIR 1929 PC 38 An illustration of the aid derived from punctuation may be furnished from the case of Mohd. Shabbir (supra) where Section 27 of the Drugs and Cosmetics Act, 1940 came up for construction. By this section whoever "manufactures for sale, sells, stocks or exhibits for sale or distributes" a drug without a license is liable for punishment. In holding that mere stocking shall not amount to an offence under the section, the Supreme Court pointed out the presence of comma after "manufactures for sale" and "sells"and the absence of any comma after "stocks" was indicative of the fact "stocks" was to be read along with "for sale" and not in a manner so as to be divorced from it, an interpretation which would have been sound had there been a comma after the word "stocks". It was therefore held that only stocking for the purpose of sale would amount to an offence but not mere stocking. 57. However, the question, which then arises, is as follows. How is the court to decide whether a provision is carefully punctuated or not? The test- to decide whether a statute is carefully (read consciously) Page 38 IT(IT)A No. 825/Bang/2022 punctuated or not- would be to see what the consequence would be had the section been punctuated otherwise. Would there be any substantial difference in the import of the section if it were not punctuated the way it actually is? While this may not be conclusive evidence of a carefully punctuated provision, the repercussions go a long way to signify intent. If the inclusion or lack of a comma or a period gives rise to diametrically opposite consequences or large variations in taxing powers, as is in the present case, then the assumption must be that it was punctuated with a particular end in mind. The test therefore is not to see if it makes "grammatical sense" but to see if it takes on any "legal consequences". 58. Nevertheless, whether or not punctuation plays an important part in statute interpretation, the construction Parliament gives to such punctuation, or in this case, the irrelevancy that it imputes to it, cannot be carried over to an international instrument where such comma may or may not have been evidence of a deliberate inclusion to influence the reading of the section. There is sufficient evidence for us to conclude that the process referred to in Article 12 must in fact be a secret process and was always meant to be such. In any event, the precincts of Indian law may not dictate such conclusion. That conclusion must be the result of an interpretation of the words employed in the law and the treatises, and discussions that are applicable and specially formulated for the purpose of that definition. The following extract from Asia Satellite Telecommunications Co. Ltd's case (supra) takes note of the OECD Commentary and Klaus Vogel on Double Tax Conventions, to show that the process must in fact be secret and that specifically, income from data transmission services do not partake of the nature of royalty. "74. Even when we look into the matter from the standpoint of Double Taxation Avoidance Agreement (DTAA), the case of the appellant gets boost. The Organisation of Economic Cooperation and Development (OECD) has framed a model of Double Taxation Avoidance Agreement (DTAA) entered into by India are based. Article 12 of the said model DTAA contains a definition of royalty which is in all material respects virtually the same as the definition of royalty contained in clause (iii) of Explanation 2 to Section 9(1) (vi) of the Act. This fact is also not in dispute. The learned counsel for the appellant had relied upon the commentary Page 39 IT(IT)A No. 825/Bang/2022 issued by the OECD on the aforesaid model DTAA and particularly, referred to the following amendment proposed by OECD to its commentary on Article 12, which reads as under: '9.1 Satellite operators and their customers (including broadcasting and telecommunication enterprises) frequently enter into transponder leasing agreements under which the satellite operator allows the customer to utilize the capacity of a satellite transponder to transmit over large geographical areas. Payments made by customers under typical transponder leasing agreements are made for the use of the transponder transmitting capacity and will not constitute royalties under the definition of paragraph 2; these payments are not made in consideration for the use of, or right to use, property, or for information, that is referred to in the definition (they cannot be viewed, for instance, as payments for information or for the use of, or right to use, a secret process since the satellite technology is not transferred to the customer). As regards treaties that include the leasing of industrial, commercial or scientific (ICS) equipment in the definition of royalties, the characterization of the payment will depend to a large extent on the relevant contractual arrangements. Whilst the relevant contracts often refer to the lease of a transponder, in most cases the customer does not acquire the physical possession of the transponder but simply its transmission capacity: the satellite is operated by the lessor and the lessee has no access to the transponder that has been assigned to it. In such cases, the payments made by the customers would therefore be in the nature of payments for services, to which Article 7 applies, rather than payments for the use, or right to use, ICS equipment. A different, but much less frequent, transaction would be where the owner of the satellite leases it to another party so that the latter may operate it and either use it for its own purposes or offer its data transmission capacity to third parties. In such a case, the payment made by the satellite operator to the satellite owner could well be considered as a payment for the leasing of industrial, commercial or scientific equipment. Similar considerations