TaxTMI 
TaxTMI 
2017 (6) TMI 1174
X X X X Extracts X X X X
X X X X Extracts X X X X
.... learned Assessing Officer ('AO') erred in law and facts in holding and the learned Dispute Resolution Panel ('DRP') erred in law and facts confirming the fees received by the appellant amounting to INR 17,842.635 for services rendered as 'royalty' under the Act and the DTAA and taxing the fees under section 115A of the Act. 2. Holding that where there is no specific Article for taxability of particular payment in the DTAA, the provisions of the Act would be applicable (a) On the facts and in the circumstances of the case, the learned AO erred in law in holding and the learned DRP erred in law in confirming, that where- there is no specific Article for taxability of a particular payment in the DTAA, the provisions of the Act would be applicable. (b) On the facts and in the circumstances of the case, the learned AO erred in law in taxing the fees received by the appellant under section 115A of the Act irrespective of there being no Article in the DTAA for taxation or fees for technical services and the appellant not having permanent Establishment (PB) in India, 3. Levy of interest under section 234B of the Act &nbs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red in law in holding and the learned DRP erred in law in confirming that where there is no specific Article for taxability of a particular payment in the DTAA, the provisions of the Act would be applicable. (b) On the facts and in the circumstances of the case, the learned AO erred in law in holding that the fees received (i.e. FTS) as taxable under the Act, irrespective of there being, no Article in the DTAA for taxation of FTS. 3. Penalty proceedings under section 271(1)(c) The learned AO has erred in initiating penalty proceedings under section 275(:l)(c) of the Act. 4. Relief (a) The appellant prays that directions be given to grant all such relief arising; from the above grounds and also all relief consequential thereto. (b) The appellant craves leave to add to or alter, by deletion, substitution,, modification or otherwise, the above grounds of appeal, cither before or during the hearing of the appeal . (c) Further, the appellant prays that all above adjustments / additions /' disallowances made by the learned AO and upheld by the learned DRP are had in law and liable to be deleted. 4. Brief facts of the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing Officer, at para 9.5 of the order has held as under : "It is true that' the India-UAE DTAA does not have any article dealing with fees from technical services. In such a scenario the domestic Act will prevail and as discussed in the earlier paragraphs the sums paid to ABB FZ-LLC are covered by the definition of FTS as per Explanation 2 to Section 9(1)(vii) of the Act. Where there are specific provisions to the contrary, a treaty enacted under Section 90 (which itself is a part of the Act) would override the other provision of the Act with an additional advantage of applying more beneficial provision of the Act, Hence, so far as chargeability to tax and computation of income are concerned, where the tax treaty provides for a particular mode of computation on income, the same should be followed irrespective of the provision in the Act. However, where there is no specific provisions in the treaty, the provision of the Act will govern taxation of income. Thus, if treaty is silent as regard taxability of particular category of income, its taxability has to be ascertained as per domestic law. " Case laws taken in support are : 1. CIT v. Hindusthan Paper Corpn....
