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TMI Blog2010 (10) TMI 611X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the AO's action in initiating the proceedings u/s. 147 of the Act. and then issuing the notice u/s. 148 of the Act. The grounds on this point raised by the assessee are. w nutshell as under:- "The learned JCIT is not justified in reopening the case u/s. 147 of the Income Tax Act as no fresh evidence or material has come to his notice. It is merely a change of opinion on his part Therefore, the notice u/s. 148 is invalid and bad in law, Since the notice it's. 148 about reopening the case is invalid and bad in law, the order passed in /"elation to the saute is also invalid and bad in law," 5, Relevant facts giving rise to the aforesaid issues raised by the assessee may be set out m brief as under as would be emerging from the orders of the authorities below and the materials on record:- 5.1 The assessee filed its return of income u/s. 139 on 28.12.1989, 31.12.1993 and 30.11.1994 declaring loss at Rs. 80,76,095/-, Rs. 12,22,24,470/- and, Rs. 4,64,53,064/- for the assessment years 1989-90, 1993-94 and 1994-95 respectively. The aforesaid returns were processed u/s. 143(l)(a) on 30.03.1990, 30.06.1994 and 31.03.1995 respectively. Subsequently, the AO initiated proceedings u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived bv the assesscc from the Department of Science &. Technology, Government of India for maintaining and giving services with regard to the super computer installed at Mausam Bhawan as fees for technical services and treated the income as pel-provisions of section 44D read with section 115 A of the Act. 7. Being aggrieved, the assessee preferred an appeal before the id. CIT(A). 8. Before the Id. CIT(A). the assessee had taken a ground thai the AO was not justified in initiating the proceedings u/s. 147 of the Act as no fresh material or evidence had come to his notice and it was merely a case of change of opinion on his part. 9. During the course of appellate proceedings before the Id. CIT(A), the AO submitted his reports. 10. The AO's report in respect of A.Y. 1989-90 reads as under:- "Original assessment in this case had been completed u/s. 143(l)(a) of the I.T. Act in the summary manner and thus no opinion, as to say was formed at the time of original assessment Change of opinion resupposes an earlier opinion which in this case does not exist Although the assessee had not elaborated as to how the proceedings initiated u/s. 147 were bad in law but it seems that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or his assessment" such expression is rehundant, meaningless and is of no consequence in so far as the post-1989 main section 147 is concerned [Rakesh Aggarwal vs. Asst CIT (1997) 225 ITR 496, 501, 502 (Del)]. In view of the above, there is no infirmity in initiating the proceedings u/s. 147 of the IT. Act, 1961." 12. The aforesaid reports of the AO Were confronted to the assessee. The assessee vide his written submission dated 10.10.2000 reiterated before the CIT(A) that the proceedings u/s. 147 of the Act were based on change of opinion. It was also argued that in A.Y. 1995-96, the AO had taken a different view as compared to the view taken in earlier years without there being any change in the facts of the case and treated the receipts in question as fees for technical services. He, therefore, submitted that the AO had no reason to believe that any income had escaped assessment within the meaning of section 147 of the Act. 13. After considering the AO's order and his reports and the assessee's submission and the facts of the case, the CIT(A) held that the proceedings initiated u/s. 147 of the Act by the AO were valid in accordance with the law. The order of the CTT{A) as it re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... April 1, 1989 provides that if the Assessing Officer has reason to believe that any income chargeable to tax h as escaped assessment for any assessment year, he may; subject to the provisions of section 148 to 153 of the Act, assess or reassess such income and also any other income chargeable to tax which Has escaped assessment The section not only merges clause (a) and (b) of the pre-amended section 147 but also brings about a significant change in the preliminary requirement of certain mandatory conditions before reassessment proceedings could be initiated under the old section. Under the unamended section 147(a), the Assessing Officer could initiate reassessment proceedings if he had reason to believe that income chargeable to tax had escaped assessment by reasons of: (a) omission or failure on the part of an assessee to make a return under section 139 or the Act for any assessment year, or (b) to disclose fatly and truly all material facts necessary for his assessment for that yean As is evident from the amended section, in contradistinction to the unamended section, requiring fulfillment of twin conditions spelt out in clause (a) of section 147 or clause (b) of the said sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITO, Writ Petition no. 2287/2009 (Delhi) (vi) CIT vs. H.B. Stock Holdings, ITA no. 65/2009 (Delhi?) (vii) CIT vs. Smt. Jyoti Devi (2008) CTR 264 (Raj.) 16. The Id. DR, on the other hand, submitted that since there was no assessment made. u/s. 143(3) of the Act by the AO in all these three assessment years i.e. assessment years 1989-90, 1993-94 and 1994-95. The question of forming any opinion in respect of the nature of the receipts received by the assessee from the Department of Science & Technology. Government of India, towards maintenance and service charges for super computer installed at Mausarn Bhawan did or could not arise, and. thus, the question of any change of opinion on the part of the AO does not arise when the AO had formed a reason to believe that income has escaped assessment within the meaning of section 147 of the Act in the light of the view AO had taken while completing the assessment u/s. 143(3) for the A.Y. 1995-%. The Id. DR also placed heavy reliance upon the decision of Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra). 