TMI Blog2017 (6) TMI 1174X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee deserves to be dismissed on this ground alone. In our view the information's provided by the assessees were in the nature of expert knowledge and experience acquired by parent company of the assessee company related to industrial and commercial. During the course of argument it was submitted by the ld Senior advocate that the assessee do not own any IPRs in its name and this secrecy clause is a standard form contract to bound the employees. In our view no clause in 'the agreement' can be said to innocuous, reasonable , literal and meaningful interpretation is required to be given to said clause. Our reading of the clause make it abundantly clear that 1) this clause was kept in the agreement to protect secret, confidential and IPRS of the assessee as well as of the parent company 2) the assessee is rendering services as regional Hub for for the benefit of ABB legal entities in India, Middle East and Africa on behalf of its parent company in Zurich and therefore it is duty-bound to protect the interest of parent company as well 3) All the employees of the assessee and ABB Ltd are bound to adhere to the policies of ABB global. Therefore the information provided by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the fees under section 115A of the Act. 2. Holding that where there is no specific Article for taxability of particular payment in the DTAA, the provisions of the Act would be applicable (a) On the facts and in the circumstances of the case, the learned AO erred in law in holding and the learned DRP erred in law in confirming, that where- there is no specific Article for taxability of a particular payment in the DTAA, the provisions of the Act would be applicable. (b) On the facts and in the circumstances of the case, the learned AO erred in law in taxing the fees received by the appellant under section 115A of the Act irrespective of there being no Article in the DTAA for taxation or fees for technical services and the appellant not having permanent Establishment (PB) in India, 3. Levy of interest under section 234B of the Act On the facts and the circumstances of the case, the learned AO has erred in levying interest of INR .37,799 under section 234 B of the Act. 4. Penalty proceedings under section 271(1)(c) The teamed AO has erred in initiating penalty proceedings under section 271 (1)(c) of the Act. 5. Relief (a) The appellant prays that directio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he DTAA for taxation of FTS. 3. Penalty proceedings under section 271(1)(c) The learned AO has erred in initiating penalty proceedings under section 275(:l)(c) of the Act. 4. Relief (a) The appellant prays that directions be given to grant all such relief arising; from the above grounds and also all relief consequential thereto. (b) The appellant craves leave to add to or alter, by deletion, substitution,, modification or otherwise, the above grounds of appeal, cither before or during the hearing of the appeal . (c) Further, the appellant prays that all above adjustments / additions /' disallowances made by the learned AO and upheld by the learned DRP are had in law and liable to be deleted. 4. Brief facts of the case are as follows. 4.1 The assessee is a non-resident company incorporated in United Arab Emirates. It claims to be engaged in the business of providing regional service activities for the benefit of ABB legal entities in India, Middle East and Africa. In pursuance of the regional headquarter service agreement between the assessee company and ABB Limited, the assessee company has rendered services to ABB Limited during F.Y.2009-10 and 2010-11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enacted under Section 90 (which itself is a part of the Act) would override the other provision of the Act with an additional advantage of applying more beneficial provision of the Act, Hence, so far as chargeability to tax and computation of income are concerned, where the tax treaty provides for a particular mode of computation on income, the same should be followed irrespective of the provision in the Act. However, where there is no specific provisions in the treaty, the provision of the Act will govern taxation of income. Thus, if treaty is silent as regard taxability of particular category of income, its taxability has to be ascertained as per domestic law. Case laws taken in support are : 1. CIT v. Hindusthan Paper Corpn. Ltd. [1994] 77 Taxman 450 (Cal). . 2. CIT v. Davy Ashmore India Ltd. [1991] 190 ITR 626 (Cal.) 3. CESC Ltd. v.Dy. CIT [2003] 87 ITD 653 (Kol.) 4. PILCOM v. ITO [2001] 77 ITD 218 (Cal.) 5. A.P. Moller Maersk Agency India (P) Ltd., v. Dy. CIT [2004] 89 ITD 563 (Mum) 6. Micoperi SPA Milano v. Dy. CIT [2002] 82 ITD 369 (Mum) 7. Samsung Heavy Industries Co. Ltd., v. ADIT (International Taxation), [2011] 133 ITD 413 (Delhi) 8. DY. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d income is not chargeable to tax in India, Accordingly, we set aside the orders of the authorities below and delete the addition made by the Assessing Officer. Further In support of this argument, the ld. AR relied on the decision of the coordinate bench of this Tribunal in IBM India (P.) Ltd v. Dy. DIT (International Taxation) [IT (IT) Appeal Nos.489 to 498 (Bang.) of 2013, dated 24-1-2014], for the A.Ys. 2007-08 to 2011-12. In para 6 of the order it was held by the Tribunal as under : 6. In the Ground'at S:'No.2, .