X X X X Extracts X X X X
X X X X Extracts X X X X
....coordinate bench as well as decision of Hon'ble Madras High Court in the case of Bangkok Glass Industry Co, Ltd. (supra). In view of the above discussion and by following the decision of the co ordinate bench in the case of IBM India Pvt. Ltd. (supra), we are of the considered opinion that in the absence of the provision in the DTAA to tax Fees for Technical Sendees the same would be taxed as per the Article 7 of the DTAA applicable for business profit and in the absence of PE in India, the said income is not chargeable to tax in India, Accordingly, we set aside the orders of the authorities below and delete the addition made by the Assessing Officer. Further In support of this argument, the ld. AR relied on the decision of the coordinate bench of this Tribunal in IBM India (P.) Ltd v. Dy. DIT (International Taxation) [IT (IT) Appeal Nos.489 to 498 (Bang.) of 2013, dated 24-1-2014], for the A.Ys. 2007-08 to 2011-12. In para 6 of the order it was held by the Tribunal as under : "6. In the Ground'at S:'No.2, .-the assessee contends that the payments made .to IBM- Philippines for services rendered cannot be regarded as 'Managerial', 'Technical' ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... terms provided and the terminologies used in the agreement, most of the services rendered / information provided by ABB FZ LLC to ABB ltd , if not all, are covered by the definition of Royalty in Explanation 2(ii), 2(iv) and 2(vi) u/s.9(1)(vi)of the I.T. Act, 1961. (iii) It was submitted that if the nature of the activities of the assessee are considered, then it clearly shows that the information was parted with shared by the assessee with its counterpart. In this regard, DR drew our attention to the following clauses of the agreement entered between the assessee and its counterpart in India. I. Under Regional Occupational Health and Safety (OHS) services : 1. Development of regional OHS strategies in line with ABB strategies -The strategies belong to the assessee and is transferred and developed to the requirement of Service Recipient (SR) in India, constitutes Royalty. 2. Provision of information about strategies, goals, targets and instruction in the field of OHS. 3. Coaching and Monitoring the OHS advisors of the SR in implementing and developing OHS plan and strategies. 4. Acting as a contact point between the Group Safet....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd correct approaches. 4. Ensurement that the team meets and exceeds set sales targets. 5. ...making sure that full support is given to strategic accounts during the whole value chain cycle. 6 . ...customer feedback through surveys and other customers satisfaction tools. 7. Direction interation with the SR's customers to gain entry into the customer organization or for high level discussions taking place at executive level. Etc....etc.. V. Under Regional EPC services : 1. Collection and consolidation of project and market data and distribution to the SR. 2. Provision of executive sponsorship for selected EPC projects. 3. Organisation and carrying out of capture training, 4. Setting up of target and follow-up of achievements. Etc.. .etc. VI. Under Regional Project Risk Management Services : 1. Supply of information of best practices, lessons learnt, benchmarking information and internal audit reports. Etc... VII. Under Regional market development services ; 1. Monitoring of the implementation of the IMA Region strategic initiatives, including quarterly reviews, an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....B group roles. Excluded from this obligation to secrecy is information, which is already published, which on receipt was already known to the receiving party or which has been made available by a third party without violating an obligation of secrecy, as well as information which for the purposes of marketing, supply or use of ABB goods and products must be made available to third parties. The provisions concerning secrecy shall continue to apply also after termination of this agreement. All rights to information.. including corresponding, intellectual property rights, shall remain with the Party that supplied the information," (viii) It is thus, seen that the information provided by the assessee were in the nature of technical knowledge and experience acquired by the assessee company over a period of time which is also considered' by' the assessee company as, secret information, . Such information partakes the character of IPR which is to remain with the assessee. It is thus evident 'that clause 9 of 'the agreement also supports the contention of the AO that there was a consideration paid for transfer of rights of information which included IPR. (....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (xiii) In the alternative, it was submitted that even if it is assumed that the clause for FTS (the charges recovered by the assessee for rendering service in India), though not there in the DTAA and FTS are to be charged, in clause 7 of the DTAA forming part of the business than also it was chargeable in India as the assessee is having service PE in India. For that purpose, the Ld. DR relied upon clause 5(2)(i) of the DTAA. (xiv) Lastly, it was submitted that the assessee has not cooperated in the assessment proceedings before the AO as well as before the DRP and has not produced the documents / evidence to show that the services were actually rendered by the assessee to its counterpart in India and therefore assessee is not entitled to any relief under law. 8. The case was heard on 17.05.2017 and the assessee was directed by the bench to submit the tax residency certificate in accordance with the provision of section 90 of Act and also in terms of Article 4 of DTAA. 9. The assessee in compliance of the direction of the bench had filled the certificate issue by UAE authorities and also filled further submission dated 18.05.2017. 