17. Rival contentions of both the parties have been considered and the orders of the au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered the AO powerless to initiate reassessment proceedings when intimation u/s. 143(1) has been Issued. (vi) The High Court is wrongly applied the case of Adani Exports vs. Dy. CIT (Assessment) (1999) 240 ITR 224 (Guj.), which has no application to the case on the facts in view of the conceptual difference between section 143(1) and section 143(3) of the Act. 20. Besides above proposition, the Hon'ble Supreme Court has also analyzed the meaning and scope of the expression "reason to believe" used in section 147 of trie Act by holding and observing as under:- "Section 14 7 authorizes and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for assessment year has escaped assessment The word "reason" in the phrase "reason to believe" would mean cause or Justification. If the Assessing Officer has cause or justification to know or suppose that income has escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that failure to take place u/s. 143(3) will not rendered the AO powerless to initiate reassessment proceedings when intimation u/s. 143(1) only have been issued. The only condition to be satisfied is where the AO had reason to believe that income had escaped assessment within meaning of section 147 of the Act. In the present case, the assessee received certain receipts from the Department of Science & Technology towards maintenance and service charges in respect, of super computer installed-at Mausam Bhawan. New Delhi. The assessee had shown receipts as business income. However, 'in the A.Y. 1995-96, the AO has treated the same to as fee for technical services while completing the assessment u/s. 143(3) of the Act. Now the question arises whether the ACITs finding or view taken in A.Y. 1995-96 can be a basis to entertain a believe that income had escaped assessment. 23. Expression "reason to believe" used in section 147 has been analyzed by the Hon'ble Supreme Court in the above referred ease of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra) and then held that this expression would mean cause or justification, and if the AO has cause or justification to know or suppose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 147 of the Act, as the assessee has shown the receipts as business income as against the AO's finding that receipts are assessable as fees for technical services to be taxed u/s. 44D read with section U5A. In the reasons recorded, the AC) has clean staled that while finalizing the assessment for A.Y. 1995-96. It was noticed that nature of income was in the nature of fee for technical services as per provision of section 44D read with section 115A of the Act. and tax on the total income shall be calculated @ 30% of the total turnover as the payment of maintenance services made by the Department of Science & Technology to the assessee is clearly fall within the payment of fee for technical services. Therefore, in the light of the proposition laid down by the Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra) and on the facts of the present case, we hold that the notice issued by the AO u/s. 148 of the Act is valid and is within hi&-jurisdiction. Thus, this ground challenging the validity of the AO's action in initiating assessment proceedings u/s. 147 of the Act, is rejected. 24. Next common ground in all these three years is about th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Department of Science & Technology, Government of India by M/s. Cray Research Inc, USA. For the purpose of providing maintenance services, project office was set up in India by the assessee. During the course of assessment proceedings the AO raised a question whether amount received by the assessee from the Ministry of Science & Technology towards maintenance services rendered or provided by the assessee is in the nature of business income or is it in the nature of fees for technical services. The AO was of the view that the payment for maintenance services received by the assessee was in the nature of fees for technical services as defined in Explanation 2 to clause (vii) of sub-section (1) of section 9 of the Act. As against these. Id. authorized representative submitted before the AO that the assessee is incorporated in USA and, therefore, the assessee company has an option to be governed by the Indo-US DTAA, if the provisions of DTAA are found to he beneficial to the assessee The assessee therefore submitted that that the payment in question was not in the nature of fees for included services as per sub-clause (va) of article 12 of the DTAA- between India and USA, It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second appeal before the Tribunal against the aforesaid order of the CIT(A) in the A Y 1995-96. He had taken independent view as was taken in the A,Y. 1995-96 by him. 31.Being aggrieved with the AO order for the A.Y. 1996 97, the assessee preferred an appeal before the Id. CIT(A) who upheld the AO's order holding that the maintenance services charges arc assessable as fees for technical services. 