apply to payments made to lease or purchase the capacity of cables for the transmission of electrical power or communities (e.g. through a contract granting an indefeasible right of use of such capacity) or pipelines (e.g. for the transportation of gas or oil). Page 40 IT(IT)A No. 825/Bang/2022 75. Much reliance was placed upon the commentary written by Klaus Vogel on Double Taxation Conventions (3rd Edition)'. It is recorded therein: 'The use of a satellite is a service, not a rental (thus correctly, Rabe, A., 38 RIW 135 (1992), on Germany's DTC with Luxembourg); this would not be the case only in the event the entire direction and control over the satellite, such as its piloting or steering, etc. were transferred to the user.' 76. Klaus Vogel has also made a distinction between letting an asset and use of the asset by the owner for providing services as below: 'On the other hand, another distinction to be made is letting the proprietary right, experience, etc., on the one hand and use of it by the licensor himself, e.g., within the framework of an advisory activity. Within the range from services', viz. outright transfer of the asset involved (right, etc.) to the payer of the royalty. The other, just as clear-cut extreme is the exercise by the payee of activities in the service of the payer, activities for which the payee uses his own proprietary rights, know-how, etc., while not letting or transferring them to the payer.' 77. The Tribunal has discarded the aforesaid commentary of OECD as well as Klaus Vogel only on the ground that it is not safe to rely upon the same. However, what is ignored is that when the technical terms used in the DTAA are the same which appear in Section 9(1)(vi), for better understanding all these very terms, OECD commentary can always be relied upon. The Apex Court has emphasized so in number of judgments clearly holding that the well-settled internationally accepted meaning and interpretation placed on identical or similar terms employed in various DTAAs should be followed by the Courts in India when it comes to construing similar terms occurring in the Indian Income Tax Act. . . . ** ** ** 78. There are judgments of other High Courts also to the same effect. (a) Commissioner of Income Tax Vs. Ahmedabad Manufacturing and Calico Printing Co., [139 ITR 806 (Guj.)] at Pages 820-822. (b) Commissioner of Income Tax Vs. Vishakhapatnam Port Trust [(1983) 144 ITR 146 (AP)] at pages 156-157. (c ) N.V. Philips Vs. Commissioner of Income Tax [172 ITR 521] at pages 527 & 538-539." Page 41 IT(IT)A No. 825/Bang/2022 59. On a final note, India's change in position to the OECD Commentary cannot be a fact that influences the interpretation of the words defining royalty as they stand today. The only manner in which such change in position can be relevant is if such change is incorporated into the agreement itself and not otherwise. A change in executive position cannot bring about a unilateral legislative amendment into a treaty concluded between two sovereign states. It is fallacious to assume that any change made to domestic law to rectify a situation of mistaken interpretation can spontaneously further their case in an international treaty. Therefore, mere amendment to Section 9(1)(vi) cannot result in a change. It is imperative that such amendment is brought about in the agreement as well. Any attempt short of this, even if it is evidence of the State's discomfort at letting data broadcast revenues slip by, will be insufficient to persuade this Court to hold that such amendments are applicable to the DTAAs. 29. He also referred to the observations made in case of DDIT vs. Nokia Networks OY (supra) by the Hon’ble Delhi High Court. It is submitted that both these views stand approved by Hon’ble Supreme Court in case of Engineering Anaysis Center of Excellance (P.)Ltd., (supra). Before us, the Ld.Counsel advocated that assessee cannot be brought to tax in India because of the Protocol between India and Belgium, on a concept under the International taxation, which is known as the Most Favoured Nation(hereinafter referred to as MFN clause). We note that the MFN clause means that from the date of entry into force, of the later treaty with a third country being a member of OECD, the same rate, the same exemption or the same lower tax base, automatically would apply to India and Belgium in accordance with the Treaty. 30. The relevant provision of the Protocol under India Belgium DTAA reads as under: “If under any Convention or Agreement between India and a third State being a member of the OECD which enters into force after 1st January, 1990, India limits its taxation on royalties or fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in the present Agreement on the said items of income, the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under the present Agreement Page 42 IT(IT)A No. 825/Bang/2022 with effect from the date from which the present Agreement or the said Convention or Agreement is effective, whichever date is later.” He submitted that the above MFN clause will apply where India enters into DTAA with a third country, being an OECD member that comes into force after 01/01/1990. 31. The Ld.Counsel submitted that India entered into DTAA with Hungary, which is an OECD county in 1986, which was replaced by the DTAA entered into in 2003. The new DTAA between India and Hungary came into force in 2005. Thus as per the MFN clause Article 12 of the India Hungary DTAA would apply as it satisfies the taxation at a rate lower or a scope more restricted than the rate or the scope provided for in India Belgium DTAA. Article 12(3)(a) of the India Hungary DTAA reads as under: 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 and films or tapes for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or transmission by satellite, cable, optic fibre or similar technology, or for the use of, or the right to use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial or scientific experience. The Protocol in India Hungary DTAA reads as under: “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.” 