TMI Blog2018 (8) TMI 1905X X X X Extracts X X X X X X X X Extracts X X X X ..... te in which they arose. We find that the decision of Ahmedabad Bench of the Tribunal in the case of Saira Asia Interiors Pvt. Ltd [ 2017 (4) TMI 242 - ITAT AHMEDABAD] elucidates the manner in which this clause has to be interpreted. Ahmedabad Bench was considering application of Article 13 of DTTA between India and Italy, in a more or less similar fact circumstances. Said article was pari materia to Article 13 of the India and Korea, DTAA For triggering the taxability under article 13 of the Indo-Italian DTAA, mere credit of amount of the royalty payable to the non-resident concerns account would not be sufficient. According to them, it was imperative that actual payments were effected. . Hence we are choosing to follow the Co-ordinate Bench view. Ld. Commissioner of Income Tax (Appeals) has at para 4.1.3 clearly observed that amounts stood outstanding on 31.03.2010. Ld. Commissioner of Income Tax (Appeals) also observed that when payments were effected, assessee had remitted the tax to the exchequer. In such circumstances, we are of the opinion that ld. Commissioner of Income Tax (Appeals) was justified in deleting the disallowance made u/s.40(a)(i) - I.T.A. No.1820/CHNY/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Act, 1961 (in short the Act ) and made a disallowance of C3,12,69,759/-. 4. Aggrieved, assessee moved in appeal before ld. CIT(A). Argument of the assessee was that there were no payment of any development fees or royalty during the relevant previous year. According to the assessee, such amounts were credited to the accounts of the non-resident companies to whom payments were due. Contention of the assessee was that the amounts remained outstanding as on 31.03.2010 and by virtue of Article 13 of the Double Taxation Avoidance Agreement (DTAA) between India and Korea, tax liability on a non resident on royalty and technical fees, arose only when the amounts were paid to such non-residents. Reliance was placed by the assessee on the following decisions of different benches of this Tribunal. 1 DCIT vs. PHA India Pvt. Ltd, - ITA No.167/168/168/Mds/2013- Order dated 11.03.2014. 2 Pizza Hut International LLC c/o. Dinesh Mahta Co vs. DDIT (International Taxation ) (2012) 54 SOT 425, Delhi. 3 CSC Technology Singapore Pte Ltd. vs. ADIT (2012) 50 SOT 399 (Delhi). 4 DCIT vs. UHDE GMBH (1996) 54 TTJ 355 (Bom) 5 National ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40(a)(i) and ld. Commissioner of Income Tax (Appeals) fell in error in deleting such disallowance. Ld. Departmental Representative submitted that decisions of this Tribunal relied on the ld. Commissioner of Income Tax (Appeals), were all rendered prior to judgment of Hon ble Apex Court in the case of Palam Gas Service (supra) and therefore could not be considered as binding precedents. 7. Per contra, ld. Authorised Representative strongly supporting the order of the ld. Commissioner of Income Tax (Appeals) submitted that Mumbai Bench of the Tribunal in the case of National Organic Chemical Industries Ltd. (supra) had, with reference to Article 12(1) and Article 12(2) of Indo-USA Tax Treaty, which was pari materia with Article 13(1) and Article 13(2) of Indo-Korea DTAA, held that for taxing royalties and fees for technical services, twin conditions of accrual as also the payment were to be satisfied. Reliance was also placed on the decision of Ahmedabad Bench of the Tribunal in the case of Saira Asia Interiors Pvt. Ltd vs. ITO, (2017) 164 ITD 687. According to him, ld. Commissioner of Income Tax (Appeals) was justified in deleting the disallowance made u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience. 4. The term fees for technical services as used in this Article means payments of any kind to any person, other than payments to an employee of the person making the payments and to any individual for independent personal services mentioned in Article 15, in consideration for services of managerial, technical or consultative nature, including the provision of services of technical or other personnel. 5. The provisions of paragraphs 1 and 2 of this Article shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise through a permanent establishment situated there or perform in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services and paid is effectively connected with such permanent establishment or fixed base. In such cases the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrows light on the manner which a treaty is to be interpreted. Interpretation of treaties, The principles adopted in interpretation of treaties are not the same as those in interpretation of statutory legislation. While commenting on the interpretation of a treaty imported into a municipal law, Francis Bennion observes : With indirect enactment, instead of the substantive legislation taking the well-known form of an Act of Parliament, it has the form of a treaty. In other words the form and language found suitable for embodying an international agreement become, at the stroke of a pen, also the form and language of a municipal legislative instrument. It is rather like saying that, by Act of Parliament, a woman shall be a man. Inconveniences may ensue. One inconvenience is that the interpreter is likely to be required to cope with disorganised composition instead of precision drafting. The drafting of treaties is notoriously sloppy usually for very good reason. To get agreement, politic uncertainty is called for. . . . The interpretation of a treaty imported into municipal law by indirect enactment was described by Lord Wilberforce as being unconstr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, takes place. We may also, while on the subject, reproduce Article 13 of India Italy DT AA, which deals with taxation of royalty, as below: Article 13 ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 15 per cent of the gross amount of the royalties or fees for technical services. 3. The term royalties as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph film, or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this Article shall apply only to the last-mentioned amount. In such cases, the excess part of the payments shall remain taxable according to the law of each Contracting State due regard being had to the other provisions of this Convention. (Emphasis by underlining, supplied by us) 8. A or the point of time of crediting the amount payable to non resident, i.e. at the time of credit of such income to the account of payee , the royalty so paid by the assessee was not taxable in the hands of the resident, for the simple reason that, in terms of article 13 of Indo Italian DTAA- which is reproduced above for the ready reference, taxability of royalty is dependent on the payment by the resident of a contracting state and receipt of the same by the resident of the other contracting state. Unless, therefore, the actual payment takes place, the taxability under article 13 of Indo Italian DTAA does not arise. In other words, the mere fact that an Indian resident credits the amount of royalty payable to an Italian resident does not trigger taxability under article 13 of the Indo Italian DTAA. Such is also the view taken by a series of decisions by the coordinate benche ..... X X X X Extracts X X X X X X X X Extracts X X X X
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