DIRECTOR OF INCOME TAX vs. RIO TINTO TECHNICAL SERVICES

oh IN THE HIGH COURT OF DELHI AT NEW DELHI + INCOME TAX APPEAL NOS. 49112011 & 49212011 Date of Decision : 4tl'Januarv.2012. DIRECTOR OF INCOME TAX .... Appellant Through Mr. Sanjeev Sabharwal, Advocate. VERSUS RJO'I'INTO TECI-INICAL SERVICES .....Respondent Through Mr. Salil Kapoor, Mr. Ankit Gupta, Mr. Sanat Kapoor & NIr. Vikas Jain, Advocates. CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE R.V. EASWAR SANJIV KIIANNA. J.: Ilor detailed order see ITA 48612011 titled Director of Income Tnx Vs. Rio Tinto Technicsl Services pronounced today. 4"1L - -l/ \_ (SANJIV KIIANNA) . JUDGE . t1 f \r *--J. (R.v.fuaswanl . JUDGE JANUARY 4,2012 VKR a '-1 .a 2012:DHC:10211-DB

I r iil '['lli] ill[{;{[ (]0IJRT OXr DIr]LlnX A'[' j\]IlW I]U[,X'[I I I ry{{.}Lt!L_! AX-}flleALNg$,-496lWL qE}rz0rl- a aeUlw Reservccl on : Zi.'l Qq-!gb-c.L 20-1,1.. 't4t llatc of llccision : -. 4E.Jirlgiu'y".?Q-12' iJltr.irg l'OIL (.\lr tN(.loi\41.: 'J'nX .... Appcllant ''l'lirough Mr. Saniccv Sabharrvai, Aclvrlcate. VfiIISTJS ii ir''! itl r r i'r'ritllll.I(^r i till ufiltnonun', Nrr. ;il]:it8$;ll *,. Sau,:tt l{atporlr & Mr. Vil.as .la!n, Arlvtlon{"cs. +.],i;'liA I'vl: ;i[-'ri.{'!dt,ti P.'l E{. .rus'i'uct] sAN.rIv i(txANNA I {i.trl'l}l ,t: 11./qi{. .} [iSiX'[C],1 R.V. UIASWAif i2 e l-..1{i!'-Kt-!.Ari'l NA,J. : i)rc\/clrLrc Irais l.rrclcrrt.:cl thcsc appcals rtnr{cr !lcctitln 260/\'oi'tirc !ur:ei1ic'l'11 Ac1,, t96l (nct. [Lrr short) ancl vicle ttrclcr c{aLcrcl [i'i'ALtgusL- .i(.)| I f hc iiillor.r,ing strlrstaliLiztl qtrcstiotrs oJ'lau,,^).r. iiitllccl:- '"i i) V/hcthcr lcitlnccl 1't'A.'t' clrcd in holcling that thc itsscuscc's riotivities ilt'c uot lt'fS witlrin l.hc dctrrrition oJ'F'l'il statcd in Artiolcs i2 ol'thc: l)oL.rblc l)cl.lnition o{'l;'tS slatt:cl in Ar-ticlcs I2 Q(; ilic J )orrbk:'.1'zrxalion Avoiclancc Agrcctncnt? i,:).i Wh,:lhr;r lcartrcci I'|A'I' crrctl in ht;lcling tliaii , Artir:lcs 7 of thc lndo-ALlstralia l)'1.'Arl vvill bc applical:lr: ancl hencc sltch itic:orrrc ltas to trc conr;tritccl an lrnsitrcss inconte'l {i) \Vircthoi' triroYisions ol- Sccticl,ll 1llj.4 rr:iicl rvji.lr Slcctitln 441) tli'llrc Itrcotnc 'j'ax ./rt:i", l9(r I 'rirc riot 2012:DHC:10211-DB

