TMI Blog2023 (9) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) of India Portugal DTAA. Thus, in our view, learned first appellate authority has completely misconceived the facts while concluding that the fees are in the nature of FTS under Article 12(4)(a) of India Portugal DTAA. The judicial precedents cited before us by learned counsel for the assessee support this view. Therefore, we reverse the decision of learned first appellate authority on the issue. Whether the fee received by the assessee can be covered under Article 12(4)(b) of India Portugal DTAA ? - After considering the nature of services, mode and manner in which services were rendered and various other aspects, it is observed that the test of make available condition under Article 12(4)(b) of India Portugal treaty has not been satisfied. In fact, no material has been brought on record by the Revenue to establish that while rendering management services, the assessee has made available technical knowledge, know-how, skill etc. to the service recipient, which has enabled the service recipient to acquire the technical knowledge, know-how, skill etc. so as to enable it to apply them independently in future without requiring the aid and assistance of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation Technology (IT) Support Services and technical services to Michelin group entities. In the year under consideration, the assessee rendered IT support services, management services, engineering services, training services and supplied raw materials and equipment to its group entity in India, i.e., Michelin India Pvt. Ltd. ( MIPL ), formerly known as Michelin India Tamil Nadu Tyres Pvt. Ltd. 4. Insofar as receipts from rendition of business support services, the assessee claimed that, though, they are qualified as FTS under Article 13(4) of India France DTAA, however, in terms with paragraph 7 of Protocol to India France DTAA, the assessee is eligible to claim Most Favoured Nation ( MFN ) status and more restricted meaning and scope of FTS as per Article 12(4) of India Portugal tax treaty would be applicable. Hence, the receipts are not taxable in India. The Assessing Officer, however, was not convinced with the submission of the assessee. Firstly, he rejected assessee s claim of benefit under MFN clause in terms of paragraph 7 of Protocol to India France DTAA by stating that in absence of specific notification of Government of India, benefit of MFN clause cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receiving the royalty is the same person or are different persons. Thereafter, analyzing the nature of services rendered by the assessee, learned first appellate authority finally concluded that the receipts are in the nature of FTS in terms of Article 12(4)(a) of India - Portugal DTAA. 6. Before us, Sh. Rajan Vohra, learned Counsel, appearing for the assessee, first and foremost, brought our attention to the nature of business support services rendered by the assessee to MIPL to substantiate that these services are neither ancillary to any royalty payment nor making available technical know-how. He submitted that no royalty is received by the assessee and also no agreement is entered into by the assessee for receipt of royalty. Further, he submitted that royalty agreement entered into by Indian group entity with other group entities of Michelin has no relation/linkage with the business support services taken by MIPL from other group entities (including MFPM, based out of France). 7. Further, he submitted, the amount received by the assessee is on account of various business support services (including management support, IT support and other support services) rendered to Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2021] (Mumbai ITAT) ix. Inter Continental Hotels Group (Asia Pacific) Pte Ltd. [2023] 148 taxmann.com 27 9. Without prejudice, learned Counsel submitted, while disposing of the appeal, the first appellate authority has not considered the submissions of the assessee and without providing any opportunity to the assessee to explain the applicability or otherwise of Article 12(4)(a) of India Portugal tax treaty, has passed the order. Thus, he submitted, the order passed is against the principles of natural justice. 10. Proceeding further, he submitted that not only the receipts would not fall under article 12(4)(a) of India Portugal DTAA, but it will also not fall within the ambit of Article 12(4)(b) of India Portugal DTAA, as, the make available condition is not satisfied. He submitted, the services rendered by the assessee has not made available any technical knowledge, know-how, skill, experience etc. to the Indian entity so as to enable it to apply the technology contained therein independently in future without the aid and assistance of the assessee. Drawing our attention to the meaning of the term make available as provided under the Memorandum of Understa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fees, branding material, staff, goodies, bibendum costume, photographer, central support expenses for preparation of the events. He submitted, these costs were recovered from Indian entity on cost to cost basis without any markup. To substantiate its claim, learned Senior Counsel drew our attention to additional evidences furnished separately through application dated 28th February, 2023 and 23rd February, 2023. He submitted, the additional evidences clearly establish that the amount in dispute is nothing but reimbursement of expenses on cost to cost basis. He submitted, the issue can be restored back to the Assessing Officer for fresh adjudication after verifying the additional evidences. 12. Learned Departmental Representative strongly relied upon the observations of the Assessing Officer and learned first appellate authority. He submitted, though, royalty and service charges were paid to different entities, but both are related parties and group entities. He submitted, the services provided by the assessee are linked to the manufacturing process for which the other group entity has not only provided trademark, but has also transferred the right to use technology. He submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter taking note of paragraph 7 of Protocol to India France DTAA, has accepted assessee s claim and held that the nature and character of receipts would be governed by Article 12(4) of India Portugal DTAA. However, while doing so, he has concluded that the receipts towards business support services, being ancillary and incidental to the royalty paid by the Indian entity towards use of trademark and technology will qualify as FTS under Article 12(4)(a) of India Portugal DTAA. In this context, learned Commissioner (Appeals) has observed that there is combined agreement wherein payment of royalty and payment towards service have both been quantified. 18. Keeping in perspective the aforesaid observations of learned first appellate authority, let us examine the facts on record. It is observed, assessee has entered into an management service agreement with Indian affiliate, where under, following services are rendered by the assessee: o Purchase (DGA): Functions include defining the terms and conditions of purchase agreements, purchase strategy, purchase procedures; negotiation of purchase agreements, providing optimum prices conditions for purchase of external services in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., Compagnie Generale Des Etablissements Michelin. It further clarifies that the services covered under the management service agreement are rendered in a field different from that covered by the trademark and technology licence agreement. Further, Article 2 of the management service agreement provides that the fee for services rendered shall be determined based on cost incurred by the assessee, as appearing in its books with a markup of 4%. Whereas, the trademark and technology licence agreement between the Indian entity and another overseas affiliate is for licence to acquire the right to use the intellectual property in order to manufacture Radial Tyres suitable for road conditions in India and other countries. It further clarifies that the licence granted is subject to limitations and restrictions under the agreement and it provides non-exclusive right to use trademarks, copyrights, and patents within the territory to exploit the products, as defined in the agreement. It further grants licencee subject to limitations and restrictions of non-exclusive rights to use the technology within the territory to exploit the products, as defined in the agreement. Article 3 of the agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endering management services, the assessee has made available technical knowledge, know-how, skill etc. to the service recipient, which has enabled the service recipient to acquire the technical knowledge, know-how, skill etc. so as to enable it to apply them independently in future without requiring the aid and assistance of the assessee. 23. On the contrary, on analyzing the nature of services provided by the assessee under the agreement, it is very much clear that the services are provided on regular day-to-day basis for utilizing in various business operations of the assessee. It is further evident, the assessee has been rendering such services on regular basis and these are not one time services, which once availed, are to be used by the service recipient for their future purpose. Since, the Revenue has failed to demonstrate before us that in course of rendition of services, the assessee has made available technical knowledge, knowhow, skill etc. to the recipient of service, we are unable to upheld the nature and character of receipt as FTS, even under Article 12(4)(b) of India Portugal DTAA. Thus, in our view, the amount of Rs. 69,57,26,829/- cannot be treated as FTS und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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