2022 (4) TMI 1511 - AT - Income Tax

Income deemed to accrue or arise in India - Royalty receipt - Fees for Technical Services (FTS) as defined u/s 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 - payments received as consideration for the "use of", or "the right to use" any ‘secret formula or process’ - As submitted 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’ - assessee argued that consideration for services rendered to Indian Company, as per Carrier Service Agreement(CSA) - 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 ? - Assessee submitted that assessee was not liable to deduct tax in India - CIT.DR at the outset submitted that the disallowance has been made as Royalty and therefore applicability if FTS need not be touched upon - also submitted as 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.

HELD THAT:- 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 recorded arguments advanced by both sides keeping all contentions open. AO is directed to verify the submissions of both sides, by keeping in mind the principle laid down by the Hon’ble Supreme Court in case of Engineering Analysis [2021 (3) TMI 138 - SUPREME COURT] 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. Grounds raised by assessee stands allowed for statistical purposes.