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TMI Blog2018 (6) TMI 1278X X X X Extracts X X X X X X X X Extracts X X X X ..... tion below section 9(2) with retrospective effect. Learned Addl. CIT(DR) points out that the Revenue has also filed additional grounds that the lower appellate authority has erred by giving relief to the assessee on the basis of the 'Most Favoured Nation' clause in the protocol between India and Sweden in light of the corresponding article in Indo - Portugese Double Taxation Avoidance Agreement in absence of any separate notification issued by the Government of India as required u/s 90(1) of the Income Tax Act, 1961 alike in case of other Most Favoured National countries i.e. Belgium and France. The Revenue's next ground is that income of the recipient assessee has been wrongly held to be not taxable in absence of its permanent establishment in India since it is taxable u/s 9 (2)(vii) Explanation 2 as well as Article 12 of India Sweden Double Taxation Avoidance Agreement. All these substantive grounds are vehemently reiterated during the course of hearing. Learned Addl. CIT (DR) reminds us time and again that the relevant benefits of India Portugal Double Taxation Avoidance Agreement do not apply suo moto in absence of any corresponding notification issued by the Government of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax treaty read with the protocol clause therein. None of these submissions, however, impressed the CITCA). The assessee is not satisfied and is in appeal before us. 4. We have heard the rival contentions, perused the material on record and duly considered factual m at r ix of the case as also the applicable legal position. 5. We have noted that while CIT(A) has elaborately reproduced the submissions of the assessee so far the taxability of the income embedded in payment to the Swedish company, under the provisions of India Swedish DTAA, is concerned, he has not at all dealt with the same. It is only elementary that the provisions of the Income Tax Act, 1961 can come into play in respect of assessee, who is covered by the provisions of a duly notified double taxation avoidance agreement, only to the extent the same are beneficial 0 the assessee. In other words, therefore, as long as an income is not taxable under the provisions of the applicable tax treaty, it cannot be taxable under the provisions of the Income Tax Act either. The CIT(A) has simply not examined the taxability under the provisions of the applicable tax treaty. Therefore, his conclusion that the payment to Swedis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as contention regarding non- taxability under domestic tax laws is concerned, I find that the Ld. CIT(A)-VIII, Kolkata has already given a finding in his order dated 17.02.2012, that the amount was to be deemed to have accrued/arisen in India. In its order, Hon'ble ITAT has not reversed this finding. It is true, that it has set aside the order of CIT(A), but that is for the reason that the applicability of the provisions of DTAA were not examined by the CIT(A). While setting aside the order, it has been clearly mentioned by the IT AT that a fresh adjudication on merit was to be made in the light of the observations of the Income tax on the issue of taxability under DTAA provisions. In other words, the only issue to be examined at this stage is as to whether the payment is taxable under the provisions of Indo Swedish DTAA. 8. On going through DTAA signed by India with Sweden, it is seen that taxability of fee for technical services has been dealt with in Article 12 thereof. Furtherer, there is a Protocol at the end of DTAA which states, that:- . " In respect of Article-10 (Dividends), 11 (Interest) and 12 (Royalties and fees for technical services)if under any convention, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her state. It is undisputed that Triginta is a resident of Sweden without having any permanent establishment in India. As per provisions of Section 90(2) of Income Tax Act, where the Central Government has entered into an agreement for avoidance of double taxation with another country, then in relation to such assessee to whom such agreement applies, the provisions of Income tax Act shall apply to the extent of their being more beneficial to the assessee. In other words, provisions of I.T. Act or those of DT AA, whichever are more beneficial to the assessee, shall apply. It has been discussed - earlier that the payment under consideration was, under the provisions of Indo Swedish DT AA, not taxable in India. Therefore, irrespective of its taxability under domestic tax laws, the same cannot be brought to tax in India. As the logical consequence, appellant was not required to deduct tax at source on such payment and provisions of section 40(a)(i) are also not attracted. Disallowance u/s 40(a)(i) is, therefore, deleted." This is what leaves the Revenue aggrieved. 5. We have given our thoughtful consideration to the rival submissions. It emerges first of all that the India-Sweden Dou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A override the provisions of the Act, to the extent these agreements are more favourable to the assessee. In our considered view, therefore only in the event of assessee's case failing on the provisions of the DTAA, the question of examining provisions under the IT Act arises. We may, in this regard, quote the following observations made by the Hon'ble jurisdictional High Court in the case of CIT v. Davy Ashmore India Ltd. (1991) 190 ITR 626 (Cal) : "..... The conclusion is inescapable that, in case of inconsistency between the terms of Agreement and the taxation statute, the agreement alone would prevail. The CBDT has issued a Circular No. 333, dt. 2nd April, 1982 [(1982) 137 ITR (St) 1], on the question as to what the AOs will do when they find that the provisions of the DTAA are not in conformity with the provisions of the IT Act, 1961. Then it was laid down by the Board in the said circular as followed : 'The correct legal position is that where a specific provision is made in the DTAA, that provision will prevail over the general provisions contained in the IT Act, 1961. In fact the DTAA which have been entered into by the Central Government under Section 90 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in other articles of this convention, then the provisions of those articles shall not be affected by the provisions of this article. Article 13(1) of the DTAA, separately dealing with fees for technical services, further provides that fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may also be taxed in that other Contracting State according to the laws of that Contracting State, though, if the recipient is the beneficial owner of these categories of income the tax so charged shall not exceed 20 per cent of the gross amount of such fees for technical services. Accordingly, in our considered view, so far as the present cases of fees for technical services are concerned, the provisions of Article 7 are not at all relevant. But then the question arises as to what is that connotation and scope of the expression 'fees for technical services'. 