32. Being aggrieved, the assessee has tiled the appeal before the Tribunal. 33. With regard to the assessment year 1989-90. 1993-94 and 1994-95. We observe that after the assessment for A.Y. 1995-96 was completed, the AO reopened the assessment proceedings for assessment years 1989-90, 1993-94 and 1994-95 by issuing a notice u/s. 148 of the Act. In these appeals, we are concerned wife the assessment years 1989-90, 1993-94 and 1994-95. In these assessment years, the AO has completed the assessment u/s. 147/144 of the Act, in as much as, in the course of assessment proceedings none for the assessee has appeared before the AO. While completing the assessment, the AO treated the maintenance service charges to be assessable as fees for technical services in the light of the assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king technology will be considered "made available' when the person acquiring the service is enabled to apply the technology. The fad that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skill etc. are made available to the person purchasing the service, within the meaning of para 4(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available." 45. It is important to note that in the protocol to the said DTAA, the Government of India has also accepted the interpretation of Article 12 i.e. fees for included services in the following words: "This memorandum of understanding represents the current view of the United States Government with respect to these aspects of Article 12 and it is my Governments} understanding that it also received by the assessee from the Department of Science & Technology, in respect of services provided with regard to the super computer are assessable as fees for technical services or business profit. 38. An agreement described as "agreement for purchase of computer equipment" was entered into between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en if inconsistent with the provisions of the Income-tax Act We approve of the reasoning in the decisions which we have noticed. If it was not the intention of the legislature to make a departure from the genera! principle of chargeability to tax under section 4 and the general principle of ascertainment of total income under section 5 of the Act, then there was no purpose in making those sections "subject to the provisions" of the Act The very object of grafting the said two sections with the said clause is to enable the Central Government to issue a notification under section 90 towards implementation of the terms of the DTAs which would automatically override ihe provisions of the Income-tax Act in the matter of ascertainment of total income, to the extern of inconsistency with the terms of the DTA C." 41. In the case of CIT vs. P.V.A.L. Kuiandagam Chettiar (supra), the Hon'ble Supreme Court summed up the position as under: "Where liability to tax arises under the local enactment the provisions of sections 4 and 5 of the Act provide for taxation of global income of an assessee chargeable to tax thereunder. It is subject to the provisions of an agreement entered into between th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to sub para (b) of Article 12(4), the important ingredients of which represents the current view of the India Government" (emphasis supplied)" 46. From the clarification and definition of the expression "fees for included services", payment to be categorized as one for included services would be as under: (a) While the payee should 'make available' there should be an 'acquirer' of technical knowledge, experience, skill, know-how or process: or technical plan or technical design. (b) The concept of 'make available' postulates that the person /acquiring' the service is enabled to apply the technology. (c) A mere providing of service requiring technical input by the person providing the service does not per se mean that technical knowledge skill, etc are made available to the person purchasing service. (d) That a mere use of the product which embodies technology shall not per se be considered to make the technology available. 47. In the present case, in the Asstt. Year 1995-96, the AO made the assessment u/s 143(3) on 16.10.97. In this assessment, the AO has applied the definition of "fees for technical services" as provided under Explanation 2 to Section 9(l)((vii) of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermination of the profits of PE only those deductions are to be allowed which are in accordance with the provisions of and subject to the taxation laws of India as per provisions of the Indian Income-tax Act, 1961. 7. Section 44DoftJieLT. Act, 1961v which is titled - Special provisions for computing income by way of royalties, companies, states that- "44D - Notwithstanding anything to the contrary contained in Section 28 to 44C\ in the case of an assessee, being a foreign company -(a).... (b) no deduction in respect of any expenditure or allowance shall be allowed under any of the said sections in computing the income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Govt or with the Indian concern after the 3ls/ day of March, 1976." 8. Section USA of the IT Act (which is titled "Tax on dividends\ royalty and technical service fcs in the case of foreign companies) states that I15A (1) (a)........ (h) a foreign company, includes any income by way of royalty or fees for technical services received from the 6V;v/ or an Indian concer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. In this assessment made by the AO, the AO has categorically stated that since assessee was having a permanent establishment in India Article 12 of the treaty shall stand not applicable and the definition of "fees for included services" is to be considered in the light of the definition given under Explanation 2 to Section 9(l)(vii) of the Act. In the course of appellate proceedings before CIT(A), a remand report was called for from AO by CIT(A) and in that remand report the AO as categorically stated that the maintenance services received by the assessee are not in the nature of fees for technical sendees as defined under Article 12 of the treaty v Apph :ng iru: definition of fees for technical services as defined in Explanation 2 to Section 9(1)(vii) of the Act., the learned CIT(A) confirmed the AG's order and held that the assessee's income is to be computed in the manner laid down in Section 44D read with Section 115A of the Act. The CIT(A) hold that even if the income is to be assessed under Article 7 of the treaty, the income shall be computed. The manner laid down in Section 44D of the Act. 50. From the orders of the authorities below for Asstt. Year 1995-96 and 1996-97, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act are more beneficial to the assessee. it is a settled legal position thai whenever there is a conflict between the provisions of the tax treaty and the domestic law, the provisions of the tax treaty will prevail. These tax treaties have a significant place in the scheme of the Indian income tax legislation, inasmuch as these treaties lay down an alternate scheme of taxation, so far as the beneficiaries of the applicable tax treaty are concerned. These alternate paradigms are entirely optional to the assessee because it cannot be thrust upon an assessee and the provisions of the Indian Income-tax Act continue to be applicable to the extent these provi^mfs^ me more favourable to the assessees. Once the assessee chooses to be coveted by the provisions of an applicable tax treaty, it is not open to revenue to thrust the provisions of the Act on the assessee. Revenue, therefore, cannot dispute the taxability in the hands of the assessee being examined on the touchstone of the principles implicit in the scheme of India-Singapore tax treaty. xxxxx xxxxx 18.Let us now deal with the core issue in appeal before us. 19. Section 44D was brought on the statute, w.e.f 1st April 1976 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been... 36.1 . . . income by way of royalty or fees for technical services received by them from Indian concerns in pursuance of approved agreement; made on or after the 1st April, 19/6, wilt now be charged to tax at flat rates applicable on the gross amount of such income. The rates of income-tax to be applied in respect of such income have been specified in new section USA of the Income-tax Act and are as follows ;- (iii) Income by way of fees for technical services received by a foreign company from an Indian concern in-pursuance of an approved agreement made on or after the 1st April, '1976 will be charged to tax at the rate of 40 per cent on the gross amount of such fees." [Emphasis supplied] *' .' The periodic changes in section 44D have been accompanied by the corresponding changes in section 115A. It is thus clear that non deduction of expenses under section 44D, which means that the taxability is on gross basis, is coupled with & special rate of tax for such income on gross basis under section 115A. A somewhat simitar scheme of taxability of royalties and fees for technical service on gross basis, but a tower rate, also finds place in most of the tax treaties includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be subjected to tax under section 44D, read with section USA either. 20. In view of the admitted position that the provisions of the India Singapore tax treaty are applicable on the facts of this case, let us examine, on the touchstone of underlying scheme of things in the said tax treaty, as to what is the nature of receipts in the hands of the assesses and in respect of which profits attributable India PE are to be computed. In the assessment order, there is no finding by the Assessing Officer that the receipts by the assessee could be covered by any of the sub-clauses in article 12(4). To the Assessing Officer, this aspect of the matter did not really seem important because he was of the view, in view of the mandate of article 12(6), that when 'royalty and fees for technical services' arise, in the course of business carried on through a permanent establishment in India, the provisions of article 7 are to be applied for the purpose of computation of profits liable to tax. While there is, and there cannot be, quarrel with this proposition that in a case where royalties and fees for technical services arise in the course of business carried on through the permanent establishment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tible except in certain circumstances indicated in the section. . . ." [Emphasis supplied] Therefore, the heading of a section, in the words of Hon 'bfe Supreme Court, "certainly is a relevant factor to be taken into consideration in construing the ambit of the section f\ The heading of section 44D being "Special Provisions for computing income by way of royalties, etc., in the case pf the foreign companies, this section can come to play only when the income is by way of royalties etc., i.e., by way of royalties and fees for technical services (fees for technical services' is perhaps the only other nature of income belonging to the genus of 'royalties') in the hands of a foreign company. Unless the income is of such a nature so as to fit the description of title of section 44D, there cannot be any occasion to invoke that section. But then, one more