1 2. 'l'hc rcsprlndcnt asscsscc-ltio 'J'into '['cclrnologici"rl ]tcstlurccs 'l'Y l.inritcd, cluring Lhc ycars ilr c1ucsl-ion i.c. thc Asscssltrcnt Ycar:i 1999- l-()00, 2000-01 and 200.1-02lracl opcratccl in lnclia tl'rror-rgh its clivisiori llio'l'into'l.'cclrnical Scrviccs.'l'hc rcspotrclcnt-asscsscc lracl lllccl rctunrs t)r1 2"d )..cbruar1,, lggg,l Ttl' Novctnbcr, 2000 ancl22."'t Oc{.obcr. 2-001 clcclaring loss of l{s.2.00 ,970/-, positivc ittc<lnrc ol' l{s.23.8[3,700/- ancl l{s.12.50-930/- in rcspccL o{- Lhc thrcc elsscssnlcnt vcars urcrtLioltccl aborrc. 'l'hc ihrcc rcturns vverc takcn up [ilr'rcgulzr zlsscssnrctll- r,urclcr liccl.iolr 143(3) ol thc Acl ancl thc Asscssing O1)iccr I'itlc ltsscsinrcttt rrrdcrs clatccl 25tl' lrctrluzu),,2002,21t' Milrch, 2.003 ancl 27'r' .lzuiititrl', 2004 hclcl tlrat thc paynrcnts lcccivccl by thc asscsscc liom l{io 'l'irrto lnclia t)rivertc l.ilnitecl ancl ltio "l'into Orissa Minirrg Limitocl (l{'l'tl'}l, nnd lt'l'OlVll. rcspectiricl),, for short)'vvcl'c taxablc as f'cc Irtr l"cchrrical scrviccsuncicrScctiorr9(l)(vii)rcaclr,r,ithScction ll5n ol'thcAcLartcl thc gross rcccipts r,vithout any dccluction v'crc taxat'rlc at thc rtrtc ol' 20% it't vicrry ol. scctirln ztztl) of thc Act. Jt n,as hclcl tliirt Articlcs T arrcl l? <ll' lhc l)oublc 'J'axation Arroiclanoc Ae.rccrrrcnt llctr,vcclr lnclia arrci Australia (l)'i'An, Iilr sliort) wct'c not i,rpplicablc. 'l'hc itrctltlc ol'tlic asscssoc l"br thc lhrcc )/cal's ivers cnhzurccci to l{s. 30.05.20,535/-. l{s;. 1.41.46.440/- anci Rs.36,53,1tlft/- tbr thc AsscssnrcnI Ycars 1999-2000" ?.0i)0-01 arrcl 200I-02. rcspcctivcl),. ll'I",ir; ittctllttc <tt'tltc gross rcccip{.s; I lA lrlos 486l?.011. .191 l?.01 1 & 4921?011 l)agc 2 of 26 ( 2012:DHC:10211-DB

