The Delhi Bench of Income Tax Appellate Tribunal (ITAT) held that the receipts of amounts received by rendering services fall within the exceptions provided under Article 12(5)(f) and 12(5)(g) of India – Portugal DTAA, hence, would not qualify as FTS. Thus, we hold that the receipts in dispute are not taxable as FTS at the hands of the assessee
The assessee Aluminium Pechiney is a non-resident corporate entity incorporated in France and a tax resident of that country. The assessee owns certain right, know-how, designs, and processes required to design, build and implement integrated aluminium production plants.
The assessee is also a leader in primary metals and their by-products and also provides a variety of technical and related services that include quality control, the design of machines, equipment and production processes, supervision and advice on industrial installations, along with their commissioning and operations, mainly in the field of aluminium and associated installations.
The assessee filed its return of income declaring income of ₹ 113,44,74,298/-. The assessee claimed the income declared to be in the nature of Royalty/Fee for Technical Services (FTS) under Article 13 of India – France Double Taxation Avoidance Agreement (DTAA).
The Assessing Officer completed the assessment under Section 143(3) of the Income Tax Act,1961 disallowing the claim of the assessee .
Being aggrieved with the assessment order so passed, the assessee preferred an appeal before Commissioner of Income Tax (Appeals) [CIT(A)]. While deciding the appeal of the assessee, CIT(A) granted partial relief by reducing an amount of ₹ 1,08,22,488/-, being receipt towards supply of goods from the income determined.
Thereafter, the assessee moved an application for rectification under Section 154 of the Income Tax Act. While considering assessee’s rectification application, CIT(A) granted further relief by reducing an amount of ₹ 2,64,70,667/-, being supervision fee during the installation of equipment, from the income determined.
Further aggrieved the assessee filed an appeal before the Tribunal.
The Authorised Representative (AR) of the assessee submitted that the assessee had entered into Technology Licencing Agreement (TLA) with Hindalco Industries Ltd. (‘HIL’) and with National Aluminium Company Ltd. (‘Nalco’) to provide licence to HIL & NALCO to use its technology.
He further submitted that, the contracts with Nalco and HIL are for rendering services in connection with plants used for extraction or exploitation of aluminium, which is a natural resource.
The AR stated that the services are neither ancillary nor subsidiary to the application or enjoyment of the right, property or information for which the assessee had received payment in the nature of royalty, nor while rendering such services the assessee had made available any technical knowledge, know-how, skill, etc. to enable the service recipient to apply the technology contained therein.
He submitted, Article 12(5)(f) read with paragraph 2(g) of Article 5 of the tax treaty covers all the three stages of aluminium production, i.e., mining and refining of bauxite including smelting, till production of ingots, a basic raw material for the industry.
The Departmental Representative (DR) submitted that the receipts under the TLA are very much ancillary and subsidiary to the royalty income, hence, has to be treated as FTS under Article 12(4)(a) of the tax treaty.
Without prejudice, he submitted that the technical specific drawings and designs were transferred by the assessee to the entities in India for consideration. Drawing our attention to Article 12(4)(b) of India – Portugal treaty, he submitted, as per the second limb of the said Article, if services rendered consist of development and transfer of technical plan or technical design, it will constitute FTS.
The Bench comprising of G.S. Pannu, President and Saktijit Dey, Vice-president observed that the service rendered by the assessee is in connection with installation/erection of plant and machinery involved in mining of natural resources. Moreover, scope of Article 5(2)(g) of India – Portugal DTAA is not merely limited to mining or extraction of natural resources but also covers installation or structure used for exploration and exploitation of nature resources.
Therefore it was held that the amounts received would fall within the exceptions provided under Article 12(5)(f) and 12(5)(g) of India – Portugal DTAA, hence, not taxable at the hands of the assessee.
Hence the appeal of the assessee was allowed.
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