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

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.

It is a recalled matter inasmuch as the earlier order passed by 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 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’).

Briefly stated, the facts of the case relevant for our purpose are 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

From para 12 onwards of the order, the Tribunal proceeded to 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.

The assessee moved rectification application contending that while considering the amendment to Article 12(4)(b) by means of Notification No.11050, dt. 30-08-1999, the Tribunal considered only

We have heard the rival submissions and gone through the 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.

The Tribunal took note of the amending Notification dated 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 :

On a perusal of the amendment to Article 12(4) of the DTAA 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

In the result, the appeal is allowed for statistical purposes. Order pronounced in the Open Court on 26th September, 2023.