7. Art. 13(4) of the aforementioned DTAA defines the term "fees for technical services" as used in this article, to mean 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered into with any OECD member after 1st Sept., 1989. In this context, it has been pointed out to us that, after the cut off date of 1st Sept., 1989 referred to in para 7 of protocol attached to and forming part of Indo-French DTAA, India has signed DTAAs with at least three OECD member countries which have narrower scope of the expression 'fees for technical services'. In all these DTAAs, fees for technical services does not include the fees received for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of a property. These agreements are as follows : Name of country Signing date of DTAA Relevant article Citation United Kingdom 25th Jan., 1993 Art. 13(5)(a) (1994) 206 ITR (St) 235 United States of America 12th Sept., 1989 Art. 12(5)(a) (1991) 187ITR (St) 102 Switzerland 2nd Nov., 1994 Art. 12(5)(a) (1995) 214 ITR (St) 223 10. In India-United Kingdom DTAA [(1994) 206ITR (St) 235], Article 13(4) and 13(5) provides as follows : "Article 13(4) For the purposes of para 2 of this article, and subject to para 5 of this article the term "fees for technical services" means payments of any kind to any person in considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation or enjoyment of the right, property or information for which a payment described in para (3) is received; or (b) make technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Article 12(5) Notwithstanding para (4), "fees for included services" does not include amounts paid : (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in para (1)(a);* (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic; (c) for teaching in or by education institutions; (d) for services for the personal use of the individual or individuals making the payment; or (e) to an employee of the person making the payments or to any individual or firm of individuals (other than a company) for professional services as defined in Article 15 (Independent Personal Services). [*Art. 12(3)(a) refers to payments of any kind received as a consideration for the use of, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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;]" 13. One immediately discernible common factor in Indian DTAAs with UK, USA and Switzerland is that in all these treaties 'fees for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property' is outside the scope of 'fees for technical services' liable to separate treatment under the respective DTAA. In other words, in all these treaties, unless the 'fees for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property' is attributable to PE and fulfils the other requirements laid down under the relevant article dealing with business profits, the same cannot be taxed in the source country. The scope of expression 'fees for technical services', in these treaties, appear to be for more restricted than the scope of the same expression in Indo-French DTAA which broadly defines fees for tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the Convention between India and the United States of America which entered into force on the 18th Dec., 1990, which states are members of the Organisation for Economic Cooperation and Development, the Government of India has limited the taxation at source on dividends, royalties, fees for technical services and payments for the use of equipments to a rate lower or a scope more restricted than that provided in the Convention between India and France on the said items of income; Now, therefore, in exercise of the powers conferred under Section 90 of the IT 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 between India and France, namely;..... IV. With effect from the 1st April, 1995, for the existing para 2 of Article 13 relating to 'Royalties and fees for technical services and payments for the use of equipment', the following paragraph shall be read : "2. However, such royalties, fees and payments may also be taxed in the Contracting State in which they arise and according to the laws of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to unilaterally amend a tax treaty and therefore a notification amending, in its own right the tax treaty is unsustainable in law. It has been submitted that the present amendment to the India-France DTAA by way of notification dt. 10th July, 2000, is a result of over anxiety of the Central Government to give effect to relevant paragraph of the protocol to the India-France DTAA and the same does not or not undermine the clear and ambiguous provisions of the India-France DTAA. According to the learned counsel, the above notification is clearly redundant and, in any event, does not whittle down or override the benefits which are otherwise envisaged in para 7 of the protocol to the Indo-French DTAA. As an alternate submission, and without prejudice to the above line of argument, reliance was placed on the order passed by a coordinate Bench of this Tribunal in the case Tata Iron & Steel Co. Ltd. v. Dy. CIT (1998) 62 TTJ (Mumbai) 17 : (1999) 69 ITD 292 (Mumbai) in support of the proposition that executive authority of the Government cannot, by way of a notification, lay down provisions having retrospective effect. It is submitted that by way of notification dt. 20th July, 2000, no am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in question was issued on 20th July, 2000, whereas the relevant previous year before us is the year ended 31st March, 1996, the aforesaid notification, in our considered view, does not affect the issue in appeal before us. We, therefore, see no need to address ourselves to the broader questions about legality of the aforesaid notification or to deal with other similar contentions raised by the assessee. In any event, in our considered view, the benefit of lower rate of or restricted scope of 'fees for technical services' under the Indo-French DTAA is not dependent on any further action by the respective Governments, unlike the situation envisaged in, for example, para 4 of protocol to Indo-Philippines DTAA or para 3 of protocol to Indo-Swiss. We leave it at that. 18. In the light of the above discussion, we are of the considered view that the same scope of 'fees for technical services' as provided for in the India DTAAs with UK, USA and Switzerland, which is far more restricted vis-a-vis scope of this expression in Indo-French DTAA, shall also apply under Indo-French DTAA, with effect from the date on which the Indo-French DTAA or such other DTAA enters into force ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, any person making payment in the form of income to a non-resident required to deduct tax at source, from the said income, at the 'rate in force' which, in turn, has been explained under Section 2(37A)(iii) as follows : "for the purposes of deduction of tax under Section 195, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year or the rate or rates of income-tax specified in an agreement entered into by the Central Government under Section 90 whichever is applicable by virtue of the provisions of s.90". As we have earlier observed, provisions of the DTAA clearly override the provisions of the Act to the extent the provisions in such agreement are more favourable to the assessee. Therefore, in case a DTAA provides for lower rate, which includes 'Nil' rate, of taxes, such a rate will prevail over the rate given in the Act. As a natural corollary to this proposition, when, in terms of the provisions of a DTAA, an income is not exigible to income in India, no tax is required to be deducted under Section 195 from the payment of such income to a non-resident. We have already held that, in terms of the provisions of a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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