TMI Blog2023 (10) TMI 458X X X X Extracts X X X X X X X X Extracts X X X X ..... s installation of multiple plants and machineries. It involves on-site planning and supervision of erection and installation of not only civil work but also the plant and machinery. There cannot be any dispute that the installation/erection process has to be taken up as per the flowsheets, equipments, specifications, drawings, layouts, operating manuals, procedures etc., without which, the installation process cannot be carried out. Therefore, in our view, the service rendered by the assessee is in connection with installation/erection of plant and machinery involved in mining of natural resources. Moreover, scope of Article 5(2)(g) of India Portugal DTAA is not merely limited to mining or extraction of natural resources but also covers installation or structure used for exploration and exploitation of nature resources. Therefore, in our considered view, the amounts received would fall within the exceptions provided under Article 12(5)(f) and 12(5)(g) of India Portugal DTAA, hence, not taxable at the hands of the assessee. Balance amount out of the engineering package fee, it is observed from the facts on record that they are not part of the TLA, but in pursuance to two i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sanjay Kumar, Sr. DR, Sh. Mrinal Kr. Das, Sr. DR ORDER Captioned appeals by the assessee arise out of separate orders of learned Commissioner of Income Tax (Appeals), New Delhi, for the assessment years 2010-11 and 2011-12. 2. At the outset, we must observe, appeals in ITA Nos. 9483/Del/2019 and 9484/Del/2019 are delayed by 45 days. After considering the submissions of the parties and perusing the materials on record, we are satisfied that the delay in filing the appeals was due to genuine cause. Accordingly, we condone the delay and admit the appeals for adjudication on merits. ITA No.9483/Del/2019 AY: 2010-11 3. This appeal arises out of order dated 24.07.2019 passed by learned Commissioner (Appeals) under section 154 of the Income-tax Act, 1961 (hereinafter referred to as the Act ). 4. Briefly the facts are, the assessee is a non-resident corporate entity incorporated in France and a tax resident of that country. As stated, assessee owns certain right, know-how, designs, and processes required to design, build and implement integrated aluminium production plants. The assessee is also a leader in primary metals and their by-products and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeals), assessee is before us. 6. Learned counsel appearing for the assessee submitted, the assessee had entered into Technology Licencing Agreement (TLA) with Hindalco Industries Ltd. ( HIL ) on 19.09.2007. Whereunder, the assessee provided licence to HIL to use its technology. He submitted, similar agreement was also entered into with National Aluminium Company Ltd. ( Nalco ). He submitted, the amount received by the assessee towards licence fee has been offered as royalty income, and there is no dispute between the parties with regard to that. He submitted, in addition, the assessee received and amount of ₹ 15,94,34,150/- towards engineering package fee. He submitted, in the return of income, the assessee by mistake had offered the amount as income by treating it as FTS. He submitted, the disputed amount was received from HIL in connection with certain services relating to their plant in Orissa. The break-up of such service is as under: Nature of Services (1) - Installations or Structures in connection with services rendered (2) Eligible Exclusion under Article 12(5)(f) (g) (3) Hindal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber of the OECD, is more restricted or limited, then it will be applicable. He submitted, as per Article 12(4) of India- Portugal DTAA, the receipts cannot be treated as FTS, as, neither the services are ancillary and subsidiary to the royalty income, nor the assessee has made available any technical knowledge, know-how, experience, skill, or technical plan or technical design, which enables the service recipient to apply the technology contained therein. He submitted, even otherwise also, the receipts cannot be treated as FTS under Article 12(4) of India Portugal, as it falls within the exceptions provided under Article 12(5)(f) read with Article 5(2)(g) of India Portugal DTAA. Proceeding further, he submitted, the contracts with Nalco and HIL are for rendering services in connection with plants used for extraction or exploitation of aluminium, which is a natural resource. He submitted, aluminium is drawn from Bauxite, which is an ore extracted from mines. He submitted, aluminium extraction/exploitation involves various steps, such as, (i) taking bauxite out of the mines; (ii) refining of bauxite in a refinery to produce alumina, a white powder, and (iii) smelting of alumina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining of bauxite and ends with the smelting of alumina in a smelter. He submitted, the treaty nowhere stipulates that only mining of natural resource is covered under the exclusion, otherwise there was no need to use words extraction and exploitation . Had it been the case, then the expression could not have been extraction or exploitation under Article 12(5) read with para 2(g) of Article 5 of India Portugal DTAA. He submitted, the mined bauxite is of no use, unless converted to aluminium. Therefore, the interpretation given by learned Commissioner (Appeals) to Article 12(5)(f) cannot be accepted. He submitted, the treaty nowhere stipulates that an installation or structure eligible for exclusion must be at the place of mine, oil, or gas-well, quarry, or place of taking out bauxite. Therefore, the reasoning of the first appellate authority that the refinery and smelting plants are not the places of extraction or exploitation of natural resources, cannot be accepted. 