DIRECTOR OF INCOME TAX MUMBAI vs. CHIRON BEARING GMBH AD CO. MUMBAI

ORAL JUDGMENT (PER M.S.SANKLECHA,J) : This appeal by the revenue challenges the order dated 04.07.2008 of the Income Tax Appellate Tribunal (the Tribunal) relating to the Assessment Year 2002­03. SNC 1/7 ITXA 2273-10.doc CNR No : HCBM020264492008 Uploaded on - 21/08/2020 Though,   the   appeal   has   formulated   five questions of law, only following two questions of law are pressed by the revenue for consideration of this court. a) Whether on the facts and in the circumstances of the case and in law was the Tribunal correct in holding   that   the   respondent   can   be considered to be a tax resident of Germany? b) Whether on the facts and in the circumstances of the case and in law the Tribunal was correct in holding   that   no   interest   was chargeable u/s 234B of the Act? 3   Brief Facts: (a) The   respondent­assessee   being   a Non­Resident (Foreign Company) filed its return of income for the Assessment year 2002­03 declaring an income of Rs.3.35 crores.  The respondent­assessee in   its   Return   of   Income   had   claimed   benefit   of Article   12(2)   of   the   Agreement   between   India   & Germany for the Avoidance of Double Taxation with respect to taxes on Income and Capital (DTAA) in respect   of   Royalties   and   Fees   for   technical services received by it in India. SNC 2/7 ITXA 2273-10.doc Uploaded on - 21/08/2020 (b) The Assessing Officer by an order dated 28.05.2005, did not extend the benefit of the DTAA   as   claimed   on   the   ground   that   the respondent­assessee is not liable to tax in Germany being  a  limited  partnership.   This  conclusion   was reached on the basis of the OECD Publication “The Application   of   the   OECD   Mode   Tax   Convention   to Partnership.” (c) In   appeal   the   CIT(A)   by   order dated 15.05.2006 held that the respondent­assessee are paying Trade Tax in Germany which is tax paid on   profit   of   the   business.   This   trade   tax   is covered by Article 2 of the DTAA. Further reliance is also placed upon the Tax Resident Certificate dated   18.03.2005   issued   by   the   Authorities   in Germany   which   certified   that   the   respondent­ assessee   is   liable   to   pay   Trade   Tax   in   Germany since 1996. In view of the above, it was held that the  respondent­assessee  satisfied  the  requirement of DTAA and are entitled the benefit of lower rate of   tax   as   provided   in   Article   12(2)   thereof   in respect   of   Royalty   and   Technical   fees   earned   in SNC 3/7 ITXA 2273-10.doc Uploaded on - 21/08/2020 India.

(d) Being   aggrieved,   the   Revenue carried the matter in appeal to the Tribunal.  The Tribunal by its order dated 04.07.2008 upheld the finding of the CIT(A) that the respondent­assessee is   a   person   liable   to   pay   tax   in   Germany. Consequently, the benefit of Article 12(2) of the DTAA was held available to the respondent­assessee. 4 Mr. Pinto in support of the appeal submits that the respondent­assessee is limited partnership and cannot be considered to be a taxable unit in Germany for the purposes of the DTAA. In support of the  aforesaid  submission  reliance  is  placed  upon the order dated 28.03.2005 of the Assessing Officer wherein   on   the   basis   of   OECD   publication   the Assessing Officer has held that limited partnership in Germany are not liable to tax.   Therefore, he submits that the benefit of DTAA including Article 12(2) thereof cannot be extended to the respondent­ assessee. SNC 4/7 ITXA 2273-10.doc Uploaded on - 21/08/2020 As   against   the   above,   Mr.   Irani   for   the respondent­assessee points out that the respondent­ assessee is a taxable entity under the German Law as is evident from the certificate dated 18.03.2005 issued   by   the   German   Authorities.     Further,   in terms  of  Article  2(3)  of  the  DTAA  is  applicable even in respect of payment of Trade Tax in Germany. Consequently, in his submission the order of the Tribunal   dated   04.07.2008   calls   for   no interference. 6 We   have   considered   the   submissions.   We find that respondent­assessee is receiving royalty and fees for technical services rendered in India. In terms of Article 12 of DTAA, royalty and fees for   technical   services   received   in   India   by   a person resident outside India are not liable to tax in   India   in   excess   of   10%   of   the   gross   amount received. On examination of the DTAA, we find that in terms of Article 2(3) thereof the trade tax paid in   Germany   is   one   of   the   taxes   to   which   DTAA applies.     Further,   in   the   Article   3(d)   of   DTAA SNC 5/7 ITXA 2273-10.doc Uploaded on - 21/08/2020 person includes any entity treated as taxable unit in   Germany.     The   term   'resident'   in   terms   of Article 4 of the DTAA means “any person who, under the laws of Germany is liable to tax therein by reason   of   his   domicile,   residence,   place   of management or any criterion of a similar nature”. We find that both the CIT(A) and the Tribunal has on   examination  of  records  found  that   respondent­ assessee is filing Trade Tax Return in Germany and

therefore is paying tax to which the DTAA applies. Further,   the   Tax   Resident   Certificate   dated 18.03.2005 issued by German Authorities evidences the fact that the respondent­assessee is considered as   a   taxable   unit   under   the   taxation   laws   of Germany.  Therefore, the DTAA is applicable to the respondent­assessee and in particular the benefit of Article 12(2) thereof cannot be denied. We do not find  merit  in  the  submission  of the Revenue that the respondent­assesseee cannot be considered as a taxable entity in view of the OECD commentary. This   is   for   the   reason   that   entire   issue   is governed by the DTAA and on the basis of evidence SNC 6/7 ITXA 2273-10.doc Uploaded on - 21/08/2020 led before the authorities. In these circumstances, it is not open to deny the benefit of the DTAA on the basis of the OECD commentary. 7 In view of the above, we find no reason to entertain the question of law at (a) above. 8 In so far as question (b) is concerned it is agreed between the Advocates for the appellant and the respondent  that the issue  is  covered  in favour   of   the   assessee   by   the   decision   of   this court   in   the   matter   of   Director   of   Income   Tax (International Taxation) v/s. NGC Network Asia LLC reported   in   313   ITR   page   187. In   view   of   the above, we find no reason to entertain the question of law at (b) above. 9 Accordingly, the appeal is dismissed with no order as to costs. (M.S. SANKLECHA, J.) (J.P.DEVADHAR, J.) SNC 7/7 ITXA 2273-10.doc Uploaded on - 21/08/2020 Powered by TCPDF (www.tcpdf.org)