VANDERLANDE INDUSTRIES PRIVATE LIMITED,,PUNE vs. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE - 13,, PUNE

आदेश / ORDER

PER R.S. SYAL, VP :

This appeal by the assessee is directed against the order passed

by the ld. CIT(A)-5, Pune on 25-09-2017 in relation to the

assessment year 2012-13.

the Tribunal on 09-02-2022 was subsequently recalled vide its later

order dated 20-02-2023 in M.A.No.211/PUN/2022 to the limited

extent of examining as to whether payment made by the assessee to

its foreign entity towards use of overall ICT infrastructure was

2 ITA No.48/PUN/2018 Vanderlande Industries Pvt. Ltd.,

chargeable to tax in the latter’s hands in terms of the Double Tax

Avoidance Agreement between India and Netherlands (`the DTAA’).

that the assessee made payment to its wholly owned company

Vanderlande Industries Holding, B.V. Netherlands (hereinafter also

called “VIBV”) amounting to Rs.53,53,204/-. The Assessing Officer

(AO) observed that no deduction of tax at source was made. He

held that such amount was chargeable to tax in the hands of the

recipient and in the absence of assessee having deducted tax at

source, the amount was liable to be disallowed in terms of section

40(a)(i) of the Income-tax Act, 1961 (hereinafter also called ‘the

Act’). In holding so, he treated the amount paid as covered

u/s.9(1)(vi) r.w. Article 12 of the DTAA as Royalty. When the

matter came up before the Tribunal, the assessee’s contention of the

same being `reimbursement’ was rejected. The Tribunal examined

the nature of services as a quid pro quo for the consideration by

setting out the relevant clauses of the Agreement. After considering

the pertinent details, it came to the conclusion in para 9 that the

payment made for using the overall ICT Infrastructure facility of the

Netherlands entity for getting served rather than the Netherlands

entity providing any specific services to the assessee. Thereafter, it

3 ITA No.48/PUN/2018 Vanderlande Industries Pvt. Ltd.,

considered the taxability of the amount in the hands of the recipient

under the Act and held the same to be chargeable to tax.

examine the taxability under the DTAA between India and

Netherlands. For this purpose, it initially considered para 4 of

Article 12, defining the term `Royalties’ in the Treaty as notified on

27-03-1989 and held that the payment was not covered within the

same. Thereafter, it took note of the Notification No.11050

dt. 30-08-1999 making amendment to para 4 of Article 12, defining

`Royalties’, in two parts, viz., 4(a) and 4(b). Para 4(a) was found to

be similar to para 4 of the originally notified DTAA and hence not

bringing the amount within the definition of `Royalties’ in the hands

of the recipient. It was noticed that para 4(b) of the amended Article

12 covered payment of any kind received for use of industrial,

commercial or scientific equipment. In the light of this para of the

Notification, the Tribunal held that the case of the assessee was

caught in Article 12(4)(b) of the DTAA making the amount taxable

in the hands of the recipient requiring deduction of tax at source.

while considering the amendment to Article 12(4)(b) by means of

Notification No.11050, dt. 30-08-1999, the Tribunal considered only

4 ITA No.48/PUN/2018 Vanderlande Industries Pvt. Ltd.,

Para (III) which was effective from 01-04-1997 and omitted to

consider Para (VI) which was effective from 01-04-1998 in which

the amendment made effective from 01-04-1997 having para 4(b) of

Article 12 also including payment for use of industrial, commercial

or scientific equipment as Royalties, was omitted from the definition

of Royalties under Article 12(4) w.e.f. 01-04-1998. It was contended

that such latter amendment was applicable to the case of the assessee.

The Tribunal recalled the order to this extent for examining the

taxability of the amount of ICT charges under the DTAA and its

consequential effect.

relevant material on record. It is worthwhile to mention that the

recall of the order is only from para 12 onwards of the original order

passed u/s.254(1) of the Act. The Tribunal in its earlier order came

to the conclusion in paras 9 and 10 that the amount paid by the

assessee was towards the use of the overall ICT Infrastructure set up

by VIBV. The same was examined under the Act to hold that the

payment was taxable in the hands of the recipient under the Act.