10. The reven....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or under the corresponding law in force in that country or specified territory, as the case may be, or investigation of cases of such evasion or avoidance, or (d) for recovery of income-tax under this Act and under the corresponding law in force in that country or specified territory, as the case may be, and may, by notification in the Official Gazette, make such provisions as' may be necessary for implementing the agreement. (2) Where the Central Government has entered into an agreement with the .Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. (3) Any term used but not defined in this Act or in the agreement referred to in sub-section (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Cen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n relation to so much of the income by way of royalty as consists of lump sum payment made by a person, who is a resident, for the transfer of all or any light (including the granting of a license) in respect of computer software supplied by a non-resident manufacturer along with a computer or computer-based equipment under any scheme approved under the Policy on Computer Software Export, Software Development and Training, 1986 of the Government of India. Explanation (2) reads as under: Explanation 2. - For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for- (i) the transfer of all or any rights (including the granting of a license) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trademark or similar property; (iii) the use of any patent, invention, model, design, secret formula o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is deemed to be received- in India in such year by or on behalf of such person ; or (b) accrues or arises or is -deemed lo accrue or arise to him in India during such year; or (c) accrues or arises to him outside India during such year : Provided that, in the case of a person not ordinarily resident in India within, the meaning of sub-section (6)-of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India, (2) Subject to6 the provisions of this Act, the total income7 of any previous year of a person who is a non-resident includes all income from whatever source derived which- (a) is received9 or is deemed to be received in India in such year by or on behalf of such person ; or (b) accrues or arises9 or is 9deemed to accrue or arise to him in India during such year. Explanation 1. - Income accruing or arising outside India shall, not be deemed to be received9 in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....espective Contracting States ; (g) the terms "enterprise of a Contracting State" and "enterprise of the other Contracting State" mean respectively, an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State; (h) the term "national" means : (i) in the case of U.A.E. all individuals possessing the nationality of U.A.E. in accordance with U.A.E. laws and any legal person, partnership and other body corporate deriving its status as such from U.A.E. laws ; (ii) in the case of India, any individual possessing the nationality of India and any legal person, partnership, or association deriving its status as such from the laws in force isi India ; (i) the term "international traffic" means any transport by a ship or aircraft operated by an enterprise which has its place of effective management in a Contracting State except when' the ship or-aircraft is operated solely between places in the other Contracting State (j) the term "competent authority" means : (i) in the ease of U.A.E.,. the Minister of Finance and Industry of his authorised representati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etermined as follows : (a) he shall be deemed to be resident of the State in which he has a permanent home available to him ; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests); (b) if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode; (c) if he has an habitual abode in both States or in either of them, he shall be deemed to be a resident of the State of which he is a national.; (d) if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement. 4. Where by reason of the provisions of paragraph (1), a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident of the State in which its place of effective management: is situated. ARTICLE 5 PERMANENT ESTABLISHMENT 1. For the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....spect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to the purchase of goods or merchandise for the enterprise, 5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise, he will not be considered an agent of independent status within the meaning of this paragraph, ARTICLE 7 BUSINESS PROFITS 1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment. 2. Subject ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that State, but if the recipient is the beneficial owner of the royalties the tax so charged shall not exceed 10 per cent of the gross amount of such royalties. 3. The term "royalties" as used in this Article means payment 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 cinematography films, or films or tapes used for radio or television broadcasting, any patent, trademark, 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 but do not include royalties or other payments in respect of the operation of mines or quarries or exploitation of petroleum or other natural resources. 4. The provisions of paragraphs (1) and. (2) shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise, through a permanent establishment situated therein or performs in that other State independent personal services from a fixed ba....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... or Article 14, as the case may be, shall apply. ARTICLE 25 ELIMINATION OF DOUBLE TAXATION 1. The laws in force in either of the Contracting States shall continue to govern the taxation of income and capital in the respective Contracting States except where express provisions to the contrary are made in this Agreement. 2. Where a resident of India derives income or owns capital which, in accordance with the provisions of this Agreement, may be taxed in U.A.E., India shall allow as a deduction from the tax on the income of that resident an amount equal to the income-tax paid in U.A.E. whether directly or by deduction; and as a deduction from the tax on the capital, of that resident an amount equal to the capital tax paid in U.A.E. Such deduction in either case shall, not, however, exceed that part of the income-tax or capital tax (as computed before the deduction is given) which is attributable, as the case may be, to the income or the capital which may be taxed in U.A.E. Further, when such resident is a company by which surtax is payable in India, the deduction in respect of income-tax paid in U.A.E. shall be allowed in the first instance from income-tax payable by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and under the corresponding, laws in force in that country. Further the purpose of agreement is for exchange of information for prevention of evasion of avoidance of tax chargeable in India or in other country and also for bringing into the ambit of Income-tax under the IT Act and also the corresponding laws in force in that country / specified territory. 18. Further Section 90 of the IT Act, the assessee not being a resident to whom the DTAA applies, shall not be entitled to claim any relief under such agreement, unless a certificate of the assessee being a resident of any country outside India, as the case may be, is obtained by it from the Government of that country of the specified territory. It is made clear by virtue of Section 90(3) of the Act that where the Central Government entered into agreement (DTAA), with the Government of any other country for granting relief of tax, avoidance of double taxation, then in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to the assessee. The Hon'ble Supreme Court in Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 has laid down that pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dence, along with the written submission dt.23.05.2017 the certificate issued by the UAE authorities is as under ; 22. From a perusal of the certificate, it is clear that this certificate was issued only for a period of one year, w.e.f 01.04.2012 and the said certificate was issued on 27.10.2014. 23. In this regard, as reproduced hereinabove, a resident alone under Article 4 of DTAA can avail the benefit of DTAA. Since the certificate issued by the UAE authorities, was issued only for one year from 01.04.2012, whereas the assessment years under consideration are 2009-10 and 2010-11. The returns of income for these years were filed on 09.09.2010 and 27.02.2011 respectively; therefore this certificate would not help the assessee as this is not relevant for the years under considerations. Thus it is amply clear that the assessee was not a resident of UAE at the filing of returns of income within the meaning of Article 4 of DTAA. Further the assessee has not placed any evidence showing that the assessee was wholly managed and controlled in UAE and is a tax entity in UAE. Accordingly, the assessee is not entitled to any benefits of DTAA. In view thereof, appeal of the assessee des....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e mentioned therein. It will be violation of the principles of interpretation that if a clause which is not mentioned or defined in the treaty would be permitted to be read in the treaty. 29. We may point out that in the order referred to by the Ld. AR, the coordinate bench had not examined either the assessee is resident of UAE or not or whether the assessee is having PE or not or the applicability of Article 22 or Article 25 or 29 of the DTAA between India and UAE Treaty. Moreover in the said judgment, there is no examination by the coordinate bench with regard to the nature activities of the Assessee as to under which clause of DTAA such activities of the assessee would fall. 30. Article 7, which deals with 'Business Profits', it clearly indicates that the profit of an enterprise of the contracting state shall be taxable in that state if it has a PE and it is restricted to the profit of the enterprise, which is attributable to the PE. 31. Further case cited by the assessee very clearly indicates that if there is no PE of the assessee in India, then the services rendered by the assessee in the form of FTS cannot be taxed in India. But the application of these jud....
X X X X Extracts X X X X
X X X X Extracts X X X X
....income can be termed as 'Business Income' or not. This view has been discussed elaborately by the coordinate bench in the matter of IBM India (P.) Ltd. (supra), wherein it is held that if the income is not falling under any of the categories mentioned in the DTAA, then it will fall in residual Article 22. Therefore it will have a trapping of business profit and therefore, it is required to be dealt under Article 7, instead of Article 22. In our view the Article 22 would become redundant if residual income is to form part of Business Income. In our view any income which is also not forming part of business profit under Article 7 as well would also form part of residual clause namely Article 22, therefore to say and hold that residual clause (Article 22) would become part of business profit (Article 7) would made the Article 22 incongruous and otiose. Having said so, we will now examine whether the activities of the assessee fall in any other Article of the DTAA. 34. The assessee during the assessment proceedings before the AO has mentioned that assessee is a non-resident company, incorporated in the UAE and in pursuance of the Regional Headquarter Services Agreement betwe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dered to the benefit of ABB Ltd., India, therefore stared as per January 1, 2010 (please see the agreement as per item 1 above). ABB Ltd. India is the largest ABB company in the Region, and therefore receives a lot of attention. Various service activities have been carried out by ABB FZ-LLC for the benefit of ABB Ltd. India. Please find enclosed in Annexure 2 some examples of documents related to the entity in India in connection with the sending of services. 3. Question 3. In case where services were rendered/provided outside India the following details in respect of the payment received for FY 2009-10 in respect of AY 2010-11 be furnished: In this regard, we wish to submit that services were rendered from both within India and outside India. Please note that most of the services have been rendered from outside India. Further, as sought for , please find the below the following: Sl. No. Date of payment Amount TDS 1 11 March 2010 Rs. 17,842,635 1,784,264 The copy of the TDS certificate has already been filed vide our submission dated 6 June 2012. 4. Question 4: Please clarify whether services rendered/work ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....provided a copy of the invoice raised on ABB Limited. In this regard, we wish to inform you that a copy of the invoice was filed vide our submissions dated 14 June 2012. However, a copy of the invoice is attached herewith (enclosed as Annexure 2) for your ready reference. • Further as sought for, we wish to inform you that certain services were rendered through telephone calls. The details of dates of rendering of services are mentioned below: * 6 January 2010; * 20 January 2010; * 3 February 2010; * 17 February 2010; * 3 March 2010; * 24 March 2010 and * 31 March 2010 38. In reply to the assessee dt.22.06.2012, the assessee has submitted the following submissions besides relying on earlier submissions dt.26.06.2012: We refer to the captioned notice issued by your office for the assessment proceedings of the Company for AY 2010-11 and the subsequent discussion our authorised representatives M/s. BSR & Co., Chartered Accountants had with your goodself on 6 June 2012, 7 June 2012, 14 June 2012 and 25 June 2012. In this connection, as sought for by your goodself, please find below a write-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s training with Central Management of ABB Ltd • Collection. of intelligence and information on the security situation, and updating it on the Central Threat Map for ABB travellers going to India, • Reviewing and approving Travel Information Sheets for ABB travellers going to India and countries within the India sub region (Sri Lanka, Nepal and: Bangladesh) • Issuing travel alerts during times of limited crises or enviormental emergencies, such as. floodings etc, (e.g. ABB TSU 201027,2010:4 to be found on inside, ABB web page). 3. Regional project Risk Management Services Below services were provided either during visits to ABB Ltd, India or, mainly, from outside India,: • Preparation and implementation of a Risk Management plan for all countries in IMA, Details in Risk Management plan document • Established and managed the Risk Management training for all countries in IMA. • Organized and implemented the IMA Risk management bi-weekly phone meetings which covered; * update of Risk Management plan * sharing best practices among the different countries * detailed discus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries" The services rendered by ABB FZ-LLC are in the nature of managerial technical and consultancy services. Hence the payments are to be taxed in India as per Section 9(l){vii) of the Act. 40. In reply to the said notice the assessee had submitted the services rendered by the assessee were in the nature of technical services. We are required to examine this aspect in the context of the various clauses mentioned hereinabove, either before the AO or before the DRP, or before this Tribunal. However before examine this issue we would be adverting to other important issue of Permanent Establishment. 41. "PE" has been referred to in the definition of "enterprise" in section 92F(iii) of the Act by the Finance Act, 2001 and subsequently in Section 44DA of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....] 115 ITD 167. It was submitted by him that the ld, DR cannot be permitted to set up a new case by stating that the assessee is having a service PE in view of Article 5(2)(i) of the DTAA. 44. On the objection raised by the ld. Senior Advocate, we would like to bring on record that the ld. DR has not submitted altogether different case de hors the view of the lower authorities. 45. As noted herein above, the DRP has categorically held that the assessee is having a PE, In our view, in view of Rule 29 of the ITAT Rules, the Revenue can support the order passed by the authorities below on the basis of Article 5(2)(i), to say that the assessee is having service PE within the meaning of DTAA. The objection raised by the assessee with respect to applicability of the said two Special Bench decisions (supra), in our view, is not correct From the proceedings before the DRP, it is clearly deducible that the objection with respect to PE was raised by the assessee and in support thereof, various judgments were cited by the assessee. After considering the judgments cited by the assessee, the DRP had held that the assessee is having a PE. It is not a case of the assessee that the objection ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ces including consultancy services of the other contracting state ; (ii) The said services were ;furnished through the 'employees or other personnel in.-the.oth.er contracting State ; (iii) Such activities continued for the same project or connected project for a period or periods aggregating more than 9 months within any twelve-month period. 49. Therefore it is clear that furnishing of services including consultancy services by assessee to ABB Ltd for the project in India or with connected Project was for a period 3 months after commencing its activities in January 2010. Thus it fulfil are the prerequisite of service PE and in our view service PE do not require permanent establishment as well. In the present age of technology where the services, information, consultancy, management etc., can be provided with various virtual modes like e-mail, internet, videoconference, remote monitoring, remote access to desktop, etc., through various software, therefore, the argument of fixed place of business, raised by the ld. Senior Advocate for the assessee that three employees were rendered services only for 25 days cannot be sustained, as the services can be rendere....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to their natural import but also those things which the interpretation clause declares that they shall include." 15. Therefore, it is trite that generally the word "include" should be given a wide interpretation as by employing the said word, the legislature intends to bring in, by legal fiction, something within the accepted connotation of the substantive part.(Also see: C.I.T., Andhra Pradesh v. Taj Mahal Hotel, Secunderabad, [1971] 3 SCC 550; Indian Drugs & Pharmaceuticals Ltd. v. Employees' State Insurance Corporation [1997] 9 SCC 71; T.N. Kalyana Mandapam Assn. v. Union of India [2004] 5 SCC 632). It is also well settled that in order to determine whether the word "includes" has that enlarging effect, regard must.be had to the context in which the said word appears. (See: The South Gujarat Roofing Tiles Manufacturers Association v. The State of Gujarat [1976] 4 SCC 601; R. D. Goyal v. Reliance Industries Ltd., [2003] 1 SCC 81 and Philips Medical Systems (Cleveland) Inc. v. Indian MRI Diagnostic and Research Limited [2008] 10 SCC 227). 51. Similarly in Karnataka Power Transmission Corpn. v. Ashok Iron Works (P.) Ltd [CA No. 1879/2003 with CA No.7784/2002, dt.09.02.20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d. and this Court summarized the legal position that inclusive definition by the Legislature is used; (one) to enlarge the meaning of words or phrases so as to take in the ordinary, popular and natural sense of the words and also the sense which the statute wishes to attribute to it; (two) to include meaning about which there might be some Dispute; (three) to bring under one nomenclature all transactions possessing certain similar features but going under different names. 14. It goes without saying that interpretation of a word or expression must depend on the text and the context. The resort to the word includes' by the Legislature often shows the intention of the Legislature that it wanted to give extensive and enlarged meaning to such expression. Sometimes, however, the context may suggest that word 'includes' may have been designed to mean "means". The setting, context and object of an enactment . may provide sufficient guidance for interpretation of word includes' for the purposes of such enactment. 15. Section 2(1)(m) which enumerates four categories namely, (i) a firm whether registered or not; (ii) a Hindu undivided family; (iii) a co-opera....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vices through its employees. It is however, submitted by the Ld. Senior Advocate that the employees of the company remained in India only for 25 days and, therefore, the third condition of stay in India for more than 90 days, is not attracted. 54. As per our reading it is not the stay of the employees for more than 9 months, which is required to be there but it is fact of rendering of services or activities which was required to be rendered for a period of nine months. If we look into the reply submitted by the assessee in April 2012 and June, 2012, then it is clear that the assessee : (a) Has rendered the services through its three employees and their stay was for 25 days; and (b) As is clear from the second reply, the assessee has rendered the services on various occasions from January to March 2010. 55. The providing of services for a period of nine months is stipulated in the period of 12 months. In our view, once the activity of the assessee commenced only in the month of January, 2010, then the argument of completing 9 months service before March, 2010, is preposterous, implausible and against the common sense. It is not expected to complete 9 months b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ms, Mumhai 2006 (202) ELT 561 (SC). In Gursahai Saigal (supra), the question which fell for consideration before this Court was construction of the machinery provisions vis-a-vis the charging provisions. Schedule appended to the Motor Vehicles Act is not machinery provision. It is a part of the charging provision, By giving a plain meaning to the Schedule appended to the Act, the machinery provision does not become unworkable. It did not prevent the clear intention of the legislature from being defeated. It can be given an appropriate meaning." 