32. The Ld.Counsel submitted that India entered into DTAA with Greece, which is an OECD country in 1967. Thus, as per the MFN clause in India Hungary DTAA, Article 12 of the India Greece DTAA would apply, as it satisfies the taxation at a rate lower or a scope more restricted than the rate or the scope provided for in India Hungary DTAA. He submitted that there is no Page 43 IT(IT)A No. 825/Bang/2022 requirement under the MFN clause under India Hungary DTAA to come into force subsequent to the India Hungary DTAA. 33. The relevant clause governing ‘Royalties’ under India Greece reads as under: “Royalties derived by a resident of one of the territories from sources in the other territory may be taxed only in that other territory. In this Article, the term "royalty" means any royalty or other like amount received as consideration for the right to use copyrights, artistic or scientific works, cinematographic films, patents, models, designs, plans, secret processes or formulae, trade marks and other like property or rights, but does not include any royalty or other like amount in respect of the operation of mines, quarries or other natural resources.” The Ld.Counsel thus submitted that on the fact of the present case, on analysing the DTAA between India and Belgium DTAA rendered via protocol attached to the Tax Treaty between India Hungary rendered via Protocal attached to the Tax Treaty between Indian Greece, that the payments received by the assessee on account of Service rendered to Hutch cannot be brought to tax in view of the principle of most favoured nation (MFN) clause in the Tax Treaty unless there is a ‘right to use secret process’ by Hutch in India. 34. In support of the Ld.Counsel placed reliance on following decisions of International Courts:  Decision by South African High Court in case of ABC Proprietary Ltd.vs. Commissioner of South African Revenue Services, case no. 14287 dated 12/06/2019.  Decision by Dutch Tax Court, High Court and Supreme Court, in case No. 17/04584 dated 18/01/2019 Based on the above detailed submissions, the Ld.Counsel submitted that assessee was not liable to deduct tax in India. The Ld.CIT.DR at the outset submitted that the disallowance has been made as Royalty and therefore applicability if FTS need not be touched upon. 35. On the contrary, the Ld.CIT.DR submitted the following in a written submission. “May it please Your Honours In the present case filed by the assessee, the Grounds of Appeal as raised by the assessee has been broadly categorised into the following headings for A.Y: 2012- 13 and D.R.submissions thereon. (1) The Ld. AO erred in exercising jurisdiction u/s 147 of the Act in the case of the appellant. Page 44 IT(IT)A No. 825/Bang/2022 Submission: It was found by the Ld.AO from the submissions filed by Vodafone South Ltd., that an amount of Rs.6,87,13,119/- was paid during the A.Y: 2008-09 to the assessee company towards provision of Interconnect Services. The same is taxable under the IT Act, 1961 as well as the under India-Belgium DTAA @ 10% on the onsite software development services. As the assessee company has neither paid taxes nor had the payer made the TDS in the said case. Also it was noted by the Ld.AO that the assessee company has not filed any return for A.Y: 2008-09. Therefore, under these circumstances the Ld.AO had the reason to believe that this income has escaped assessment for A.Y: 2008-09. In view of the above, the Hon'ble panel upheld the act of the Ld.AO in reopening the assessment. I agree with the Hon'ble DRP and the same may be upheld. (2) The lower authorities erred in holding the amount received by the appellant from its customers in India is in the nature of 'royalty' within the meaning of section 9(1)(vi) of the IT Act and under article 12(3) of the DTAA and further erred in holding the retrospective amendment to section 9(1)(vi) of the IT Act would apply in interpreting the Article 12(3) of the Double Taxation Avoidance Agreement between India and Belgium. Submission: : It was found by the Ld.A0 from the submissions filed by Vodafone South Ltd., that an amount of Rs.6,87,13,119/- was paid during the A.Y: 2008-09 to the assessee company towards provision of Interconnect Services. The same is taxable under the IT Act, 1961 as well as the under India-Belgium DTAA @ 10% on the onsite software development services. As the assessee company has neither paid taxes nor had the payer made the TDS in the said case. Also it was noted by the Ld.A0 that the assessee company has not filed any return for A.Y: 2008-09. It is clear from the above that the payment received by the assessee has been held to be an income on which the payer should have deducted the tax as per law. It has been held to be Royalty as per within the meaning of section 9(1)(vi) read with explanation (2), (5) and (6). Therefore, the receipts earned by the assessee is held to be taxable as per amended by the provisions of the Act and the India- Belgium Double Taxable Avoidance Agreement. Further it is clearly held that expanded meaning of "Royalties" contained in section 9(1)(vi) of the Act as retrospectively amended by Finance Act, 2012 are only clarificatory in nature. The Hon'ble DRP held that consideration paid Page 45 IT(IT)A No. 825/Bang/2022 for use or right to use of process was already chargeable to tax as royalty. Further, the argument of the assessee that the assessee being a resident of Belgium is covered by the beneficial provisions of India- Belgium DTAA and accordingly, could not be taxed under the provisions of the Act, has been held to be a Royalty both under the Income-tax Act, 1961 as well as the DTAA and hence, the Hon'ble DRP rejected the ground. I agree with the decision of the Hon'ble DRP and the same may be upheld. Other than Transfer Pricing related. (3) The lower authorities erred in levying interest u/s 234A, 234B, and 234C of the Act. Submission: Charging of interest u/s 234A, 234B, and 234C of the Act are consequential in nature and it is automatic and it is as per specific provisions of the Act and the same may be retained. Conclusion : In view of the submissions made above, examination of submissions made by the assessee, the order of the Ld.A.O, and Hon'ble DRP, Bangalore are not erroneous and not bad in law. The assessee's appeal may be dismissed. Prayer : In the wake of the above submissions, it is humbly prayed to dismiss the appeal of the assessee/appellant and any other order as may please your honours. Respectfully submitted.” 