TaxTMI 
TaxTMI 
TaxTMI 
2018 (7) TMI 2213
X X X X Extracts X X X X
X X X X Extracts X X X X
....c.195 of the Act on the foreign remittances made to Aditya Acquisition Company Limited, Israel. 2. The Id. CIT(A) has erred in law and on facts of the case in admitting the appeal U/s.248 of the Act though the Assessee had neither deducted tax at source u/s.195 of the Act at the time of credit of remittances nor paid any taxes to the Government Account, as such this appeal was not maintainable. 3. The Id. CIT(A) has erred in law and on facts of the case in deciding the appeal U/s.248 of the Act without providing opportunity of being heard to the Assessing Officer and in admitting the additional evidences in contravention of Rule 46A(3) of the I.T. Rules, 1962. 4. The Id. CIT(A) has erred in law and on facts of the case in accepting the contention of the Assessee that the services provided by Aditya Acquisition Company Limited, Israel had not resulted in imparting and making available technological skill, know-how to the Assessee, merely considering the contract period of 5 years. 5. The ld. CIT(A) has erred in law and on facts in holding that Aditya Acquisition Company Limited, Israel merely provided supervisory and managerial services whereas terms of Agreement clearl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e on any income, other than interest, under section 195 is to be borne by the person by whom the income is payable, and such person having paid such tax to the credit of the Central Government, claims that no tax was required to be deducted on such income, he may appeal to the Commissioner (Appeals) for a declaration that no tax was deductible on such income. 5. While on this issue, it is useful to take note of a coordinate bench of this Tribunal, in the case of Mahindra & Mahindra Ltd Vs Addl DIT [(2006) 106 ITD 521 (Bom)]. In this decision, it was held that unless there is an order holding assessee liable for deduction of tax at source under section 195, there is no occasion to appeal under section 248. That was a case in which the assessee had filed an appeal under section 248 on the ground that the Chartered Accountant issuing certificate with respect to ascertainment of tax withholding liability from payment made to non-resident entities had held that the assessee was liable to withhold taxes at source. Denying this liability, assessee carried the matter in appeal before the CIT(A), and, thereafter, before this Tribunal. On these facts, the co-ordinate bench, speaking throug....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to be borne by the person by whom the income is payable, and such person having paid such tax to the credit of the Central Government, claims that no tax was required to be deducted on such income, he may appeal to the Commissioner (Appeals) for a declaration that no tax was deductible on such income. 63.3 Applicability-These amendments will take effect from the 1st day of June, 2007. 7. As a plain reading of the present statutory provision indicates, the right to appeal under section 248 thus covers only such persons making the payments who, under an agreement or other arrangement, are bear the tax deductible on any income paid to the nonresident. In other words, unless a person bears the tax liability of the recipient, by agreement or otherwise, he does not have a right to appeal under section 248. In the present case, however, it is an undisputed position that the appellant before us, under clause 4.3 of the agreement under which the services were received from the non-resident entity, had the obligation to bear the tax liability, if any, of the recipient. 8. The other aspect of the matter is that "such person (i.e. the person making the payment who has an obligation, unde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned representatives fairly agreed that the issues requiring our adjudication are two neatly identified issues- one legal issue and one factual issue. There is no dispute that the assessee has paid fees for certain services to an Israeli entity and that the determination of taxability of the said remuneration is to be examined in the light of the provisions of the Indo Israel Double Taxation Avoidance Agreement [(2000) 254 ITR (Stat) 245; Indo Israel tax treaty, in short]. While the learned CIT(A) has granted the impugned relief by invoking Most Favoured Nation (MFN) clause read with Article 13, dealing with fees for technical services) and by holding that the services rendered by the Israeli entity did not "make available technical knowledge, experience, skill, know-how or processes ....... which enables the person acquiring the services to apply the technology contained therein", in substance, the stand of the learned Departmental Representative is that (a) the MFN clause in the Indo Israeli tax treaty is only an enabling provision and cannot, in the light of another DTAA entered into subsequently by an OECD Member jurisdiction i.e. Portugal in this case, automatically alter the F....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... services, provides as follows: ARTICLE 13- Fees for Technical Services 1. Fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the recipient is the beneficial owner of the fees for technical services, the tax so charged shall not exceed 10 per cent of the gross amount of the fees for technical services. 3. The term "fees for technical services" as used in this Article means payments of any kind received as a consideration for services of a managerial, technical or consultancy nature, including the provision of services by technical or other personnel, but does not include payments for services mentioned in Article 16 of this Convention. 4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the fees for technical services arise, through a permanent establishment situat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h of the protocol to the Indo Israel tax treaty which provides that, "The competent authorities of the Contracting States shall initiate the proper procedure to review the provisions of Articles 12 and 13 (Royalties and fees for technical services respectively) after a period of five years from the date of entry into force of this Convention. However, if under any convention or Agreement between India and any third State which enters into force after 1st January, 1995, India limits its taxation at source on Royalties or Fees for Technical Services or Interest or Dividends to a rate lower or a scope more restricted than the rate or scope provided for in this Convention, the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this Convention with effect from the date on which the present Convention comes into force or the relevant Indian Convention or Agreement, whichever enters into force later". It is pointed out that the said Indo Israel tax treaty, as also the protocol, were signed on 29th January 1996, and subsequent to the said date, the India Portugal Double Taxation Avoidance Agreement has come into force vide ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the MFN clause set out in the Indo Israeli tax treaty. It is then contented that the given the nature of services that the assessee has received under the agreement, nothing is 'made available' to the assessee is the sense that these services are consultancy services in nature and the assessee is not enabled to perform these services without recourse to the service provider. These are the contention which has found favour with the CIT(A), and the Assessing Officer is not content with the stand so taken by the CIT(A). The Assessing Officer is, therefore, in appeal before us. 16. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. Our analysis 17. It is only elementary that a protocol is an integral part of a tax treaty and when protocol provides for a most favoured nation (MFN) clause, the same is to be given due effect. In our considered view, 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. The provisions of the aforesaid DTAA are, therefore, required to be read with the protocol claus....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Switzerland as that provided to the third State" and India Philippines DTAA [(1996) 219 ITR St 60] which provides that " With reference to Articles 8 and 9 if at any time after the date of signature of the Convention the Philippines agrees to a lower or nil rate of tax with a third State the Government of the Republic of the Philippines shall without undue delay inform the Government of India through diplomatic channels and the two Governments will undertake to review these Articles with a view to providing such lower or nil rate to profits of the same kind derived under similar circumstances by enterprises of both Contracting States". The effect of these MFN clauses is thus negotiations and review by the parties so as to bring the parity in the provisions, rather than brining the parity in the provisions. In the present case, the MFN clause brings the parity into effect. 18. The definition of fees for technical services, under the Indo Portuguese tax treatyextracts from which have been reproduced above, covers rendition of only such "technical or consultancy services (including through the provisions of services of technical or other personnel)" as " (a) are ancillary and subsi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....kills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as "fee for technical/included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied. 19. The question thus arises as to whether the assessee can be said have received any services which makes available any "technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or technical design which enables the person acquiring the services to apply the technology contained therein" in the sense that there is a transfer of technology. We find that it is an ongoing contract that the assessee has entered into with the service provider, i.e. Israeli entity, and the thrust of the arrangement is essentially for supervisory and consultancy services. These services cannot, by any stretch of logic, be considered to have transferred the technology....