-the assessee contends that the payments made .to IBM- Philippines for services rendered cannot be regarded as 'Managerial', 'Technical' or Consultancy' and consequently the said payments do not constitute 'FTS' u/s.9(l)(vii) of the Act. The learned Authorised Representative argued that the said payments to IBM - Philippines are not chargeable to tax under the India - Philippines DTAA. It was submitted by the learned Authorised Representative that since the provisions of the DTAA are more beneficial than the provisions of the Act, no detailed arguments were made in respect of categorisation of the above payments as 'FTS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counterpart in India. I. Under Regional Occupational Health and Safety (OHS) services : 1. Development of regional OHS strategies in line with ABB strategies -The strategies belong to the assessee and is transferred and developed to the requirement of Service Recipient (SR) in India, constitutes Royalty. 2. Provision of information about strategies, goals, targets and instruction in the field of OHS. 3. Coaching and Monitoring the OHS advisors of the SR in implementing and developing OHS plan and strategies. 4. Acting as a contact point between the Group Safety Advisor and the SR. 5. Development and maintenance of OHS management systems 6. Assisting in adopting OHS legislation, 7. Organising and carrying out of personal training within the OHS area 8. Implementation and provision of control programs and safety inspections for activities carried out by the SR. 9. Provision of advice, training and coaching in hazard controls, methods, procedures and processes to eliminate and reduce health and safety incidents. 10. Review of potential weak areas and support to managers of the SR for completion of improvement actions. 11. Provision of informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of achievements. Etc.. .etc. VI. Under Regional Project Risk Management Services : 1. Supply of information of best practices, lessons learnt, benchmarking information and internal audit reports. Etc... VII. Under Regional market development services ; 1. Monitoring of the implementation of the IMA Region strategic initiatives, including quarterly reviews, and support work.. 2. Organizing and carrying out business development workshops 3. Developing business plans for and provide implementation support. 4. Preparation of weekly market updates for regional management team 5. Support with market, customer and competitor analysis. Etc.. (iv) On the basis of above terms of agreement Id DR submitted that it is evident from the above that ABB FZ LLC has reeeived payment from ABB Limited as a consideration of providing of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill and has rendered services in connection with such activities and would essentially constitute a know-how contract and therefore, the payments received by ABB FZ LLC are covered by Explanation 2(ii), 2(iv) and 2(vi) to section 9(l)(vi) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... information, . Such information partakes the character of IPR which is to remain with the assessee. It is thus evident 'that clause 9 of 'the agreement also supports the contention of the AO that there was a consideration paid for transfer of rights of information which included IPR. (ix) Thus, it is concluded that the terms and conditions of the agreement show.- a stipulation on transfer of industrial, scientific, commercial experience by the assessee for a payment which is therefore to be characterized as royalty. (x) It was submitted that assessee has shared information concerning industrial, commercial or scientific experience which is in the nature of know-how which is undivulged and arising from previous experience. Case laws wherein it has been held that know-how could be imparted through : (a) Documentation (ITO v Munak Galva Sheets Ltd. [1990] 35 ITD 304 (Delhi). (b) Discussion of technical problems in working committee set up by the licensee of the know-how (Daimler Benz AG West Germany's case (supra) . (c) Licensee's representative participating in discussion held by supplier (ITO v. Hindustan Latex Ltd. [1992] 42 ITD 325 (Cochin) (d) Te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and also in terms of Article 4 of DTAA. 9. The assessee in compliance of the direction of the bench had filled the certificate issue by UAE authorities and also filled further submission dated 18.05.2017. 10. The revenue had also filled the written submissions in response to submissions of assessee to the following effect: 4. One more important aspect which needs to be considered now is - the assessee has filed 'Tax Residency Certificate' issued by the UAE authorities on 27.10.2014, It is also clearly mentioned in the certificate that the certificate is valid for one year from 01.04.2012. This certificate is clearly not applicable to the case on hand for the subject assessment years for the reason that the assessee filed, its returns of income for A, Ys.2010-11 and 2011-12 on 09.09.2010 and 27.07.2011 respectively and it is very clear that the assessee was not eligible to claim the benefit of DTAA for the abovesaid assessment years. 5. Mere tax residency certificate also is not enough because, as per definition of 'residence company' under DTAA, the appellant is not getting covered. What is relevant^ is whether the appellant is having control and manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf. Explanation 1,- For the removal of doubts, it is hereby declared that the charge of tax in respect of a foreign company at a rate higher than the rate at which a domestic company is chargeable, shall not be regarded as less favourable charge or levy of tax in respect of such foreign company. Explanation 2,- For the purposes of this section, specified territory means any area outside India which may be notified as such by the Central Government. 