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2023 (2) TMI 906

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.... 3. Briefly the facts are, the assessee is a non-resident corporate entity incorporated in Israel and a tax resident of Israel. In the previous year relevant to assessment years under dispute, the assessee had entered into various international transactions with its Indian subsidiary, Netafim Irrigation India Pvt. Ltd. (NIIPL), such as, sale of raw materials, sale of stores, consumables and packing materials, sale of traded goods, sale of equipment and provision of IT and SAP services. However, in the present appeals, we are concerned only with the taxability of the amounts received towards provision of IT and SAP services. In course of assessment proceeding, the assessee submitted that as per Article 13 of India - Israel DTAA, FTS 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 personal. However, he submitted, as per the protocol to India - Israel Treaty, if India enters into a DTAA with any other country after 01.01.1995 and in the said treaty the scope of FTS is more restricted, then the restricted terms of that treaty will apply to India - Israel DTAA.....

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....comprised from the overall cost of each license, cost of maintenance, cost of SAP system and global infrastructure which is provided from data centre located in Israel. He submitted, while providing such support services, the assessee has not transferred any technical knowledge, knowhow, skill etc. and services were provided outside India. Thus, he submitted, make available condition has not been satisfied. Therefore, the receipts cannot be treated as FTS. Without prejudice, he submitted, the payments received are in the nature of reimbursements on cost to cost basis without any profit element embedded therein. Therefore, it cannot be treated as FTS. In support of such contention, learned counsel relied upon the following decisions: 1. Steria (India) Ltd. Vs. CIT (2016) 72 taxmann.com 1 (Del.) 2. SCA Hygiene Products AB Vs. DCIT, ITA No.7315/Mum/2018, dated 08.01.2021. 3. Exxon Mobil Company India (P.) Ltd. Vs. Addl.CIT, (2018) 92 taxmann.com 5 (Mumbai - Trib.) 4. Autotech Oyg. Vs. DDIT (2016) 76 taxmann.com 33 (Kol) 5. DDIT Vs. Bureau Veritas - India Division, ITA No.3377/2010, dated 28th September, 2011 (Bombay HC) 5. Learned Departmental Representative strongly relied....

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....g with several upgrades the probability of virtual team meeting, hence, minimizing the travel cost. 8. Keeping in view the nature of services provided by the assessee it has to be determined whether the amounts received by the assessee are in the nature of FTS under Article 13 of India - Israel DTAA. At this juncture, we must observe, Article 13(3) of India - Israel DTAA, defines the term "FTS" to mean payments of any kind received as a consideration for services of managerial, technical or consultancy nature, including the provision of services by technical or other personal. However, it does not include payment for services mentioned in Article 16 of the Convention. The term "FTS" under Article 13 is very wide in its scope. However, Protocol to India - Israel DTAA with reference to Article 12 and 13 of the tax treaty provides that if under any convention or agreement between India or any third State, which came into force after 01.01.1995, India limits its rights on taxation at source or royalty or FTS or interest or dividend to a rate lower or a scope more restricted than the rate or scope provided for in this conventions, same rate or scope as provided for in that convention o....

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....chnology independently without the aid and assistance of the assessee. Had it been a case of make available, there would have been no need for recipient of service to avail the services from the assessee on recurring basis. Moreover, when the assessee has made it clear that it has not made available any technical knowledge, knowhow, skill etc. it is for the department to disprove such claim of the assessee through cogent material, because, once the assessee has taken certain position which is not acceptable to the department, then, the burden is on the department to demolish the position taken by the assessee through proper reasoning backed by cogent material. In the facts of the present appeal, except making general observation that the assessee has made available technical knowledge, knowhow, skill etc. the departmental authorities have not brought any material on record to prove such fact. The allegation of the departmental authorities that they are taking such position in absence of material/evidence furnished by the assessee to establish its claim, in our view, is not borne out from record. Not only the agreement mentions in detail the nature of services to be provided by the ....