TaxTMI 
TaxTMI 
2022 (2) TMI 769
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....M/s. Shrenik Industries Pvt. Ltd. towards providing technical support, financial support and advice, legal support, commercial support etc., and Rs. 63,08,722/- received towards SAP software and implementation of process model. The assessee declared the above amounts as 'fees for technical services' and 'royalties' respectively, claiming them as covered under Article 13 of the DTAA. Relying on the Protocol to the DTAA having Most Favoured Nation (MFN) clause along with Article 12 of the Double Taxation Avoidance Agreement between India and Portugal (Portuguese DTAA), the assessee claimed that the above gross receipts of 'royalties' and 'fees for technical services' were taxable @10% instead of 20% as provided in the DTAA. The AO did not dispute the amount or the nature of income offered by the assessee. He, however, held that the tax rate of 10% applied by the assessee under Portuguese DTAA could not be applied because section 90(1) specifically requires the issuance of necessary Notification by the Government of India. In order to import an MFN clause from another DTAA having lower rate of tax or narrower scope of definition of certain clause, it is necessary that such importing o....
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.... between India and Spain was notified in 1995. Article 13 of the DTAA contains provisions relating to 'royalties' and 'fees for technical services', whose relevant part runs as under: - Rs. 1. Royalties and 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 royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the law of that State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed : (i) in the case of royalties relating to the payments for the use of, or the right to use, industrial, commercial or scientific equipment, 10% of the gross amount of the royalties; (ii) in the case of fees for technical services and other royalties, 20% of the gross amount of fees for technical services or royalties. 3. The term "royalties" as used in this Article means payments 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 cinematographic f....
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....nder this Convention. Thus, the MFN clause contained in the above para 7 of the Protocol manifests that if India has entered into a Convention after 01-01-1990 with a third country which is a Member of the OECD and under such Convention it has, inter alia, agreed for a lower rate of taxation vis-à-vis that provided in the DTAA with Spain, such lower rate of tax will apply under the DTAA with Spain. India entered into a DTAA with Portuguese Republic vide Notification dated 16-06-2000. Article 12 of the DTAA with Portugal, which is an OECD member country and fulfils all other conditions as prescribed in the Protocol, provides that the 'royalties' and 'fees for technical services' shall, in the circumstances as are obtaining in the extant case, be taxed at 10% of the gross amount. Taking assistance of 10% tax rate as provided in Article 12 of the Portuguese DTAA, the assessee claimed that the tax rate of 20% as provided under Article 13 of the DTAA between India and Spain shall not apply and it will be governed by the reduced rate of taxation of 10% as per Article 12 of the Portuguese DTAA. The Revenue jettisoned the applicability of India and Portugal DTAA on the ground that t....
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....g conditions are met: (i) The second treaty (with the third State) is entered into after the signature/ Entry into Force (depending upon the language of the MFN clause) of the treaty between India and the first State; (ii) The second treaty is entered into between India and a State which is a member of the OECD at the time of signing the treaty with it; (iii) India limits its taxing rights in the second treaty in relation to rate or scope of taxation in respect of the relevant items of income; and (iv) A separate notification has been issued by India, importing the benefits of the second treaty into the treaty with the first State, as required by the provisions of sub-section (1) of Section 90 of the Income Tax Act, 1961. If all the conditions enumerated in Paragraph 5(i) to (iv) are satisfied, then the lower rate or restricted scope in the treaty with the third State is imported into the treaty with an OECD State having MFN clause from the date as per the provisions of the MFN clause in the DTAA, after following the due procedure under the Indian tax law." 11. A look at the above para deciphers that the benefit of a lower rate of taxation or restricted scope of source t....
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.... its integral parts, get automatically notified. As such, there remains no need to again notify the individual limbs of the Agreement so as to make them operational one by one. 12. It is trite law that a circular issued by the CBDT is binding on the AO and not on the assessee or the Tribunal or other appellate authorities. It has been held so authoritatively in CIT Vs. Hero Cycles Pvt. Ltd. (1997) 228 ITR 463 (SC) as reiterated in CCE Vs. M/s. Ratan Melting and Wire Industries (2008) 220 CTR 98 (SC). Ex consequenti, the Circular transgressing the boundaries of section 90(1) of the Act, cannot bind the Tribunal. 13. Notwithstanding the above, it can be seen that the CBDT has panned out a fresh requirement of separate notification to be issued for India importing the benefits of the DTAA from second State to the DTAA with the first State by virtue of its Circular, relying on such requirement as supposedly contained in section 90(1) of the Act. In our considered opinion, the requirement contained in the CBDT circular No.03/2022 cannot primarily be applied to the period anterior to the date of its issuance as it is in the nature of an additional detrimental stipulation mandated for t....
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....treated this amount as a part and parcel of 'fees for technical services/royalties' and thus applied tax rate of 10% plus applicable surcharge and education cess thereon. The assessee filed certain evidence before the Dispute Resolution Panel in support of its contention that the amount was in the nature of reimbursement of certain expenses by contending that the draft assessment order was notified on 20-12-2019 and the assessee's submission on reimbursement with relevant evidence filed on 19-12-2019, remained unconsidered. The DRP called for the comments of the AO, who raised objection to the assessee's contention. The DRP repelled the assessee's claim of exclusion of the amount of Rs. 35,67,716/- from gross revenue. It further held that the in the scheme of taxation u/s.115A of the Act, all the receipts shown on gross basis are considered and hence, the assessee's stand on reducing certain costs was not acceptable. As such, no succor was allowed by the DRP, which culminated into the addition by the AO in the final order. 17. We have heard both the sides and gone through the relevant material on record. It is seen that the assessee offered its income from 'royalties' and 'fees fo....