36. A reference to the observations of this Court in J.K. Synthetics Ltd. v. CTO [ 1994] 4 SCC 276 would be apposite: "13, It is well-known that when a statute levies a tax it does so by inserting a charging section by which a liability is created or fixed and then proceeds to provide the machinery to make the liability effective. It, therefore, provides the machinery 'for the assessment of the liability already fixed by the charging section,, and then provides the mode for the recovery and collection of tax; including penal-provisions meant to deal'with defaulters. ... Ordinarily the charging section which fixes the liab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f facts we come to conclusion that the activities of the assessee do not fall in any of the Article of DTAA. 58. Now, we would examine the claim of the assessee that it is rendering technical services based on the service agreement regarding 'Regional Headquarter Service Agreement' and its various reply falls under royalty or any other clause of DTAA. The information provided by the assessee to ABB Ltd, were acquired by the assessee of its expertise, experience and knowledge based on its association with ABB group Zurich. The said information are not available in the public domain or cannot be acquired by ABB Ltd on its own effort and the information which are provided were in the nature of special knowledge, skill and expertise. As is clear from the reply submitted by the assessee, the assessee has merely provided the access to such specialised knowledge, skill and expertise and has not done anything more, for rendering the services. For the abovesaid purpose, some of the important clauses, which we feel throw light on the activities of the assessee are as under : (i) Development of Regional OHS strategies in line with ABB strategies and considering the risk pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ess to ABB Ltd various secret, confidential, IPRs information and other information acquired by it from its past experience to ABB Ltd. If the services were actually rendered by the assessee, (as claimed by the assessee) than it is essential that the assessee would have sent some of its officer on its payroll to actually execute the services at various branch offices of ABB Ltd. In our view the assessee is required to undertake collecting, analysing and delivering of security intelligence and information to the service recipient under "The Regional Headquarter Services" to ABB Ltd , then the deployment of manpower by the assessee was necessary and similarly the deployment of manpower is equally necessary in case of education in basic sector procedure and regulations to new employees of service recipient (ABB Ltd). 60. In the reply of the assessee to AO, it is by the assessee, that coaching and monitoring the OHS advisors of ABB Ltd in implementing and developing OHS plans' and ' strategies, were rendered via visits, telephone calls, meeting trainings etc but no evidence was given by the assessee to AO or CIT or the Tribunal. In our view, these activities which were alleg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gross revenue, then it implies that assessee did not incur any cost in providing such services as these are the kind of information, knowledge or expertise as well as experience already in existence and in the possession of assessee. There is no quarrel that using the experience and expertise by the assessee itself for providing the services in the form of report or design developed specifically for Indian entity which was not already in' existence,' then providing such report, plan or design by using the expertise would not constitute imparting, of such 'expertise, information or experience and therefore would not fall under the: purview of royalty, as held by the' Hon'ble Bombay High Court, 'in the case of Diamond Services International (P.) Ltd. (supra) as under: - '9. ** ** ** 10. Article 12(3)(a) of the DTAA is a tax liability and as per has to be interpreted on the said principles of interpretation of taxation provisions as explained. in A.V. Fernandez v. Sta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....c. The commentary on OECD Model Tax Convention is a relevant guidance for deciding the issue of nature of payment whether it is royalty or business income. The relevant extracts of the OECD Model Tax Convention in paragraphs 10.2 to 11.6 are as under:- '10.2. ** ** **' 62. The dominant character of agreement between the assessee and Indian company was for sharing secret, confidential and IPRs information made available during the years under consideration under the said agreement clearly suggest that the activities of the assessee were covered under the Royalty clause of DTAA. This is further clear from the 'secrecy and confidential clause in the agreement to the following effect "Secrecy Intellectual property rights : The parties undertake to keep information received from the other party secret. They shall take all measures necessary for secrecy, in particular by binding their employees w.r.t secrecy, in line with the ABB group rules. Excluded .from this obligation to secrecy is information, which is alrea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....commercially were concerning industrial, 'commercial or scientific experience activities would fall under Royalty of DTAA .' As we had held that the activities under consideration of the assessee falls under Royalty Clause 12 of DTAA and not under residual clause, therefore the assessee is liable to be taxed within India in accordance with Article 12 of DTAA, section 5 read with section 9 of Income Tax Act. 66. In our view, the judgment relied upon by the assessee are not applicable to the facts and circumstances of the ease. In the matter of HEG Ltd. (supra) is not applicable to the present case as in the said case services rendered were in the form supply of a booklet as claimed by the assessee themselves unlike the situation in the instant case. In the instant case, the assessee has rendered various services to support the Service Recipient in its business and has rendered full support to the assessee in the functioning of the same starting from implementation to the improvement of the same. The category of information provided were with special features which were not available in open market by the assessee thus it materially differs from the category of services re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onary it is prescribed as "give a share of (a thing)". A plain reading, therefore, of the meaning of the word "impart" implies that it means to give, to bestow, communicate, to grant a part or share of or give a share of a thing. Considering that the term 'royalty' envisages grant or share of industrial or commercial experience. In other words there should be a transfer of "industrial or commercial experience" from assignor to the assignee for a consideration. Therefore, to fall within the meaning of the term 'royalty' under article 12 of the DTAA it must envisage the-person-who is the owner of any intellectual property right, designs or model, plan, secret formula or process, etc. to retain the property in them and permit the use or allow the right to use such patents, designs or models, plans, secret formula, etc. to another person. Where there is no transfer of the right to use, payment made cannot be treated as royalty. To be considered as royalty normally the following factors should be present in the transaction;- (a)There should be a consideration for use or transfer of right to use; (i) The payment shall be towards grant or share for acquir....
X X X X Extracts X X X X
X X X X Extracts X X X X
....perience, know-how represents what a manufacturer cannot know from mere examination of the product and mere knowledge of the progress of technique". 11.1 In the know-how contract, one of the parties agrees to impart to the other, so that he can use them for his own account, his special knowledge and experience which remain nnrevealed to the public. It is recognised that the grantor is not required to play any part himself in the application of the formulas granted to the licensee and that he does not guarantee the result thereof. 11.2 This type of contract thus differs from contracts for the provision of services, in which one of the parties undertakes to use the customary skills of his calling to execute work himself for the other party. Payments made under the latter contracts generally fall under Article 7. 11.3 The need to distinguish these two types of payments, i.e. payments for the supply of know-how and payments for the provision of services, sometimes gives rise to practical difficulties. The following criteria are relevant for the purpose of making that distinction: Contracts for the supply of know-how concern information of the kind describe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in respect of 'Royalty', and as held if there is imparting or alienation of any know-how while rendering the service on account of information concerning industrial, commercial and scientific expertise than it is royalty and if there is no alienation or use of any right to use of know-how or, then it cannot be termed as 'Royalty' 72. In our view the DTAA under consideration, clearly uses the word for the "use of or "right to use of, commercial, scientific equipment and has not used the word either 'imparting' or 'alienation' of know-how. In our view the DTAA entered into between the two contracting states is a complete code in itself and is required to be strictly interpreted. The language used in the clause under consideration is plain and unambiguous and therefore reading of words 'alienation' or 'imparting' of know-how in the treaty would tantamount to rewriting the treaty by this Tribunal, which is not permissible. Following the rules of interpretation of statute as held by the Hon'ble Supreme court in the matter of Calcutta knitwear (supra) and also in the matter of Raghunath Rai Bajera v. Punjab National Bank [(2007) (2) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... account of professional fee for global biopharmaceutical strategic counselling and advisory services rendered by the service provider, on which no TDS was made. The services rendered in this case is limited to strategic and financial counselling services and there are no secret, confidential and IPRs right information was permitted to be used by the assessee pertaining to industrial, commercial or scientific information Hence there are clear distinguishing factors in the relied upon case vis-a-vis the.instant case. 75. Therefore once payment of any kind received as a consideration for the use of, or the right to use, industrial commercial or scientific equipment by the assessee it will fall within the realm of Royalty as per DTAA. 76. It is worthwhile to mention here that the assessee has placed its reliance on the decision of ITAT, Bangalore Bench 'C in ABB FZ-LLC's case (supra) in assessees own case for A.Y. 2012-13. In our view, there was no quarrel with respect to residence status of the assessee. in the said assessment year. Moreover, on examination of the agreement and information provided by the assessee to ABB Ltd, with a right to use the said information, wa....