36. The Ld.CIT.DR, ITAT-3, C Bench, Bangalore vide her letter dated 02.03.2022 filed a decision of Hon’ble Supreme Court in case of Apex Laboratories Pvt. Ltd. vs. DCIT @ SPECIAL LEAVE PETITION (CIVIL) NO. 23207 OF 2019 dated. 22.02.2022 in support of her argument that what can’t be done directly, can’t be achieved indirectly. The Ld. Counsel also in rejoinder relied on one more recent decision by Hon’ble Delhi High Court in case of BT Global Communications India Pvt. Ltd. reported in TS-209-ITAT-2022. The above referred arguments have not been raised by the assessee before the authorities, below and has not filed details regarding the transaction before the revenue. 37. Under such circumstances, we deem it just and proper to remand the issue back to the Ld.AO for a de novo consideration. We also direct the Ld.AO to consider the issue based on the above recorded arguments advanced by both sides keeping all contentions open. The Ld.AO is directed to verify the Page 46 IT(IT)A No. 825/Bang/2022 submissions of both sides, by keeping in mind the principle laid down by the Hon’ble Supreme Court in case of Engineering Analysis (supra) that domestic law cannot be read into treaties unless the treaties are amended bilaterally. Needless to say that proper opportunity of being heard must be granted to assessee.” 3. The Ld.DR has submitted the following in the form of written submission which is also incorporated as under; “Regarding the issue of MFN Clause, the assessee's submission is that the beneficial provision in the India- Greece DTAA can be applied to be India-Belgium DTAA via India-Hungary Treaty. The submissions of the undersigned, refuting the same, are as under: - 1. India-Belgium DTAA was notified on 31.10.1997. The protocol to this DTAA in para-1 lists out the conditions to be met for the applicability of the beneficial provisions of another treaty. It reads as follows "If under any Convention or Agreement between India and a third state, being a member of the OECD which enters into force after 01" January, 1990, India limits its taxation on royalties or fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in the present Agreement on the said items of income, the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under the present agreement w. e f the date from which the present Agreement or the said Convention or Agreement is effective whichever date is later." (emphasis added) 2. The conditions inter-alia include: a) The third state with which India enters into an Agreement or Convention is a member of OECD; b) The Convention or Agreement with the third state enters into force after 01.01.1990. c) The Agreement with the third state has a rate lower or scope more restricted for royalties or fees for technical services. 2.1 Thus, it is clear and unambiguous that the Agreement with the third state must enter into force after 01.01.1990. India-Greece DTAA which was notified on 17.03.1967 does not meet with the aforesaid condition, not having entered into force after 01.01.1990. 3 . T h e o b j e c t a n d p u r p o s e wh i l e d r af t i n g / n o t i f y in g I n d i a-B e l g i u m D T A A wa s N O T t o e x t e n d t h e r e s t r i c t i v e s c o p e o f t h e I n d i a-G r e e c e D T A A . T h i s i s a l s o e v i d e n t f r o m t h e f a c t t h a t s u b s e q u e n t t o t h e n o t i f i c a t i o n o f Page 47 IT(IT)A No. 825/Bang/2022 I n d i a-S we d e n D T A A , c o n s i d e r i n g t h a t b e n e f i c i a l p r o v i s i o n s c o n t a i n e d i n t h a t T r e a t y n e e d t o b e e x t e n d e d t o B e l g i u m , t h e G o v t o f I n d i a a m e n d e d t h e P r o t o c o l t o I n d i a-B e l g i u m D T A A b y i s s u a n c e o f N o t i f i c a t i o n N o S O 5 4 ( E ) d a t e d 1 9 t h J a n 2 0 0 1 . T h e r e l e v a n t e x t r a c t i s reproduced below: A n d wh e r e as p ar ag r ap h 1 of th e P r o to c o l d a te d th e 2 6 th A p r i l , 1 9 9 3 , to t h e af o r e s a i d ag r e e me n t, p r o v i d e s th a t if af te r th e 1 s t d ay o f J an u ar y , 1 9 9 0 , u n d e r an y C o n v e n t io n o r A g r e e me n t b e t we e n In d i a an d a th ir d S t a t e b e in g a me mb e r of th e O r g an is a t io n f o r E c o n o mic C o-o p e r a t io n an d D e v e l o p me n t, In d i a s h o u l d l i m i t i ts t ax a t i o n o n r o y al t ie s o r f e e s f o r te c h n ic al s e r v ic e s to a r a te l o we r o r a s c o p e mo r e r e s tr ic te d t h an th e r a te o r s c o p e p r o v id e d f o r in th e p r e s e n t ag r e e me n t o n th e s a id i te ms o f in c o me , th e n , as f r o m th e d a te o n wh ic h th e A g r e e me n t b e t we e n In d i a an d B e l g iu m o r th e rel e v an t In d i an C o n v e n t io n o r A g r e e me n t b e c o me s ef f e c tiv e ; wh ic h e v e r d a te is l a te r , the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this agreement ; And whereas in the Convention between India and Sweden which became effective on the 1st April, 1998, in the case of India, and on the 1st January, 1998, in the case of Sweden, which state is a member of the Organisation for Economic Co-operation and Development, the Government of India has limited the taxation at source on royalties and fees for technical services to a rate lower and a scope more restricted than that provided in the Agreement between India and Belgium on the said items of income ; Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby directs that the following modifications shall be made in the Agreement notified by the said notification which are necessary for implementing the aforesaid Agreement between India and Belgium, namely: --- I. With effect from the 1st April, 1998, in India and, with effect from the 1st January, 1998, in Belgium for the existing paragraph (2) of article 12 relating to "royalties and fees for technical services", the following paragraph shall be substituted, namely: Page 48 IT(IT)A No. 825/Bang/2022 "2. However, 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 beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent. of the gross amount of the royalties or fees for technical services." II. With effect from the 1st April, 1998, in India and with effect from the 1st January, 1998, in Belgium for the existing sub-paragraph (a) of paragraph 3 of article 12 relating to "royalties and fees for technical services”, the following sub-paragraph shall be substituted, namely : "(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, plant, secret formula or process, or for information concerning industrial, commercial or scientific experience." Thus, whatever benefit was to be extended in view of the India-Sweden Treaty, has already been incorporated in India-Belgium Treaty. It cannot be artificially widened to rope in the benefits of another Treaty. 4. Reliance is placed on Article 31 of the Vienna Convention on Law of Treaties which states that "A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose" (the relevant document is enclosed at Annex 1 for ready reference). If the intent of the Government of India was to extend the benefit of restrictive scope of the India-Greece DTAA to Belgium than the India-Belgium DTAA would have been drafted accordingly as India-Greece DTAA/Protocol (having been notified in 1967) existed at the time of India- Belgium Treaties/Protocol (notified much later in 1997). Thus, the object and purpose while drafting/notifying India-Belgium DTAA was NOT to extend the restrictive scope of the India-Greece DTAA. Any contrary interpretation will run counter to the said object and purpose. 4. A benefit which was specif ically excluded from being extended to Belgium (but available to Gr ee ce ), cannot be imported into India-Belgium DTAA indire ctly v ia India-Hungar y DTAA. For this proposition, reliance is placed on the de cis io n of Hon'ble Supre me Co ur t in the cas e o f M/s Apex Labor ato rie s Pv t. Ltd. (order dated February 22, 2022) wherein Hon'ble Supreme Court recorded the fo llo wing o bs erv ations in para 35: Page 49 IT(IT)A No. 825/Bang/2022 "It is also a known principle that what cannot be done directly, cannot be achieved indirectly. As was said in Fox v. Bishop of Chester that it is a; "Well-known principle of law that the provision of an Act of Parliament shall not be evaded by shift or contrivance" And that: "To carry out effectually the object of a Statue, it must be construed as to defeat all attempts to do, or avoid doing, in an indirect or circuitous manner that which it has prohibited or enjoined" 5. If this indirect extension of benefit, being claimed by the appellant, is granted, then this will trigger an endless chain and lead to a chaotic situation. To highlight this point, there is no Article in India-Greece DTAA on distribution of taxing rights relating to Fee for technical Services. If 'indirect import' concept argued by the appellant is given life, all Treaty partners in whose DTAA/Protocol the MFN clause exists, will claim non taxability of FTS by indirectly importing the benefit based on non-availability of FTS clause in India-Greece DTAA. This will create unintended consequences. 6. This kind of conclusion as is being sought by the assessee will also tantamount interpretational outreach and cause erosion of tax base which is contrary to the intended purpose of a Double taxation avoidance agreement which is reflected in the Preamble. Reference may be made to page 46 of the assessee's paper book volume-1 where India- Belgium DTAA is enclosed. The said DTAA in its Preamble very clearly states "Desiring to conclude an agreement for avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income..........". (emphasis added). The role of Preamble as an aid of interpretation is well recognised. 7. Each Agreement is individually negotiated between two treaty partners. Within the OECD nations also, the extension of such benefit is not uniform. Some treaties require the third state to be a member of OECD at the time of notification of treaty while some don't. The difference is also in the procedural requirements. Some get activated automatically while some require bilateral intimation. Some may require specific notification (for example India-Finland DTAA), while some are silent on the procedural requirements. 7.2. The incomes covered also vary. It may relate to all or a combination of FTS, Royalty, Dividend, Interest, Deduction Page 50 IT(IT)A No. 825/Bang/2022 of Expenditure under Article-7 etc. These differences are exhibited in the DTAAs with the three countries under reference i.e. Belgium, Greece and Hungary. In case of India- Belgium DTAA, the covered incomes are only Royalty and FTS (page 73 of volume-1 of the assessee paper book). In case of India-Hungary DTAA, beneficial provision relate to dividends, interest, royalties and fee for technical services (refer page 191 volume-1 of assessee paper book). In relation to Greece, there is no MFN Clause. All the above three countries were OECD members at the time the Treaties were signed. Yet there exists a difference in extension of benefit via MFN Clause. 