important and fundamental aspect is required to be dealt with. This aspect pertains to the conflicting scope of definition of fees for technical services'. Explanation (a) to the section 44D states that (a) fees for technical services' shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9. The q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact constitute 'royalties and fees for technical services' in the light of the principles underlying the scheme of the applicable tax treaty. The deduction under section 44D comes to play only when the income is in the nature of income as royalties and fees for technical services. It would indeed be somewhat inconsistent and certainly unreasonable to, on one hand, hold that the receipts of the assessee are not in the nature of fees for technical services, and then, on the other hand, apply the limitation for deduction of expenses which are applicable only in the case of receipts in the nature of fees for technical services. 22. Hon'ble Supreme Court has, in the case of Azadi Bachao Andolan (supra), observed that the principles adopted in interpretation of treaties are not the same as those in interpretation of statutory legislation" While saying so, Their Lordships quoted, with approval, a passage from the judgment of the Federal Court of Canada in the case of N., Gladden (supra), wherein (he emphasis is on the 'true intentions' rather than 'literal meaning of the words employed'. In the light of the views so expressed by the Hon'ble Supreme Court, if one is to consider the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidiary to the application or enjoyment of the right, property or information for which' a payment described in-paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein; or (c) consist of development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. The nature of assessee's activities being in the nature of 'strategy consulting application of (a) and (c) is clearly ruled out Such services can neither be ancillary and subsidiary to the application or enjoyment of the right, property or information, nor can these services consist of development and transfer of a technical plan or technical design. That leaves us only with sub-clause (b) of article 12 (4). 25. The nature of assessee's activities, as noted in the statement of facts, is being engaged in business of "strategy consulting. There is no dispute that these consultancy services are non technical in nature inasmuch as these services are, as noted in the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical services was made. The provisions of article 12(4)(b) clearly depart from the normal definition of fees for technical services' in DTAAs that India had entered into with most foreign countries which is some what on the lines of definition given in Expln. 2 to section 9(I)(vii) of the IT Act. In the protocol note attached to and forming part of the aforesaid DTAA, Government of India has confirmed that memorandum of understanding between India and USA with regard to interpretation of article 12 (royalties and fees for included services) also represents the views of the Indian Government. This memorandum, inter alia, provides as follows : Under paragraph 4, technical and consultancy services are considered included services only to th e following extent ; (1) as described in paragraph 4(a), if they are ancillary and subsidiary to the application or enjoyment of a right, property or information for which a royalty payment is made; or (2) as described in paragraph 4(b), if they make available technical knowledge, experience, skill, know how, or processes, or consist of the development and transfer of a technical plan or technical design. Thus, under paragraph 4(b), consulta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng contained therein which the person acquiring the services can be enabled to apply. Therefore? so far as provisions of India Singapore tax treaty, as also the provisions of India US tax treaty, are concerned, payments for services which are non technical in nature, or, in other words, payments for services not containing any technology, are required to be treated as outside the scope of fees for technical services. 27. It is noteworthy that the Government of India has confirmed that memorandum of understanding between India and USA with regard to interpretation of article 12 (royalties and fees for included services), and extracts from which have been reproduced by us hereinabove, also represents the views of the ;# Indian Government Therefore, even apart from our categorical findings on merits, these views must prevail. We also have no reasons to believe that Government of India had any other views for materially identical provisions in India-Singapore tax treaty. To the extent provisions are in pari materia, there cannot be different meanings assigned to the provisions, unless there is anything repugnant in the context We find nothing to support any deviation from the interpre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplied for the purpose of deduction of expenses, in computing taxable profits, under article 7(3) of the India Singapore tax treaty. We have already taken note of the position that section 44D, read with section 115A of the Indian Income-tax Act, and article 12 of the India Singapore tax treaty are, similar in nature and offer alternative hut similgr models of taxation of income from royalties and fees from technical services, thai these are two independent, mutually exclusive, and competing sets of provisions, and that once it is clear that these are competing models of taxation of royalties and fees for technical services on gross basis, in the Income-tax Act and in the India Singapore tax treaty, it has to follow that the provisions of the Income-tax Act cannot come to play unless these are more beneficial to the assessee which certainly is not the case here. We have held that in case a receipt is held to be outside the very scope of 'royalties and fees for technical services9 under the provisions of article 12, the same cannot be taxed under section 44D, read with section USA either. For this reason also, section 44D and section 115A cannot have any application in the case befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties. In the case before us, however, not only that it is unchallenged finding of the CIT(A) that the receipts in question do not answer the description of "royalties and fees for technical services', we have, on merits of the case and for the elaborate reasons set out earlier in this order, come to the conclusion that these receipts do not fit the description of the expression 'royalties and fees for technical services' under the applicable India Singapore tax treaty. 33. Thirdly, Hon'ble Authority for Advance Ruling considered only a purely legal interpretation w the provisions of the tax treaty, hut then Hon'ble Supreme Court has subsequently held that this approach is impermissible. Hon'ble Supreme Court, in the case of Azadi Bachao Andotan (supra), has observed that "the principles adopted in interpretation of treaties are not the same as those in interpretation of statutory legislation. While saying so, Their Lordships also quoted, with approval, extracts from the judgment of the Federal Court of Canada in the case of N. Gladden (supra) wherein the emphasis is on the 'true*intentions' rather than 'literal meaning of the words employed'. The views so expressed by Their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho Andolan it is no longer permissible in law to apply the rigid principles of interpretation of statutes on the treaties as well, and in case of such interpretations resulting in absurd results also, not to extend a liberal and extended construction. In Azadi Bachao Andolan's case (supra), Hon'ble Supreme Court has referred to, with approval? Federal Court of Canada's judgment in the case of John N. Gladden (supra) and observed as follows: ". ..The Federal Court emphasized that in interpreting and applying the treaties, the Courts should be prepared to extend 'a liberal and extended interpretation * to avoid an anomaly which a contrary construction would lead to. The Court recognized that 'we cannot expect to find the same nicety or strict definition as in the modern documents, such as deeds, or Acts of Parliament; it has never been the habit of those engaged in diplomacy to use legal accuracy,., " The approach of the Hon 'ble Authority in continuing with strict legal interpretation, despite such an interpretation resulting in patern anomalies, is no longer good law. Accordingly, a conclusion so arrived at is also not legally sustainable, 35. Finally, a co-ordinate bench, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra), the ITAT, Mumbai Bench in the case of JCIT vs Essar Oil Ltd. (2006) 7 SOT 216 (Mum) has taken a view that limitation on deduction for expenses as stated in Section 44D would not apply in a case where income in question, on the test laid down under Explanation 2 to Section 9(l)(vii), could be treated as fees lor technical services within the meaning of Treaty. 53. From the aforesaid decision of coordinate bench of the .i'i A'i -Mumbai Bench in the case of DOT vs Boston Consulting ?. Ltd. (supra)., w 54. is clear that so far as the assesses, which are covered by Double Taxation Avoidance Agreement, the provisions of local Income-tax Act, 1961 will apply only to the extent to which the provisions of Income-tax Act are more beneficial to the asscssee. It is farther held therein that it is a settled legal position that whenever there is a conflict between the provisions of the tax treaty and the domestic law, the provisions of the tax treaty will apply. Thus, it is not open to revenue to thrust the provisions of the income-tax Act on the assessee in case they are no more beneficial to the assessee as against the provisions contained in DTAA. In the said case, it has been f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision of local Act, namely, Explanation 2 to Section 9(l)(vii) ignoring the definition of fees for technical services as given in Treaty. Therefore, the AO's action in applying the provisions of Explanation 2 to clause (vii) of sub section (1) of Section 9 read with Section 44D and Section 115A of the Act is not correct inasmuch as this is no mere beneficial to the assessee as against the provisions contained in the Treaty. We. therefore, hold that in the light of the definition of fees for technical services given in Article 12(4) of the Treaty, the maintenance charges received by the assessee from Department of Science & Technology for maintaining the super computer is not in the nature of fees for technical services, and hence. Section 44D and read with Section 115A is not applicable to the assessee's case. The maintenance charges received by the assessee shall be chargeable to tax as business profits under Article 7, and AO shall compute the profits accordingly. For this limited purpose, we restore the matter back to the file of AO to determine the net profit from maintenance of services as per Article 7 without applying the provisions of Section 44D read with Section 115 A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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