13. Section 9 of the Act deals with income deemed to accrue or arise in India, which reads as under: 9. (1) The following incomes shall be deemed to accrue or arise in India:- (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of Income in India, or through the transfer of a capital asset situate in India. Section 9(1)00 of the Act reads as under: (vi) income by way o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty; (iii) the use of any patent, invention, model, design, secret formula or process or trademark or similar property; (iv) the imparting of any information concerning technical, industrial commercial or scientific knowledge experience or skill; [(iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB,] (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or videotapes for use in connection with- television or tapes for use in connection with radio broadcasting,-'but not including 'consideration for the sale, distribution or exhibition of cinematographic films; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to [(iv), (iva) and] (v). (vii) income by way of fees for technical services payable by- (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for. the purposes of mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declared that income which has been included in the total income of a person on the basis that it has accrued10- or arisen10-- or is deemed to have accrued10 or arisen10- to him shall not again be so included on the basis that it is received or deemed to be received by him in India. 16. The Articles dealing with resident, permanent establishment, business profit, royalty . any other income , residual clause etc (DTAA Articles 1,3, 4, 5, 7, 12, 22, 25 29 ) in DTAA agreements entered into with foreign country namely UAE reads as under ARTICLE 1 PERSONAL SCOPE This Agreement shall apply to persons who are residents of one or both of the Contracting States. ARTICLE 3 GENERA'L DEFINITIONS 1. In this Agreement, unless the context otherwise requires : (a) the term India means the territory of India and includes the territorial sea and air space above it. as well as any other maritime zone in which India has sovereign rights, other rights and jurisdictions, according to the Indian law and in accordance with international law ; (b) the term U.A.E, means the United Arab Emirates and when used in a geographical sense, means all the territory of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horised representative. 2. As regards the application of the Agreement by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under the laws of that State concerning the taxes to which the Agreement applies. ARTICLE 4 RESIDENT 1. For the purposes of this Agreement the term 'resident of a Contracting State' means: (a) in the case of India: any person who, under the laws of India, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. This term, however, does not include any person who is liable to tax in India in respect only of income from sources in India; and (b) in the case of the United Arab Emirates: an individual who is present in the UAE for a period or periods totalling in the aggregate at least 183 days in the calendar year concerned, and a company which is incorporated in the UAE and which is managed and. controlled wholly in UAE. 2. For the purposes of paragraph 1: (a) The Republic of India, its political sub-divisions or local authority thereof shal1 be deemed to be resident of the Republic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The term permanent establishment includes especially : (a) a place of management; (b) a branch ; (c) an office ; (d) a factory ; (e) a workshop; (f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources; (g) a farm or plantation ; (h) a building site or construction or assembly project or supervisory activities in connection therewith, but only where such site, project or activity continues for a period of more than 9 months ; (i) the furnishing of services including consultancy services by an enterprise of a Contracting State through employees or other personnel in the other Contracting State, provided that 'such activities continue for. the same project or connected project for a period or periods aggregating more than 9 months within any twelve-month period. 3. Notwithstanding the preceding provisions of this Article, the term permanent establishment shall be deemed not to include : (a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise ; (b) the maintenance of a stock of goods or merchandise belonging to the enterprise s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment. 3. In determining the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere, in accordance with the provisions of and subject to the limitations of the tax laws of that State.) 4. Insofar as it has been, customary in a Contracting State to determine the profits'to be attributed to a permanent establishment on the basis of an apportionment of the' total profits of the enterprise to its various parts/nothing in paragraph (2) shall preclude that Contracting State from, determining the profits to be taxed by such an apportionment as may be customary ; the methods of apportionment adopted shall, however, be such that the result shall be in accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Royalties 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, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties was incurred, and such royalties are borne by such permanent establishment or fixed base, then such royalties shall be deemed to arise in the Contracting 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, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia, the U.A.E, shall allow as a deduction from the tax on income of that person an amount equal to the tax on income paid in India. Such deduction shall not however, exceed that part of income-tax as computed before the deduction is given, which is attributable to the income which may be taxed in the U.A.E. 4. For the purpose of paragraph (3), the term 'tax paid in India' shall be deemed to include the amount of Indian tax which would have been paid if the Indian tax had not been exempted or reduced in accordance with the special incentive measures under the provisions of the Income-tax Act, 1961, which are designed to promote economic development in India, effective on the date of signature of (his Agreement, or which may be introduced in the future in modification of, or in addition to, the existing provisions for promoting economic development in India, and such other incentive measures which may be agreed upon from time to rime by the Contracting States. 5. Where, in accordance with any provision of the Agreement, income derived or capital owned by a resident of a Contracting State is exempt from tax in that State, such State may, nevertheless, in calculating the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the assessee has been assessable under the IT Act of India as well as under the Income-tax Act of the other country. (ii) The assessee for the purposes of availing the benefit of the said agreement is required to furnish a certificate of the assessee being a resident of the other country. (iii) The assessees would have the benefit of IT Act in India as well as of the DTAA and the provision of whichever is more beneficial to the assessee out of the two shall be applicable to the assessee. 20. In the present case, though it is the case of the assessee that the assessee is a company incorporated in UAE, but the certificate has not been furnished by the assessee before the authorities below saying that the assessee is a resident of UAE. In our view, though assessee is a company, but for the purpose of qualifying for the benefit under DTAA in term of Article 1 and Article 4 of DTAA, it is necessary assessee company is managed and controlled wholly, in UAE. In the absence of any such finding by the authorities below and also in the absence of evidence produced by the assessee, it is difficult to give the benefit of DTAA to the assessee. In our view, it is for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the IT Act and under the IT Act of the other country. Actually levy of such double taxation may be avoided by an agreement entered into in exercise of powers conferred on Central Government under clause (b) of Section 90(1) of the Act. Thus the agreement entered between the Central Government and a foreign government can only be in respect of tax leviable under law in force in that country of the same income which is subjected to tax in India. If the income is not subjected to tax in India, then the Central Government is not authorised to enter into an agreement with a foreign country for the purpose of avoiding double taxation. Therefore, in our view, taxation of income is sine qua non in both the contracting and other contracting state. In the present case, the assessee has not filed any document to show that the income arising out of the services rendered by the. assessee are taxable in UAE. 25. Though the appeal of assessee is liable to be dismissed on the ground of assessee was not resident of UAE , however we deem it appropriate to deal with all the grounds raised before us in both the appeals in the following paragraphs collectively as these are interrelated. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of adjudication whether the. assessee is rendering FTS or not would not be required . 32. The DTAA for avoidance of double taxation of prevention of fiscal evasion with foreign countries was entered into between the Government of UAE and Government of Republic of India on 22.09.1993. Article 1 of the agreement gives the personal scope of the agreement. Article 2 gives the taxes covered. Article 3 gives the general definitions. Article 4 defines 'Resident'. Article 5 defines 'Permanent Establishment'. Articles 6 to 21, it provides for the income arising to the resident .from immovable property, business profits, shipping. AE, dividends, interest, royalties, capital gains, independent person services, dependent personal services, director fees, income earned by entertainers and athletes, remuneration and pensions in respect of government service, non-government persons and annuities, students, trainees and apprentices, professors, teachers and researchers, etc., Thus approximately all facets of income are covered in Articles 6 to 21 of the DTAA. However, in Article 22, which is in the form of residual article, it is mentioned that, income of the Resident of a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee that the assessee is not taxable in India in view of the DTAA Treaty between India and UAE, there is no clause for FTS and since the clause has been specifically executed for the treaty, therefore, it would fall in Article 22 (other income). It was further submitted that as the assessee is not having a Permanent Establishment in India, therefore, the sum received by the assessee is not to be taxed in India. 35. Vide letter dt. 17.05.2012, the assessee was asked to explain the nature of services rendered along with evidence, such as documents, e-mails, reports and copy of invoices, as proof of having rendered the sevices. In response thereto the assessee vide letter dt. 14.06.2012 filed a letter along with Annexures 1 and 2, named 'Regional Headquarter Services Agreement' and Simple agreement' document relating to entity in India in connection with rendering of services'. The response given by the assessee vide, letter dt. 14.06.2012, is reproduced hereinbelow, for the sake of clarity : We refer to the captioned notice issued by your office for the assessment proceedings of the Company for A.Y 2010-11 and the subsequent discussion our authorised repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Name and designation No. of days of Stay in India Place of stay 1. Rajiv Malhotra-Regional Project Risk Manager 3 Bangalore 2. Gary Foote-Regional OHS Manager 6 Bangalore and Vadodara 3. Roman Schafer-Regional Market Development Manager 16 Bangalore 5. Question 5: Furnish sample copies of the invoices raised by the recipeint The invoice copy is enclosed as Annexure 3. In the event that you require any further explanations/clarifications, kindly provide us with an opportunity to present our case and make submissions. 36. The various services to be rendered as per the Regional Headquarter Service agreement, were mentioned in the said agreement and some of the services are reproduced hereinabove while recording the submissions of ld DR. 37. In the reply dt. 14.06.2012, it was mentioned that only three employees were sent to India for 25 days and AO had asked the assessee as to which branch of ABB Ltd the services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial year 2009-10. Services provided by ABB FZ LLC to ABB Limited Within the ABB Group, ABB FZ LLC is a Regional Headquarter company for the Region India, Middle last Africa (IMA). The company hosts the IMA Regional Managers and Group functions with various specialties, who have the responsibility to manage, guide and coordinate all ABB companies in the IMA Region. Already during the first contractual and short service .period of January to March 2010 (the Service Agreement is valid for calendar year and is automatically renewed front year to year), this Group Function in ABB FZ LLC was involved is various supportive communication via e-mail, telephone calls and telephone conferences with ABB Ltd. The below mentioned Group Functions in ABB FZ LLC were providing services in 2010,, under the Regional Headquarter Agreement, to amongst otters ABB Ltd, India. 1 Regional Occupational Health and Safety (OHS) services Below services were provided either during visits, to ABB Ltd, India or, mainly, from outside India: Monthly OHS audits in India and follow-up through telephone conferences, visits and videoconferences Implementation of OHS strategies on an IMA Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were developed together with the focal management team, and Sub-Regional Manager, services were provided during 'meetings' in both countries with local ABB staff as well as customers. Creation of a weekly update on changes in the ABB markets. The updates have been published on inside abb web page. Support to the Country Management team of India to develop a plan for ABB Ltd, India on how to become more competitive. In the event that you require my further explanations/ clarifications, kindly provide as with an opportunity to present out case and makes submissions. 39. In the notice dt.27.06.2012, the AO asked the assessee to reply to various issues including the following : 1. Perusal of the agreement: of ABB PX-U.O ( assessee company ) with ABB-Ltd shows that the following services are being provided with a markup cost; (a) Regional OHS services (b) Regional Security Services (c) Regional Business Development Services (d) Regional Group Account Management-(GAM) Services (e) Regional EPC services (f) Regional Project Risk Management Services (f) Regional Market Development Services 2. Vide letter dated 17.5/20.12 the assesses compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights, or the provision of services of any kind, [or in carrying out any work, in pursuance of a contract,] or in investment, or providing loan or in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of any other body corporate, whether such activity or business is carried on. directly or through one or more of its units or divisions or subsidiaries, or whether such unit or division or subsidiary is located at the same place where the enterprise is located or at: a different place or places; (iiia) permanent establishment , referred to in clause (iii), includes a fixed place of business through which the business of the enterprise is wholly or partly carried on;] 42. The DRP in Para 11, after extensively quoting the judgment of Authority For Advance Rulings (Income Tax) in Golf In Dubai, In re [2008] 174 Taxman 480 recorded as under: Hence, it cannot be ruled out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the objection raised by the ld. Senior Advocate. 