7.3 It is also important to highlight that the most favored nation Clause is not a general principle but an exception and is not part of the modal provision in most cases. It is contained in the protocol as also in the case of India-Belgium DTAA (refer page no. 73 of volume-1 of assessee paper book). The extension of a lower rate or a restricted scope is for specific items of income only and not to all incomes. Considering the above, indirect import of benefits will be in gross violation of object and purpose contained in the bilateral instrument of DTAA. 7.4 It may also be pointed out that the MFN Clause in the India-Belgium DTAA states that "....If under any Convention or Agreement between India and a third state, being a member of the OECD which enters into force after 01" January, 1990, India limits its taxation on royalties or fees for technical services to a rate lower or a scope more restricted than the rate or scope..... "(emphasis supplied). A plain reading of the provision leads to the inference that in the treaty with the third State itself, India should limit its taxation on royalties or fees for technical services to a rate lower or scope more restricted than the India-Belgium DTAA. But India has not limited its taxing rights on royalties or fees for technical services to a lower rate, or a scope more restricted in the India-Hungary DTAA. Further, the reliance on the India-Greece DTAA is also misplaced, as the MFN clause clearly states that the treaty with the third State needs to enter into force after 1st January, 1990, whereas the India- Greece DTAA entered into force in 1967. 7.4.1 In this regard, Hon'ble Supreme Court in the case of Ram Jethmalani & Others (writ petition civil no 176 of 2009) had observed that: "61. This Court in Union of India v. Azadi Bachao Andolan approvingly noted Frank Bennion's Page 51 IT(IT)A No. 825/Bang/2022 observations that a treaty is really an indirect enactment, instead of a substantive legislation, and that drafting of treaties is notoriously sloppy, whereby inconveniences obtain. In this regard this Court further noted the dictum of Lord Widgery, C.J. that the words "are to be given their general meaning, general to lawyer and layman alike.... The meaning of the diplomat rather than the lawyer." The broad principle of interpretation, with respect to treaties, and provisions therein, would be those ordinal)) meanings of words be given effect to, unless the context requires or otherwise. However, the fact that such treaties are drafted by diplomats, and not lawyers, leading to sloppiness in drafting also implies that care has to be taken to not render any word, phrase, or sentence redundant, especially where rendering of such word, phrase or sentence redundant would lead to a manifestly absurd situation, particularly from a constitutional perspective. The government cannot bind India in a manner that derogates from Constitutional provisions, values and imperatives." (emphasis supplied) 7.4.2 Thus, one cannot ignore the clear wording of the MFN clause in the India-Belgium DTAA which clearly states that for the benefit to be imported into the India-Belgium DTAA, India should limit its taxation rights in the DTAA with the third State, which is not the case in the India- Hungary DTAA. The contention of the assessee makes this part of the MFN Clause in the India-Belgium DTAA otiose. It is clear that the intention of the MFN clause in the Protocol of the India-Belgium DTAA is not to give the benefit of India's DTAA with the third State, which does not limit the taxation rights on royalties or fees for technical services to a rate lower or a scope more restricted, and hence the indirect use of the MFN clause of the India-Hungary DTAA is not warranted. Further, the reliance on the India-Greece DTAA, which entered into force in 1967 renders otiose the requirement of the treaty with the third State entering into force after 1st January, 1990. It also leads to a manifestly absurd situation. 8.1 It is also of relevance to see how the MFN Clause is drafted in DTAAs/Protocols that India has entered into with other OECD countries. On perusal of these Protocols, it can be seen that each one is carefully and differently worded, defining the time and conditions based on which such MFN benefit shall be available to the Treaty partner. For example, benefit is available Page 52 IT(IT)A No. 825/Bang/2022 - in case of France, if the Agreement or protocol between India and the third state is signed after 01.09.1989; - in case of Spain, if the Agreement between India and the third state enters into force after 01.01.1990; - in case of Switzerland, if the Agreement or protocol between India and the third state is signed after the signature of that amending protocol; - in case of Finland, if the agreement between India and the third state is signed after coming into force of the India- Finland Agreement; -in case of Netherland, if the agreement between India and the third state is signed after the signature of the India- Netherland Agreement. 8.2 Thus, the Protocols are drafted and amended based on the relationship between the two Treaty partners and the different interests and objectives which the Treaty partners intend to pursue or improve. Each protocol is individually negotiated between the two jurisdictions and contain individual terms. Therefore, in determining the rights and obligations emanating from these Protocols, the terms and phrases used in each protocol deserve full and complete consideration. To reiterate extending beneficial provision of a fourth state (Greece, in this case) to a Treaty partner (Belgium) would render such terms, phrases and periods mentioned in the Protocol, as redundant. 