TMI Blog2016 (5) TMI 1534X X X X Extracts X X X X X X X X Extracts X X X X ..... nical services for installation of machines etc. Royalty towards use of CAD/CAM designing software and IT support - contention of the assessee is that the assessee has purchased the basic version of program/software from the third party and after making certain changes/modification to the basic program has standardized the software to be used by the entire group - basic program has been stored in Sweden and the users have limited accessibility to the program for using it without any further modification - HELD THAT:- Authorities below while deciding the issue has not considered the agreement between the assessee and Sandvik Asia Private Limited for the use of program. Thus, we are of the considered view that this issue needs a revisit to the file of AO Assessee shall furnish the details of modifications/changes carried out by the assessee in the program for standardizing the same to be used by all the group concerns and also the terms and conditions for the use of program by SAPL. The Assessing Officer after considering the same shall decide the issue afresh in the light of decision of Co-ordinate Bench of the Tribunal in the case of Sandvik Australia Pty. Ltd. Vs. Deputy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for technical services as per DTAA between India and Sweden. Aggrieved by the draft assessment order dated 30-12-2010, the assessee filed objections before the DRP. The DRP vide directions dated 02-08-2011 rejected the objections of the assessee on both the counts. On the basis of directions of DRP, the Assessing Officer passed the final assessment order dated 28-10-2011making addition of ₹ 32,40,082/- on account of license fees for CAD/CAM software by treating it as Royalty payment and ₹ 25,92,070/- on account of installation charges, upgradation and service cost as fees for technical services . Against the impugned assessment order, the assessee is in appeal before the Tribunal. 3. The assessee in its appeal for the assessment year 2007-08 has raised following grounds: On the facts and circumstances of the case, and in law; 1. The Ld. Assessing Officer ( the AO') and the Ld. Dispute Resolution Panel ( the DRP ) have erred in holding receipts for repairs and maintenance services provided by the Appellant amounting to INR2,592,070 taxable in India as Fees for Technical Services ( FTS ) within the meaning of Article 12 of the India-Sweden Double Taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on products like positioning programs, Archimedes, routines for plot and print; etc. iv. Access to Basic Geometries, and other common data and information. v. Documented working methods and directives. vi. Drawing archive services. vii. Trouble shooting. viii. Access to results of central development efforts in the area 4.2 The ld. AR submitted that the IT support services cannot be categorized as royalty as the same is not an exploitation of a right/copyright in a licensed product but only for the use of a software system. Thus, the payment for the same is neither Fee for Technical services (FTS) nor Royalty. In support of his submissions the ld. AR placed reliance on the decision of Co-ordinate Bench of the Tribunal in the case of Sandvik Australia Pty. Ltd. Vs. Deputy Director of Income Tax (International Taxation-II, Pune in ITA No. 93/PN/2011 for the assessment year 2007-08 decided on 31-01-2013 and in the case of Allianz SE Vs. Assistant Director of Income Tax (International Taxation- I, Pune reported as 21 taxmann.com 62 (Pune). 4.3 In respect of receipt of payment for installation of Dematek Lifting Crane and Smartscope machine the ld. AR submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and have perused the orders of the authorities below. We have also considered the decisions on which the ld. AR of the assessee has placed reliance. The two issues which have been raised by the assessee in appeal are with respect to (i) addition of ₹ 25,92,070/- as fees for technical services in respect of services rendered by the assessee for installation of cranes etc; and (ii) ₹ 32,40,082/- as Royalty towards use of CAD/CAM designing software and IT support. 7. The assessee had installed Dematek Lifting Crane and has charged for the installation of the said cranes/upgradation of operating system of laser machine and service cost for Smartscope. As per the contentions of the assessee the services provided by the assessee are inextricable and essentially linked to sale of machinery. As per the contentions of the assessee the services rendered by it do not make available any technical knowledge/experience, skill, know-how, processes etc. to SAPL enabling it to apply the technology in future. The assessee in support of his submissions has placed reliance on the decision of Co-ordinate Bench of the Tribunal in the case of Sandvik Australia Pty. Ltd. Vs. Deput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said assessee had paid consideration. The Assessing Officer applied Article 12 of the Indo-Netherlands Treaty and held that the same was taxable in the hands of the Netherlands Company. As the wordings of Article 12 in the Indo-Netherlands Treaty are analogous to Article 12 of the India Australia Treaty, as expression make available is also used while determining fiscal jurisdiction of the contracting state, the Hon'ble High Court explained the meaning of the expression make available which was appearing in the Indo- Netherlands Treaty, the Lordships explained the expression as under: 13. Under the Act if the consideration paid for rendering technical services constitute income by way of fees for technical services, it is taxable. However, Article 12 of the aforesaid India-Netherlands Treaty defines fees for technical services for the purpose of Article 12 which deals with royalties and fees for technical services. The fees for technical services means the payment of any amount to any person in consideration for rendering of any technical services only, if such services make available technical knowledge, expertise, skill, know-how or processes. If the technical kno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The service provider in order to render technical services uses technical knowledge, experience, skill, know how or processes. To attract the tax liability, that technical knowledge, experience, skill, know how or process which is used by service provider to render technical service should also be made available to the recipient of the services, so that the recipient also acquires technical knowledge, experience, skill, know how or processes so as to render such technical Services. Once all such technology is made available it is open to the recipient of the service to make use of the said technology. The tax is not dependent on the use of the technology by the recipient. The recipient after receiving of technology may use or may not use the technology. It has no bearing on the taxability aspect is concerned. When the technical service is provided, that technical service is to be made use of by the recipient of the service in further conduct of his business. Merely because his business is dependent on the technical service which he receives from the service provider, it does not follow that he is making use of the technology which the service provider utilises for rendering techni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16. In the present case, as per the terms of the agreement between the assessee company and Sandvik Asia Ltd., does not support the case of the Revenue that the assessee s case is covered in clause (g) of para 3 to Article 12 of the India Australia Treaty as the assessee has not made available any technical knowledge or expertise to the recipient Indian company. In our opinion, the assessee has only provided the back-up services and IT support services for solving IT related problems to its Indian subsidiary. Hence, unless and until the services are not made available, same cannot be taxable in India. We, therefore hold that the services rendered by assessee company to its Indian group companies, though are in the nature of technical services, but is not covered in para (3)(g) to Article 12 of the India Australia Treaty and hence, the same is not taxable in India. We also hold that the amount received by the assessee cannot be treated as a Royalty even under the normal provisions of I.T. Act. But under the normal provision of the I.T. Act the same constitute consideration for rendering the technical services covered u/s.9(1)(vii) of the I.T.Act. Accordingly, Ground No.1 is allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter or the same clause of the matter. The protocol attached to the treaty take care of a situation where in cases either of the contracting states enter into a bilateral agreement into the nature of DTAA with the another sovereign state and where the same subject matter has been given more favourable treatment by way of a definition or mode of tax then the parties can claim the benefit on the recognized principle of MFN clause. In his introduction to Double Taxation Conventions (Third Edition) Klaus Vogel has explained the role of the protocol and its role in interpreting the treaty. The same has been considered by the ITAT, Calcutta in the case of DCIT V. ITC Ltd., 76 TTJ 323. 11.2 In the case of Maruti Udyog Ltd., Vs. ADIT reported in (2010) 37 DTR 85 (Delhi) explaining the scope of the protocol it is held as under : 11.1 It is settled position in law that protocol is an indispensable part of the treaty with the same binding force as the main clauses therein, as protocol is an integral part of the treaty and its binding force is equal to that of the principal treaty. The provisions of the aforesaid DTAA are, therefore, required to be read with the protocol clauses and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pal treaty text. When applying a tax treaty, therefore, it is necessary carefully to examine these additional documents . A protocol is said to be a treaty by itself that amends or supports the existing treaty. We cannot also forget the observations of the Supreme Court in Union of India vs. Azadi Bachao Andolan (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC) at p. 751 that An important principle which needs to be kept in mind in the interpretation of the provisions of an international treaty, including one for double taxation relief, is that treaties are negotiated and entered into at a political level and have several considerations as their bases . So the argument of the Revenue that the protocol cannot be relied on to understand the scope of taxation cannot be accepted. 12. So far as the present case before us is concerned, on the basis of the protocol to the DTAA between the India and Sweden the assessee can claim the benefit of the conditions imposed for bringing to tax the fees for technical services in the treaty between the India and Portuguese. We, therefore, hold that on the principle of the most favoured nation (MFN) clauses the payment of ₹ 5.93 Crores rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade the payments to the assessee company. The DRP confirmed the action of the TPO treating the payment received by the assessee company from its Indian affiliates as taxable as royalty/FTS. The Ld. Counsel fairly conceded that so far as normal provisions of I.T. Act are concerned, i.e., more particularly section 9(1)(vii), in view of the Explanation 2 below the said section, the amount received by the assessee from its Indian affiliates is taxable as FTS, but the same is exempt in view of the Article 12 of the Treaty. We, therefore, need not go into the first limb of this issue whether the amount received by the assessee company is taxable under the normal provisions of the I.T. Act. 9. Let us examine the claim of the assessee that in view of Article 12 of the India Australia Treaty, as no services are made available , hence, the same cannot be taxed in the sourced country. The assessee is providing help desk and user administration services, i.e., IT support and advisory services for solving any IT related problems faced by the users as well as user administration services such as addition of new user/deletion of any existing users in the system. It is further claimed by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Assessing Officer or the DRP. We further find that the authorities below while deciding the issue has not considered the agreement between the assessee and Sandvik Asia Private Limited for the use of program. Thus, we are of the considered view that this issue needs a revisit to the file of Assessing Officer. The assessee shall furnish the details of modifications/changes carried out by the assessee in the program for standardizing the same to be used by all the group concerns and also the terms and conditions for the use of program by SAPL. The Assessing Officer after considering the same shall decide the issue afresh in the light of decision of Co-ordinate Bench of the Tribunal in the case of Sandvik Australia Pty. Ltd. Vs. Deputy Director of Income Tax (International Taxation-II, Pune (supra). Accordingly, the ground no. 2 raised in the appeal for assessment year 2007-08 is partly allowed in the aforesaid terms. ITA No. 270/PN/2013 (A.Y. 2009-10) 12. The assessee has filed appeal in assessment year 2009-10 on the following grounds : On the facts and circumstances of the case, and in law; 1. Ground 1: The Learned Dispute Resolution Panel (Ld. DRP) and the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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