46. If we examine the Article 5 of DTAA, then it is clear that the requirement of Article 5(1) of the treaty, namely, that there should be a fixed place of business and secondly, the business of the enterprise should he carried on wholly or partly through that place. The fixed place of business is necessary for a PE under Article 5(1) of the DTAA. But if we look into the Article 5(2), which is an inclusive provision , it includes various activities enumerated in clauses (a) to (1). Nature of places are specified in clauses (a) to (h), whereas in clause (i) of Article 5(2), reads as under : (i) the furnishing of services including consultancy services by an enterprise of a Contracting State through employees or other personnel in the other Contracting State, provided that such activities continue for the same project or connected project for a period or periods aggregating more than 9 months within'any twelve-month period. 47. Paragraph 3 of Article 5 specifies provides the circumstances in which the PE shall not include various activities. Paragraphs 4 and 5 are complementary and mentions of a person or agent of an. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to draw support for our reasoning. In Ramala Sahkari Chini Mills Ltd v. CCE [2010] 13 SCR 1152: 13. At this, juncture, it would be expedient to refer to the observations in The State of Bombay .v. The Hospital Mazdoor Sabha AIR 1960 SC 610, wherein a three judge Bench of this Court has held that: 10. There is another point which cannot be ignored. Section 2(j) does not define industry in the usual manner by prescribing what it means; the first clause of the definition gives the statutory meaning of industry and the second clause deliberately refers to several other items of industry and brings them in the definition in an inclusive way. It is obvious that the words used in an inclusive definition denote extension and cannot be treated as restricted in any sense. (Vide: Stroud's Judicial Dictionary , Vol 2, p. 1415). Where we are dealing with an inclusive definition, it would be inappropriate to put a restrictive interpretation upon terms of wider denotation, 14. Similarly, in Regional Director, Employees' State Insurance Corporation v. High Land Coffee Works of P.P.X. Saldanha and Sons (1991) 3 SCC 617, another three judge Bench of this Court had observed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inition of 'person' since the object of the Act, 1986 is to provide an affordable remedy to individuals or four categories of collectivities or associations of individuals which may constitute legal, entities for suing or being sued. According to learned counsel, the companies incorporated were never intended to be covered by Act, 1986 as they could always pursue the ordinary remedy provided in law. The learned counsel also submitted that the word includes must be read as means . In this regard, the learned counsel placed reliance upon two decisions of this Court namely; (1) The South Gujarat Roofing Tiles Manufacturers Association v. The State of Gujarat ((1976) 4 SCC 601) (2) Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. ((1987) 1 SCC 424)) 12. Lord Watson in Dilworth v. Commissioner of Stamps (1899) AC 99 made the following classic statement: The word include is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used these words or phrases must be construed as comprehending, not only such things as they signify according to their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r association or body of individuals whether incorporated or not. 17. Section 3 of the Act, 1986 upon which reliance is placed by learned counsel for KPTC provides that the provisions of the Act are in addition to and not in derogation of any other law for the time being in force. This provision instead of helping the contention of KPTC would rather suggest that the access to the remedy provided to the Act of 1986 is an addition to the provisions of any other law for the time being in force. It does not in any way give any clue to restrict the definition of the 'person1'. 18. Section 2(l)(m), is beyond all questions, an interpretation clause, and must have been intended by the Legislature to be taken into account in construing the expression 'person' as it occurs in Section 2(1)(d). While defining 'person' in Section 2(1) (m), the Legislature never intended to exclude a juristic person like company. As a matter of fact, the four categories by way of enumeration mentioned therein is indicative, categories (i), (ii) and (iv) being unincorporate and category (iii) corporate, of its intention to include body corporate as well as body unincorporate. The de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or other personnel for a period of nine months within any 12 months period. We also draw strength from the law laid down by Hon'ble Supreme Court in the case of CIT v. Calcutta Knitwears [2014] 362 ITR 673 held- '34. Thus, the language of a taxing statute should ordinarily be read understood in the sense in which it is harmonious with the object of the statute to effectuate the legislative animation. A taxing statute should be strictly construed; common sense approach, equity, logic, ethics and morality have no role to play. Nothing is to be read in, nothing is to be implied; one can only look, fairly at the language used and nothing more and nothing less, (J. Srinivasa Rao v. Govt, of A.P. 2006(13) SCALE 27, Raja Jagdambika Pratap Narain Singh v. CBDT [1975] 100 TTR 698 (SC) 35. It is also trite that while interpreting a machinery provision, the courts would interpret a provision in such a way that it would give meaning to the charging provisions and that the machinery provisions are liberally construed by the courts. In Mahim Patram (P.) Ltd. v. Union of India [2007] 3 SC'C 