10. Without prejudice, he submitted, out of the disputed receipts, amounts of Rs. 1,62,25,201/- were received by the assessee under two separate purchase orders: Nature of Services (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w diagrams, process specifications, and equipment list that work around and with RHODAX technology. He submitted, the assessee was not required to supply source codes, drawings, or diagrams to build RHODAX crushers, hence, the service did not contain RHODEX Technology. All that the assessee did was just to provide the deliverables/inputs that primarily enables HIL to simply study and comment on a proposal. He submitted, in the second purchase order for Mohan Smelter Singrauli, the deliverables contained paste plant layout drawings and process operation manual, material proportionating specification and material balance, assembly drawings, electrical and automation specifications for anode recycling shop, and process specification and flow diagram along with equipment list for the fines handling based on RHODAX Technology. He submitted, these were again created for a plant-based around RHODAX technology but did not contain the technology. He submitted, the assessee did not supply any machine diagram or codes to build an RHODAX crusher under site-specific conditions. He submitted, the services rendered did not tantamount to transfer of technical plan or design that enabled HIL to app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l design, it will constitute FTS. Thus, he submitted, there is no reason to interfere with the decision of learned Commissioner (Appeals). 14. We have considered rival submissions and perused the materials on record. We have also applied our mind to the decisions relied upon. The issue arising for consideration before us is, whether the engineering package fee of Rs. 15,94,34,150/- and on-site man-day charges of Rs. 1,39,90,735/- can be treated as FTS under the treaty provisions. 15. Undisputedly, the assessee claiming benefit of the Most Favoured Nation ( MFN ) clause in paragraph 7 of Protocol to India France DTAA has claimed benefit by taking shelter under the definition of FTS as provided under Article 12(4) of India Portugal DTAA. It is a fact on record that learned first appellate authority has accepted assessee s claim of benefit under India Portugal DTAA. Therefore, we have to examine whether the aforesaid amounts would qualify as FTS under Article 12(4) read with Article 12(5) of India Portugal DTAA. 16. Insofar as engineering package fee of Rs. 15,94,34,150/- is concerned, the break-up of the same has been provided elsewhere in the order. In the written s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions contained in Article 5(2)(g) and Article 5(3) of India Portugal DTAA. Article 5(2)(g), which is part of definition of Permanent Establishment (PE) says that a mine, an oil or gas well, quarry or any other place of extraction of natural resources, including an installation or structure used for the exploration or exploitation of nature resources only if so, used for a period of more than 120 days in a financial year shall qualify as a PE . Whereas, Article 5(3) provides that a building site, structure, installation or assembly project or supervisory activity in connection therewith constitutes a PE, only if it lasts more than 9 years . A conjoint reading of Articles 12(5)(f), 12(5)(g), Articles 5(2)(g) and 5(3) would make it clear that fees received towards services in connection with a mine, an oil or gas well, quarry or any other place of extraction of natural resources, including an installation or structure used for the exploration or exploitation of nature resources, a building site a construction, installation or assembly project, including supervisory activities in connection therewith would fall within the exceptions provided under Article 12(5)(f) 12(5)(g). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second limb that consists of development and transfer of technical plan or technical design , also requires the satisfaction of make available condition, as such words are qualified by which enables the persons acquiring services to apply the technology contained therein . 21. Keeping in perspective the aforesaid legal provisions, if we examine the facts on record, the assessee has received the amount for providing drawings to enable HIL to study and comment on specific proposal involving process specification, equipment lists for paste plant and anode recycling shops of green anode based on RHODAX Technology. Facts on record reveal that the primary purpose of providing such documents, designs and drawings was for the appraisal of the contractee. It does not per se mean transfer of technology. There is nothing on record to suggest that the assessee is also the owner of RHODEX Technology. There is no evidence brought on record by the Revenue to establish that the drawings, designs etc. provided by the assessee has enabled the recipients to apply the technology contained therein independently. Thus, in our considered opinion, the amount of Rs. 1,62,25,201 included in the engine ..... X X X X Extracts X X X X X X X X Extracts X X X X
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