8.3 The relevant extracts from the Protocols mentioned above are reproduced for ready reference. a) FRANCE “.......7. In respect of articles 11 (Dividends), 12 (Interest) and 13 (Royalties, fees for technical services and payments for the use of equipment), if under any Convention, Agreement or Protocol signed after 1-9-1989, between India and a third State which is a member of the OECD, India limits its taxation at source on dividends, interest, royalties, fees for technical services or payments for the use of equipment to a rate lower or a scope more restricted than the rate of 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 income shall also apply under this Convention, with effect from the date on which the present Convention or the relevant Indian Convention, Agreement or Protocol enters into force, whichever enters into force later. Page 53 IT(IT)A No. 825/Bang/2022 b) SPAIN: ‘....7. The competent authorities shall initiate the appropriate procedures to review the provisions of Article 13 (Royalties and fees for technical services) after a period of five years from the date of its entry into force. However, if under any Convention or Agreement between India and a third State which is a Member of the OECD, which enters into force after 1-1-1990, India limits its taxation at source on 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 incomes, the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this Convention with effect from the date on which the present Convention comes into force or the relevant Indian Convention or Agreement, whichever enters into force later....." c) SWITZERLAND: "5*.........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 signed after the signature of this Amending Protocol, India limits its taxation at source on dividends, interest, royalties or fees for technical services to a rate lower than the rate provided for in this Agreement on the said items of income, the same rate as provided for in that Convention, Agreement or Protocol on the said items of income shall also apply between both Contracting States under this Agreement as from the date on which such Convention, Agreement or Protocol enters into force. If after the date of signature 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.] [*Substituted by Notification No. SO 2903(E), dated 27-12- 2011. Prior to its substitution, paragraph 4, which was amended by Notification No. GSR 74(E), dated 7-2-2001, and renumbered as paragraph 5 by Notification No. SO 2903(E), dated 27-12-2011, read as under: "With reference to Articles 10, 11 and 12 Page 54 IT(IT)A No. 825/Bang/2022 4. If after the signature of the Protocol of 16th February, 2000 under any Convention, Agreement or Protocol between India and a third State which is a member of the OECD India should limit 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 Agreement on the said items of income, 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.”] d) FINLAND: "At the moment of signing of the Agreement between the Republic of Finland and the Republic of India for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, the undersigned have agreed that the following provisions shall form an integral part of the Agreement: I A d A r tic l e s 5 an d 6 ........... II. Ad Articles 10, 11 and 12 It is agreed that if after coming into force of this Agreement, any agreement or convention between India and a Member State of the Organisation for Economic Cooperation and Development provides that India shall exempt from tax dividends, interest, royalties or fees for technical services (either generally or in respect of specific categories of dividends, interest, royalties or fees for technical services) arising in India, or limit the tax charged in India on such dividends, interest, royalties or fees for technical services (either generally or in respect of specific categories of dividends, interest, royalties or fees for technical services) to a rate lower than that provided for in paragraph 2 of Article 10 or paragraph 2 of Article 11 or paragraph 2 of Article 12 of the Agreement, such exemption or lower rate shall be made applicable to the dividends, interest, royalties or fees for technical services (either generally or in respect of those specific categories of dividends, interest, royalties or fees for technical services) arising in India and beneficially owned by a resident of Finland and dividend, interest, royalties or fees for technical services arising in Finland and beneficially owned by a resident of India under the same conditions as if such exemption or lower rate had been specified in those paragraphs........” Page 55 IT(IT)A No. 825/Bang/2022 e) NETHERLANDS: ".....AND WHEREAS article IV of the protocol dated July 30, 1988, to the aforesaid Convention provides that if after the signature of the aforesaid Convention under any Convention or Agreement between India and a third State which is a member of the Organisation for Economic Co-operation and Development, India, should limit its taxation at source on dividends, interest, royalties, fees for technical services or payments for the use of equipment 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, then, as from the date on which the relevant Indian Convention or Agreement enters into force the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this Convention,. A N D W H ER EA S in th e C o n ve ntio n b e t we e n In d i a an d G e r man y wh i c h e n te r e d in to f or c e on O c to b e r 2 6 , 19 96 , th e C o nv e n tio n b e t we e n In d ia an d S we d e n wh ic h e n te r e d in to f or ce o n D ec e mb e r 2 5 , 19 97 , th e C on v en tio n b e t we e n In d ia an d th e S wis s C o nf e de r atio n wh ic h e n te r e d in to f o rc e on O c to h e r 19 , 19 94 , an d th e C o n ve n tio n b e t we e n In