668 this Court has observed that: 20. A taxing statute indisputably is to be strict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he court while interpreting the machinery provisions of a taxing statute to give effect to its manifest purpose. Wherever the intention to impose liability is clear, the Courts ought not be hesitant in espousing a commonsense interpretation to the machinery provisions so that the charge does not fail. The machinery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and not defeat the same (Whitney v. Commissioners of Inland Revenue 1926 A C 37, CIT v. Mahaliram Ramjidas [1940] 8 ITR 442 (PC), Indian United Mills Ltd. v. CIT [1955] 27 ITR 20 SC}. and Gursahai Saigal v. CIT [1963] 48 ITR 1 (SC) and CWT v. Sharvan Kumar Swamp Sons [1994] 6 SCC 623; CIT v. National Taj Traders [1980] 121 ITR 535 (SC); Associated Cement Co.. Ltd. v. CTO [1981] 48 STC 466 (SC). Francis Bennion in Bennion on Statutory Interpretation, 5th Ed., Lexis Nexis in support of the aforesaid proposition put forth as an illustration that since charge made by the legislator in procedural provisions is excepted to be for the general benefit of litigants and others, it is presumed that it applies to pending as well as future proceedings.' 57. Thus respectfully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up and marinating a Project Development Board in UAE. (vii) Development of a group business in Waste Heat to Power. (viii) Development of a working example of joint value proposition with IBM. (ix) Monitoring and assistance to Strategic Account Managers of the service recipient with respect to the yearly account plans, ensuring alignment with the Business Unit. (x) Setting up of sales targets, thereby utilising local business unit opportunities which sustain and to ensure mutual alignment with business unit goals. (xi) Ensurement that the customer feedbacks are available to the service recipient through surveys and other customer satisfaction tools. (xii) Guidance and development of strategic Account Manager team to move from a product sales view to an account management view and to understand and effectively operate and navigate within each organisation etc., 59. 'The agreement gives ' opportunity to ABB Ltd. of using the information pertaining to industrial / commercial / scientific experience belonging to Assessee, Can on the basis of material available on record it can be concluded that the assessee had rendered the services mentioned in the agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In our view the judgment relied by the assessee in matter of TNT Express Worldwide (UK) Ltd. (supra), support the case of revenue is clear from the following paras 18 and 19 : 18. In the case in hand, it is not the case of Revenue that the payment received by the assessee is a consideration for use or right to use for any copyright, patent, trademark, design, etc. Even otherwise, from the description of services as provided in Scheduie-2 of the agreement, it was not. for use or right to use any copyright patent, trademark, design or model, plan, secret formula or process. Thus, the case of assessee has to be examined in the context of the last part of the definition to say a consideration for use or right to use for information, concerning industrial, commercial or scientific experience. To bring the case in the definition of royalty, imparting of experience, information by the assessee to TNT India is necessary. The AO has also observed in the assessment order that it is possible to suggest that some information being provide liked sales support, Liaisoning with professional advisors, lobbying activities and coordination with trade associations may not be in the nature of supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther of managerial, technical or consultancy nature or industrial, commercial or scientific experience. Once the consideration/fees received do not fall within the expression royalty the action of the respondents in refusing the certificate under s. 195 of the IT Act was clearly without jurisdiction and consequently the impugned orders are set aside with a further direction to the respondent No. 2 to issue the certificate as applied for by the petitioners.' 19. It is not the nomenclature of the agreement, but the substance and contents and terms and conditions of the agreement which are material to ascertain the real intention of the parties and the nature of mutual obligations of the parties, As it is manifest from the list of services as provided under Sehedule-2 that some of the services are clearly for new process information including specification and application, evaluation of new opportunities, management information and other automatic system services, which may be the assessee's own expertise and experience and acquired during due course of time. Therefore, these services prima facie appear to be in existence and being provided in the form of information, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 64. In our view no clause in' the agreement 'can be said to innocuous, reasonable , literal and meaningful interpretation is required to be given to said clause. Our reading of the clause make it abundantly clear that 1) this clause was kept in the agreement to protect secret, confidential and IPRS of the assessee as well as of the parent company 2) the assessee is rendering services as regional Hub for for the benefit of ABB legal entities in India, Middle East and Africa on behalf of its parent company in Zurich and therefore it is duty-bound to protect the interest of parent company as well 3) All the employees of the assessee and ABB Ltd are bound to adhere to the policies of ABB global. 65. Therefore the information provided by the assessee to ABB Ltd were in the nature of know-how contract, given by assessee to ABB Ltd, so that such know-how can used ABB Ltd, for its commercial and industrial purposes and further this special knowledge and experience would remain unrevealed to the public. These information were not already existing and were supplied by the assessee after its development or creation to ABB Ltd and there also exist specific provisions concerning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hape of diamond grading report and was covered by definition of 'royalty' within meaning of explanation 2(iv) to Section 9(l)(vi) and article 12 of DTAA between India and Singapore. The Hon'ble Court of Bombay held the action of Deputy Director in refusing certificate to be without jurisdiction. 68. As can be seen from the above, the issue involved is grading of diamonds and there is no similarity to the present case on hand, which deals with various services which tantamount to 'Royalty' and are clearly distinguishable. Also, there is no information or know-how passed on in the above case w.r.t. grading of diamonds and issuance of certificate. GIA may be having experience of grading but it does not impart the said experience to the client. What the client receives is the report where the GIA uses its commercial or technical knowledge to give a report to the client, in view of this, there is no parting or rendering of technical services either of managerial, technical or consultancy nature or industrial, commercial or scientific experience in this case. In the said judgment in para 9 it was held as under: 9. The question that remains to be answered is whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lties as used in this article means payments of any kind received as a consideration for the alienation or the use of or the right to use, any copyright of literary, artistic or scientific work {including cinematograph films, phonographic records and films or tapes for radio or television, broadcasting), any patent, trademark, design or model, plan, secret formula or process, or for the use of or the right to use industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.' In paragraph 9 of the order, the concept of know-how w.r.t. royalty was reproduced from the Philips baker book to the following effect is discussed as follows : 11. In classifying as royalties payments received as consideration for information concerning industrial, commercial or scientific experience, paragraph 2 alludes to the. concept of know-how . Various specialist bodies and authors have formulated definitions of know-how which do not differ intrinsically. One such definition, given by the Association des Bureaux pour la Protection de lal Propriete Industrielle (ANBPPI) states that know-how is all the undivulged technical inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... salaries and wages for employees engaged in researching, designing, testing, drawing and other associated-activities or payments to sub-contractors for the performance of similar services. 11.4 Examples of payments which should therefore not he. considered to he received as consideration for the provision of know-how but, rather, for the provision of services, include: - payments obtained as consideration for after -sales service - payments for services rendered by a seller to the purchaser under a guarantee, payments for pure technical assistance, - payments for an opinion given by an engineer, an advocate or an accountant, and - payments for advice provided electronically, for electronic communications with technicians or for accessing, through computer networks, a trouble-shooting database such as a database that provides users of software with non-confidential information in response to frequently asked questions or common problems that arise frequently, (emphasis supplied}' 71. In the DTAA with UAE, in Article - 12, clause (3), the term royalty has been differently defined than what it was defined in the treaty under consideration Thailand ) in Gef Asia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the instant case on hand. (iv) In the present case the assessee is providing the information and is permitting the Indian company to use this information. This is so admitted by the assessee in its reply to AO. The AO had summarised it as under : (i) Regional Project Risk Management Services : supply of information of best practices, benchmarking information and internal audit report. (ii) Regional market development services : Creation of a weekly update on changes in the ABB markets, support to the country management team of India to develop a plan for ABB Ltd., India on how to become more competitive. (iii) Regional Occupational Health and Safety (OHS) services : Provision of information about strategies, goals, targets and instructions in the field of OHS, OHS audit, implementation of OHS strategies, coaching and monitoring OHS advisors in implementing and developing OHS plans and strategies. (iv) Regional Security services : collection analysis and delivery of security intelligence information, basic and advance training in crisis management. 74. One more case relied upon by the assessee is on that of the decision of ITAT, Ahmedabad I Bench, in ITA No.203/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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