TaxTMI 
TaxTMI 
2022 (6) TMI 1411
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....d under the Laws of Sweden. The assessee is engaged in manufacturing and marketing of personal care products, tissues, package solutions, publication papers and solid - wood products. During the period relevant to the assessment year under appeal the assessee received payments under the following heads: (i) Project related consultancy services Rs. 1,85,69,742/- (ii) IT Support services Rs. 1,31,41,737/- (iii) SAP Licensing Charges Rs. 23,18,747/- (iv) Reimbursement of Expenses Rs. 5,74,634/- Total Rs. 3,46,04,860/- The assessee did not offer any of the aforesaid receipts to tax. The Assessing Officer while passing draft assessment order dated 29/11/2019 held that the aforesaid receipts are liable to be taxed under India - Sweden DTAA @10% as FTS/Royalty. The assessee filed objections before Dispute Resolution Panel (DRP). The DRP vide directions dated 24/02/2021 rejected the objections raised by the assessee. The Assessing Officer consequently passed the final assessment order passed on the directions of the DRP and made aforesaid additions. 3.1 The ld.Authorized Representative for the assessee submitted that the assessee is providing consultancy servi....
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.....1 of the appeal is not covered by the order of Tribunal in assessee's own case for preceding assessment years. The ld. Departmental Representative referred to CBDT Circular No.3/2022 dated 03/02/2022 to contend that the circular has clarified that applicability of MFN clause of benefits of the lower rate of taxation in relation to certain items of income provided in India - Sweden DTAA with the third States subject to conditions specified in the said circular. If all the conditions specified in para - 5(i) to 5(iv) are specified then only benefit of lower rate has specified in the treaty shall be given. In the instant case the condition as set out in para 5(iv) i.e.: "(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 subsection (1) of Section 90 of the Income Tax Act, 1961." is not satisfied, therefore, the findings given by the Tribunal in assessment year 2016-17 would not apply. In so far as other grounds, the ld. Departmental Representative fairly admitted that the issue raised in ground No.2 and 3 has already been considered by the Tribunal in assessee's ....
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.... in the future, without recourse to the assessee. The consultancy services are in the nature of leading the setting up of factory, including planning and steering execution of work, being responsible for managing project within budget constraints, leading the project team from different locations, coordination and follow up with the contractors, securing communication and good flow of information between those directly or indirectly involved with the project, preparing project progress report and updating all concerned with the project progress. Just because the assessee renders these services does not mean, and by no stretch can imply, that the recipient can next time do all this work without recourse to the assessee. As regards learned DRP's observations that the project leading work "will include scheduling charts, timelines, bar charts which are contemplated in the case of the assessee under Project Administration....project and financing controls including necessary charts and controls for implementation of the project", that "the assessee is not executing the project but is rendering consultancy service to the AE", and that "when project implementation tools are provided ....
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.... interest income, royalties, Fees for Technical Services, etc.) provided in India's DTAAs with the third States will be available to the first (OECD) State only when all the following 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 subsection (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 p....
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....al Gazette, is to adopt the manner of notifying as may be necessary for implementing the agreement and not that the notification is to be issued piecemeal and in a truncated manner. On notifying the Agreement or Convention, all 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 cons....
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.... of the DRP to the effect that it is a case of purchase of software through an AE of the assessee is thus factually incorrect. We have also taken note of the certificate dated 18th April 2018, signed by the Finance Director of the assessee company, which states that "this is to certify that we have provided SAP/SAP B1 licences to SCA Hygiene Products India Pvt Ltd (SCA-India) during year April 2014 to March 2015" and that "we further certify that the abovementioned licences are provided to SCA-India on cost to cost basis without any mark up being charged." There is no, and perhaps rightly so, challenge to the factual element of its being a cost to cost reimbursement received by the assessee. What learned Departmental Representative contends is that if the Indian entity was to be directly supplied this licence by the actual product vendor supplying it to the assessee, the tax withholding by Indian entity would have come into play, and that tax withholding has been avoided by routing the purchase through the assessee. That issue, whether right or not, has no bearing on taxability of an income in the hands of the assessee. We reject this argument. As regards learned DRP's re....
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....ber Co. Ltd.'s case (supra). The learned Division Bench was answering the following question: "Whether, on the facts and in the circumstances of the case, the amounts received by the assessee (English company) from M/s. Dunlop Rubber Co. (India) Ltd. (Indian company) as per agreement dated 29-1-1957 constituted income assessable to tax?" On considering the issue the learned Bench noted that the Tribunal was of the view that what was recouped by the English company was part of the expenses incurred by it. The learned Court upheld the said finding. The learned Bench was pleased to hold that sharing of expenses of the research utilised by the subsidiaries as well as the head office organisation would not be income which would be assessable to tax. A similar view was taken in Stewarts & Lloyds of India Ltd.'s case (supra). We are in respectful agreement with the view expressed by the Delhi and Calcutta High Courts. 7. In view of the above discussions, as also bearing in mind entirety of the case, we hold that the receipt of software licence fees by the assessee, from its Indian subsidiary, is reimbursement of software licence fees paid by the assessee to a third ....
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.... of pre-implementation, testing, post implementation is also provided which is clearly technical in nature and intended to increase the efficiency and improve the functioning of SCA India". It is to be noted that so far as the enduring benefit and increase of efficiency in the recipient entity is concerned, that has nothing to do with the satisfaction of "make available" clause. As we have seen in our analysis earlier, what is important is transfer of technology and not the incidental benefit. Unless the recipient of a service is not enabled to perform that service on his own, without recourse to the service provider, the requirements of the make available clause are not satisfied. The concept of enduring benefit, increase in efficiency, improvement in income generating capacity and incidental skill development is wholly irrelevant for this purpose. The authorities below have been thus swayed by considerations not germane in this context. So far as these services being incidental to SAP system being the reason for taxation under article 12(4)(a) is concerned, we have noted that providing support services for SAP implementation is a small part of the services and in any case what ar....