d ia an d th e U n ite d S tate s of A me r ic a wh ic h e n te r e d in to f orce o n De c e mb e r 18 , 19 90 , wh ic h s tate s ar e me mb e rs of th e O rg an is at io n f o r E c on o mic C o-op er atio n an d D e ve l op me n t, th e G o ve r n me n t of In d ia, h as l i mi te d th e taxa tio n a t s o ur c e o n d iv id e n d s, in te r e s t, r o y al tie s , f ee s f or te c h n ic al s e r v ic e s an d p ay me n ts f or th e u s e of e q u ip me n t to a r ate l o we r o r a s c o p e mo r e r e s tr ic te d th an th at p r o v id e d in th e C o n v e n tio n b e t we e n In d ia an d th e N e th e r l an d s on th e s aid ite ms of in c ome ; NOW, THEREFORE, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby directs that the following modifications shall be made in the Convention notified by the said notification which are necessary for implementing the aforesaid Convention betiveen India and the Netherlands, namely: ...." 9. The decision of Hon'ble South Africa Court relied upon by the assessee does not have a binding force. Also, the said judgement is based on the peculiar facts of that case. Brief background is that during 2006, South Africa decided to change the corporate tax structure/ tax on dividend. This included a shift from secondary tax on companies, to tax liability on the Page 56 IT(IT)A No. 825/Bang/2022 shareholders. This policy change required implementation of new terms in international agreements. The existing Agreements with Netherlands and Sweden were amended by Protocols on 2008 and 2012 respectively which provided for a 5% tax on dividends in South Africa on dividends. Negotiations with Kuwait were concluded but the Agreement was not ratified by (Kuwait) then. Therefore, the original Agreement with Kuwait of 2006 which provided for 0% tax on dividend, existed on the date of hearing/judgement of the Hon'ble South Africa Court. 9.1 Based on this conspectus of facts, the appellant in that case claimed that "the contract between South Africa and Netherlands provides that if any other contracting state is in future given better terms, then those better terms also apply to Netherlands. In so far as contract with Sweden provides that if any other contracting slate has better terms (whether existing or in future), then those also apply to Sweden. In so far (h)as Kuwait does have better terms, then Sweden is also entitled to the same terms and because Sweden has been benefited by better terms after the Netherland contract was concluded with South Africa, the Netherlands must also be given better benefit." (para 19 of the judgement) 9.2 The following facts merit attention:  The respondent (ie the Commissioner of the SA Revenue Services) rested its case on the argument that the Court must consider the intention of South African and other parties to the contract (para 17 of the judgement);  The agreement with Sweden must be interpreted to be applicable to future Agreements (para 17 and 18 of the judgement);  The respondent heavily relied on oral evidence of a witness to emphasize that South Africa had tried to get Kuwait to ratify the Agreement which the latter had not yet done. (para 3 and para 23). 9.3 Hon'ble High Court of South Africa went along with the "parol evidence rule" and refused to accept oral evidence. However, the arguments put forth for the present case are on a different footing. To reiterate, the pleadings are: i. that the terms of Agreement with Belgium are clear and unambiguous to provide preferential treatment only if the Convention or Agreement with the third state enters into force after 01.01.1990; Page 57 IT(IT)A No. 825/Bang/2022 ii. India has not limited its taxing rights on royalties or fees for technical services to a lower rate, or a scope more restricted in the India-Hungary DTAA; iii. the clear object and purpose while drafting/notifying India-Belgium DTAA was NOT to extend the restrictive scope of the India-Greece DTAA which was already in existence then; iv. what cannot be done directly, cannot be achieved indirectly,. v. Reference to India-Greece DTAA, which entered into force in 1967 renders otiose the requirement of the treaty with the third State entering into force after I" January, 1990. It also leads to a manifestly absurd situation, in contradiction to the observation of Hon'ble supreme Court; vi. Indirect extension of benefit will trigger an endless chain; vii. Ex tend in g pref eren tial tre atme n t th rough in d irec t rou te tan ta mo un ts to in te rpre tati on al ou tre ac h , c an c ause eros io n of tax b as e an d th us bre ac h th e purpos e as cl e arl y con tain ed in th e Pre amb l e of the Do uble tax atio n av o id anc e agree men ts 4. As all the above submissions by both sides have not been considered by the Ld.AO in respect of the transaction and the arguments advanced by assessee based on various provisions under DTAA was also not raised before the revenue, in the interest of justice, we deem it proper to remand this issue back to the Ld.AO for a denovo consideration. We direct the Ld.AO to consider the issue based on the submissions advanced by both sides which is reproduced hereinabove and having regards to the principles laid down by Hon’ble Supreme Court in case of Engineering Analysis Page 58 IT(IT)A No. 825/Bang/2022 Centre of Excellence Pvt.Ltd., reported in (2021) 125 taxmann.com 42. Needless to say that proper opportunity has to be granted to assessee in accordance with law. All the grounds filed by assessee stands allowed for statistical purposes. In the result, the appeal filed by assessee stands allowed for statistical purposes. Order pronounced in the open court on 31 st October, 2022. Sd/- Sd/- (LAXMI PRASAD SAHU) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 31 st October, 2022. /MS / Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order Assistant Registrar, ITAT, Bangalore