TMI Blog2023 (7) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Indo Japan tax treaty are not in pari materia with the provisions of those tax treaties. On the facts of this case, the conclusions arrived at by the Japanese tax authorities, directing tax withholdings from the payments made to the assessee by its Japanese clients, cannot be said to unreasonable or incorrect. In the light of these discussions, as also bearing in mind entirety of the case, we hold that the assessee was wrongly declined tax credit on the facts of this case. These are the cases in which the treaty partner source jurisdiction has taken a reasonable bonafide view which is not manifestly erroneous- even though it is not the same as is the view taken by the residence jurisdiction. Decided against revenue. - ITA no. 1046/Mum./2023 And ITA no. 1047/Mum./2023 - - - Dated:- 28-6-2023 - Shri Prashant Maharishi, Accountant Member And Shri Sandeep Singh Karhail, Judicial Member For the Assessee : Shri Rajesh Parekh For the Revenue : Shri Shambhu Yadav ORDER PER SANDEEP SINGH KARHAIL, J.M. The present appeals have been filed by the Revenue challenging the separate impugned orders of even date 09/02/2023, passed under section 250 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax was not required to be withheld as it was in the nature of independent professional services. In response thereto, the assessee submitted that the legal services provided by the assessee would squarely fall within the ambit of consultancy services in view of the decision of the Hon'ble Supreme Court in GVK Industries v/s ITO (2015) 371 ITR 453 and thus, in accordance with Article 12 of the India Japan Double Taxation Avoidance Agreement ( DTAA ) the legal services rendered by the assessee to the Japanese residents would be taxable in Japan at the rate of 10%. The assessee further submitted that since the taxes have already been paid in Japan, the same should be allowed as admissible tax credits. It was also submitted that the assessee has been informed by its Japanese clients that Japanese tax authorities have interpreted Article 14 of the India-Japan DTAA differently and have held that the provisions of Article 14 shall be applicable only in case of professionals working in the individual capacity, i.e. independent lawyers, and not to entities engaged in rendering professional services like corporate law firms, such as the assessee. Therefore, it was submitted that its c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms of Article 23(2)(a) of Indo Japanese tax treaty, where a resident of India derives income which, in accordance with the provisions of this Convention, may be taxed in Japan, India shall allow as a deduction from the tax on the income of that resident an amount equal to the Japanese tax paid in Japan, whether directly or by deduction [Emphasis, by underlining. supplied by us]. What essentially follows is that when in accordance with the provisions of Indo Japanese tax treaty, any income of Indian resident is taxed in Japan, the Indian resident will get the deduction, in the computation of his tax liability, taxes paid by the assessee in Japan- whether paid directly by the assessee or whether taxes were withheld in Japan. There are many other conditions attached to this basic provision, but, for our present purposes, those conditions are not really relevant. That brings us to the question as to what are the connotations of in accordance with the provisions of the tax treaty. In the case of Nav Bharat Vanijya Vs CIT [(1980) 123 ITR 865 (Cal)], Hon'ble Calcutta High Court has observed that (t)he words 'in accordance with', mean being in agreement or harmony with; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s' 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 films and films or tapes 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, 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 amount to any person other than payments to an employee of a person making payments and to any individual for independent personal services referred to in article 14, in consideration for the services of a managerial, technical or consultancy nature, including the provisions of services of technical or other personnel. 5. The provisions of paragraphs 1 and 2 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period or periods exceeding in the aggregate 183 days during any taxable year or 'previous year' as the case may be. If he has such a fixed base or remains in that other Contracting State for the aforesaid period or periods, the income may be taxed in that Contracting State but only so much of it as is attributable to that fixed base or is derived in that other Contracting State during the aforesaid period or periods. 2. The term 'professional services' includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants. 7. Undoubtedly, there are overlapping areas in the definition of fees for technical services under article 12(4), which covers' technical, management and consultancy services' vis- -vis the definition of professional services income from which can be taxed under article 14 as 'income from independent personnel services'. This overlapping is recognized in article 12(4) itself, as it provides that where fees from technical services sought to be taxed under article 12 include a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flict with the results reached at by way of applying the other applicable principles. If we are to apply, for example, the principle of general provisions making way to the specific provisions in this case, and thus hold that only article 14 will come into play for the taxation of professional services, the results arrived at will be in conflict with the well-established principle that the treaty is to be read as a whole