Now the limited issue is to examine the taxability of amount in the

hands of recipient under the DTAA.

5 ITA No.48/PUN/2018 Vanderlande Industries Pvt. Ltd.,

30-08-1999 containing Para (III), providing in para 4(b) of Article

12, that the term `Royalties’ also included payment for use of

industrial, commercial or scientific equipment. The case of the

assessee is that this amendment was effective only for one year from

01-04-1997, which was contained in the same notification itself in

Para (VI), redefining para 4 of Article 12, omitting clause (b) of the

original para 4. We have examined Para (VI) of the Notification

dated 30-08-1999, effective from April 1, 1998, reading as under :

“4. 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 cinematograph films, any patent, trademark, design or model, plan, secret formula or process, for information concerning industrial, commercial or scientific experience.”

effective from 01-04-1998, it is clear that the term `Royalties’ means

payment received as a consideration for the use or right to use any

copyright including any patent, trademark, design or model for

information concerning industrial, commercial or scientific

experience. The hitherto inclusion of payment for use of industrial,

commercial or scientific equipment constituting `Royalties' under

para 4(b) of article 12 as per Para (III) in para 4(b) has been omitted

6 ITA No.48/PUN/2018 Vanderlande Industries Pvt. Ltd.,

w.e.f. 01-04-1998. Since the assessment year involved is 2012-13,

on a pertinent query as to whether the DTAA was further amended

vide any Notification, the ld. AR answered it in negative by placing

on record a copy of the DTAA. When we consider the copy of

original DTAA as placed on record at page 92 onwards of the paper

book, with the copy of the DTAA as now given, it is seen that after

clause VII of the Protocol in the originally filed DTAA, there is a

heading `Amending Notification No. SO 693(E), dt. 30-08-1999’ and

thereafter mention is made of the Paras (III) and (VI) which are

under consideration. No reason could be adduced as to why there

was change in the text of two copies of the DTAA. The ld. DR

expressed his inability to point out if any further amending

notification was also issued in respect of the DTAA having impact

on the ambit of Article 12(4) from 1998 up to the financial year

relevant to the A.Y. 2012-13 under consideration. In such

circumstances, we are of the considered opinion that it would be just

and fair if the impugned order on this issue is set aside and the matter

is restored to the file of the AO for examining the position of the

DTAA prevailing for the assessment year under consideration and

then deciding the issue by treating the amount paid by the assessee as

a consideration for use of the overall Infrastructure facility of VIBV.

7 ITA No.48/PUN/2018 Vanderlande Industries Pvt. Ltd.,

In other words, if the amending notification dated 30-08-1999 is the

last notification, in that situation, the case will fall under Para (VI)

and not Para (III), making the amount not chargeable to tax in the

hands of VIBV. In the otherwise scenario, the AO will examine the

effect of such further amendments, if any, to Article 12(4) to the

DTAA for deciding the issue in the right perspective. Needless to

say, the assessee will be allowed a reasonable opportunity of hearing

in such fresh proceedings. The originally order passed u/s.254(1) is

amended to this extent.

Sd/- Sd/- (S.S. VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; िदनांक Dated : 26th September, 2023 सतीश आदेश की �ितिलिप अ�ेिषत/Copy of the Order is forwarded to: अपीलाथ� / The Appellant; 1. ��थ� / The respondent 2. 3. The CIT(A)-5, Pune 4. The PCIT-4, Pune 5. DR, ITAT, ‘C’ Bench, Pune गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

ITA No.48/PUN/2018 Vanderlande Industries Pvt. Ltd.,

Date 1. Draft dictated on 25-09-2023 Sr.PS 2. Draft placed before author 25-09-2023 Sr.PS 3. Draft proposed & placed before JM the second member 4. Draft discussed/approved by JM Second Member. 5. Approved Draft comes to the Sr.PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *