TaxTMI 
TaxTMI 
2015 (9) TMI 957
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....en. During the impugned assessment year it has received "Management Service Fee" of Rs. 7,20,33,841/- from Sandvik Asia Pvt. Ltd., and Rs. 1,39,68,410/- from Walter Tools India Pvt. Ltd. In the draft assessment order passed on 26-12-2011 u/s.143(3) r.w.s.144C addition of Rs. 8,60,02,251/- was made by treating the amount received on rendering management services taxable as fees from technical services. 4. Before DRP the assessee submitted that the assessee provides management services to Sandvik Asia Private Limited and Walter Tools India Private Limited in accordance with the Management Services Agreement entered into with these group companies. These services are in the nature of commercial, management, marketing and administrative services. The specification of the services to be provided and the principles of allocating the cost of such services are updated on the intranet annually. 4.1 It was submitted that the purpose of the activities undertaken under the Agreement is to give direction or guidance to various group companies as a whole so that they adopt or follow standard procedures or templates in various matters. By virtue of such managerial intervention, common benef....
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....lause. The services provided by the assessee company were managerial in nature and hence are non-technical. In this connection, the assessee relied on the decision of DCIT Vs Boston Consulting Group Pvt. Ltd 2005 93 TTJ 293 (Mum) wherein it was held that devising, marketing and sales strategies , business strategy and portfolio strategy etc. are not covered under Article 124(b) of India-Singapore DTAA since these services are not technical in nature. 4.6 Relying on various decisions it was submitted that the services rendered by it do not satisfy the make available condition. It was submitted that the term 'make available' has been discussed in detail in * Memorandum of Understanding (MOU) to India -US DTAA * Technical explanation to India-US DTAA * Explanatory Memorandum to India-Australia DTAA 4.7 The assessee submitted that the services rendered by it are essentially "managerial services" to support the day-to-day functioning of the group entities and to share benefit of specialisation to improve quality of performance of the group entities. The definition of fees for technical services in the DTAA between India and Portugal does not cover managerial services. Hen....
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....f managerial service agreement, however, the DRP noted that the nomenclature given by the parties is not determinative of real nature of the transactions. Since the agreement according to the DRP does not list any services provided by the assessee so as to treat the same as managerial service, therefore, the DRP did not accept the contention of the assessee that the services rendered are of marketing, manufacturing and human resources and information technology functions. In view of lack of clarity on part of the assessee to establish that the services rendered by it are eligible for the beneficiary class under India-Portugal treaty, the DRP declined to interfere with the order passed by the Assessing Officer. 6. Based on the order of the DRP the Assessing Officer in the order passed u/s.143(3) r.w.s. 144C(13) on 27-10-2012 made addition of Rs. 8,60,02,251/- being income from FTS. 7. Aggrieved with such order of the Assessing Officer the assessee is in appeal before us with the following grounds : "On the facts and circumstances of the case, and in law; 1. The Ld. Assessing Officer and the Ld. DRP has erred in holding that the Management Service Fees ('MSF') of INR 86,0....
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....e parties and have also considered the written submissions and the precedents and decisions relied on by both the parties. The assessee is tax resident of Sweden. It is claimed that that it does not have a permanent place of business in India (PE). The dispute is in respect of the payment of Rs. 5.9 Crores received by the assessee company from its Indian subsidies i.e. Sandvik Asia Pvt. Ltd. (SAPL) and WTIPL. The claim of the assessee is that the assessee received the said payment from its Indian subsidies for rendering the services which are in the nature of commercial, management, marketing and production services. The nature of the services as per the agreement are already mentioned here-in-above. In this case there is no dispute about the legal position that the amount received by the assessee from its Indian subsidies is taxable in India under normal provisions of Act more particularly u/s. 9(1)(vii) r.w.s. 5(2) of the Income-tax Act. The main plank of the argument of the Ld. Counsel is that when the assessee is covered by the beneficial clauses in the treaty entered into as per the provisions of Sec. 90 (2) of the Income-tax Act then even if the assessee's income is taxable i....
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....sion-"make available". Per contra, the Ld. DR relied on the written submissions. 9. In this case the only issue to be considered by us is whether the assessee can be given benefit of India-Portuguese treaty on principle of MFN clause? The India entered into DTAA with the Sweden which was notified vide notification no. GR 705/E dated 17.12.1997. Article 12 of the India-Sweden DTAA provides the mode of taxation of the royalties and fees for technical services whether the same are to be taxed in the source country or in the residence country. The definition of the fees for technical services (FTS) is given in Article 12(3)(b) of the Act. It is true that it is a very conservative definition and there is no condition that the technical services should be made available. The India also entered into the treaty with Portuguese republic which was notified vide notification no. GR F42/E dated 16^th June, 2000. In the said Treaty, mode of taxation of the fees for technical services (FTS) between two countries is also provided in the Article 12 but instead of fees for technical services the expression used is "fees for included technical services". As per the Article 12(4) fees for included....
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....edits for services referred to in subparagraph (3)(d), subject to sub-paragraphs (3)(h) to (l), that are ancillary and subsidiary to the application or enjoyment of equipment for which payments or credits are made under sub-paragraph (3)(b); or (iii) royalties referred to in sub-paragraph (3)(f) that relate to equipment mentioned in sub-paragraph (3)(b); 10 per cent of the gross amount of the royalties; and (b) in the case of other royalties : (i) during the first 5 years of income for which this Agreement has effect : (a) where the payer is the Government or a political sub-division of that State or a public sector company: 15 per cent of the gross amount of the royalties; and (b) in all other cases: 20 per cent of the gross amount of the royalties; and (ii) during all subsequent years of income: 15 per cent of the gross amount of the royalties. 3. The term "royalties" in this Article means payments or credits, whether periodical or not, and however described or computed, to the extent to which they are made as consideration for : (a) the use of, or the right to use, any copyright, patent, design or model, ....
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....lishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the property, right or services in respect of which the royalties are paid or credited are effectively connected with such permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 14, as the case may be, shall apply. 5. Royalties shall be deemed to arise in a Contracting State when the payer is that State itself or a political sub-division or local authority of that State or a person who is a resident of that State for the purposes of its tax. Where, however, the person paying the royalties, whether the person is a resident of one of the Contracting States or not, has in one of the Contracting States or outside both Contracting States a permanent establishment or fixed base in connection with which the liability to pay the royalties was incurred, and the royalties are borne by the permanent establishment or fixed base, then the royalties shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. 6. Where, owing to a special relationship between the payer and the person b....
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....its) by the State Government of Karnataka, Andhra Pradesh and Chhattisgarh. During the early stage, various techniques were employed for the purpose of carrying out geophysical survey, the assessee entered into agreement with M/s. Fugro Elbocon B.V. Netherlands, who had a team of experts specialised in air borne geophysical services for clients. For the technical services rendered by them 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 T....
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.... has to be applied, and to be read into this agreement also. Therefore, it follows that for attracting the liability to pay tax not only the services should be of technical in nature, but it should be made available to the person receiving the technical services. The technology will be considered 'made available' when the person who received service is enabled to apply the technology. 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 co....
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....regard to the same subject matter, the same category of 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, ther....