and the provisions of the treaty are to be construed in harmony with each other, inasmuch as while article 12(4) exclusion clause proceeds on the basis that article 14 applies to individuals alone, the article 14 will then be applicable to all the entities- including the partnership firms and corporate entities. That will be clearly incongruous. In any case, we have not been able to find even any conceptual justification for excluding one class of eligible taxpayers, i.e. individuals, from the application of provisions of article 12. Whatever holds good for the exclusion of individuals earning income taxable under article 14 must hold good for the other taxpayers earning income taxable under article 14 as well- unless, of course, article 14 is treated as applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he head article 15 and in case chargeability under article 15 fails, that is end of the road. It cannot be open to revenue authorities to tax income from professional services under article 7. It is contended that article 15 applies only to individuals. As to the situations in which article 5 will apply in respect of the professional services and the situations in which article 15 of the India-UK tax treaty, which is in pari materia article 14 of the U.N. Model Convention, will apply, we find guidance from the following observations made in the U.N. Model Convention Commentary:- The Group discussed the relationship between article 14 and sub- paragraph 3(b) of article 5. It was generally agreed that remuneration paid directly to an individual for his performance of activity in an independent capacity was subject to the provisions of article 14. Payments to an enterprise in respect of the furnishing by that enterprise of the activities of employees or other personnel are subject to articles 5 and 7. The remuneration paid by the enterprise to the individual who performed the activities is subject either to article 14 (if he is an independent contractor engaged by the enterprise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 12(4) not being triggered on the facts of this case as such, it is indeed reasonably possible to hold that the payments in question were rightly subjected to tax withholding in Japan. The judicial precedents cited by the authorities below are in the context of the tax treaties other than Indo Japan tax treaty, and the provisions of the Indo Japan tax treaty are not in pari materia with the provisions of those tax treaties. These judicial precedents deal with the tax treaties that India has entered into with China, U.K. and the USA, but then all the three treaties are, in the material respects, differently worded vis- -vis the Indo-Japanese tax treaty that we are presently dealing with. It is, therefore, not even necessary, even if we have our reservations on correctness of these decisions, to refer the matter to the larger bench for reconsideration of the principle laid down therein. Suffice to say, on the facts of this case, the conclusions arrived at by the Japanese tax authorities, directing tax withholdings from the payments made to the assessee by its Japanese clients, cannot be said to unreasonable or incorrect. In the light of these discussions, as also bearing in mind en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Canada-US Tax Convention and Protocol itself and is no way bound by the interpretation given to it by the United States Treasury, the result would be unfortunate if it were interpreted differently in the two countries when this would lead to double taxation. Unless, therefore, it can be concluded that the interpretation given in the United States is manifestly erroneous it is not desirable to reach a different conclusion, and I find no compelling reason for doing so. That situation is to be best avoided, and it can only be so avoided when unless the view of the treaty partner jurisdiction is wholly unreasonable or, to borrow the words of Canadian Federal Court, manifestly erroneous, it should be adopted, at least in respect of that transaction, by the other treaty partner as well. Here is a case in which not only the source country jurisdiction has taken the view that the legal fees received by the assessee are taxable under article 12 of the Indo Japan tax treaty, but, as discernable from the facts as recorded by the authorities below, the Japanese tax authorities have consciously taken a call rejecting the plea of the assessee for non-taxation, and even proceeded against t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not get triggered for payments to persons other than individuals, and the provisions of article 14 are required to be read in harmony with the provisions of article 12(4). 10. In the absence of any allegation of change in facts and law in the present case, we find no reason to deviate from the view so taken by the coordinate bench in the aforesaid decision. Therefore, respectfully following the decision of the coordinate bench in the case of the principal firm cited supra, we find no infirmity in the impugned order which has rightly followed the aforesaid decision. Accordingly, ground no.1 raised in Revenue s appeal is dismissed. 11. Ground no.2, is general in nature. Therefore, in view of aforesaid findings, the same is dismissed. 12. In the result, the appeal by the Revenue for the assessment year 2017-18 is dismissed. ITA No. 1047/Mum./2023 Revenue s appeal A.Y. 2018-19 13. In this appeal, the Revenue has raised the following grounds:- 1. On the facts and the circumstances of the case and in law, allowing tax relief in regard to income earned in Japan. The Ld. CIT(A) has not considered the provisions of Article 14A of India-Japan DTAA dealing w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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