\\'cl'c hclcl ars Laxablc at thc ller1 raLc of 209/o r,r,ithouI clccluction <tl' c.x[]cl'lscs. 3. 'l'lic asscsscc \\/ils LritsLi,iccss[rl i' thc I'irst appcal. 4. IJon'ct'cr, thc Itrcotrtc 'J'ztx Appcllalc 'J'ribunal (Llrc tr-i[Lrtral. lilr shorL). b)' thcir conlmon rlrclcr lilr thc thrcc asscssnlcrll vcars clatccl lgrl' Marcli. 2010 has acccptccl thc stancJ ancl stancc ol' t6c lsscsscc. l)itritgra;'rlt zl.3 <li thc saicl tirclcr. u'lrich is [hc rryrcra1iric pgrti6rr apcl givr:s thc ratio of thc linclings rccorclccl by thc trjbtural, lor thr: salic ol' curr r.'r:rr i cl rcc is rcpr<lclucccl lrcklvt, : - "zl.li 'r'lrLrs, apprying trrcsc prcl'isions to trrc rerct.s r.. trrc prcscrrt c;asc. it is noticcd that tirc ilsr;csscc lravirrg aclnriil.cd thar it lras pL: in I'clia ancl thc inconrc of'thc ns.scssec is-taxablc in Inclia and thc a.sscsscc havi'g oprccl t'bc taxcd as pcr trrc proi,isions ol'thc I)'r'An it is Articlc 7 of tlrc r)'r'An rvrrich apprics r.o tlrc asscsscc's casc i'so l?lr as thc asscsscc has a l)ll in l'clia. 'r'hus. as pcr Ar.ticrc 7(2) ol'thc D'r'AA. trrc pri t.,r'thc asscs.scc ,r,u,ir,r rravc r.. lrc u'car.ccl a.s a r'holry increpcncrc't cntcrpr.i.sc, rvrrich is liaLrlc to bc t;rxccl i' Irrclia. ' orrcc it is hclcl Ihat tlrc asscsscc is riabrc to bc taxccr as pcr Articlc 7 o| trrc D'l'z\A, sub-crerusc (:r) oI Articrc 7 or-thc r)'r'nn r'rrrrl c<ltltc ittto plal' att,.l clccluction in ztccorclt'rlrcc rvil.lr thc' ' srb.icct to tho la*, rci;rtirrg to thc tax in lnclia u,<lulcl appl1,. sirrcc it i.s hcld thatArticlc 7 or-r.hc,,\cr. r.r,oulcl no nrorc bc applicablc as Arr.icrc 7(?) o| thc r)'r'AA spccirics rhar trrc l)li of'1hc:,ssc.ssc is to lrc trcatcd a., a,r,1,<rlr), inclclrcurlcnr. . ctttct'1lt'isc alrcl it is thc protits ol'such lrl: iir lrrclia n,hiclr a.c to bc taxocr. sirrcc Articrc 7 <t| thc J)'r'AA i.s appricci, scclion zrzlr) a'd scctio' il54 'f thc Act also rvill nol appl1, irr so far a.s thcy rclatc to fbr.ciglr ctlrnpatrics. *'lrercas crausc 12) of Ar{.icrc 7 .r- trrc r>i'urzr spccirics that thc plj irr lrrclia is 1o bc trcatccl as il n,holl1, indcpcndcnt cntcrprisc in lnclia. I' such a .situzrtio'. sub_ clarsc (-i) ol Ar{.ic.rc 7 of r)'tAA r'clurd co'rc irrto pra1, n.cl r.hc i'corlc ol'thc asscsscc rvoulcl havc t<l [rc as.scssccl by applying thc rcgurar p'ovi-siorrs oI tr," rrrcriarr 'r.ax Laws. Irr short. trrc asscsscc rrcrcirr r''urcr bc riabrc t' bc assc.sscd as an cntitl, Scparatcrv asscssabrc irr its.*,n : I llA Nos 4861201 t, 4g1t2O1 1 & 49212011 t']age 1l of 26 2012:DHC:10211-DB

\t irrdcpcrrclcnt cerpacitl, in inclia ancl tlrc ltrovisiorrs ol' Scctions 2tl to 43C ol'thc AcL u,oulcl bc availablc to thc asscsscc. What is to br: irndcr.slood hcrc i.s thal it is tlrc busincss ;lro[its r,vhich arc chargcatrlc unclcr Ar.ticlc 7 ol' thc I)'l'AA. So as to what thc lrirsincss ol'thc asscsscc is. is also to bc cc'rrsiclcrccl. 'i'hc busitrcss trl'thc asscsscc is . zls pcr Lhc contracts cntclcd into [r1, tlrc asscsscc r,r,il,h tlrc various pcrsolls. 'l'lrc contlzrcts arc inclusivc conlr.acLs of' techuical traturc. as zrlso drilling, cLc.. as cxtractccl carlicr. 'l'lrus, it catll'lot lrc saicl that hc activitics of thc as.scsscc is purclv tcclrrrical scrvicc. 'l'hc drilling ancl cxcavatiorr arrd tcstiug carrnot bc clc-lilrl<ccl lioru thc cvaluation arrcl lhc f'casibilitl, stuclics. lt is a cousoliclatcd erctivit),. 'l'lrus, thc activitics of thc assessco cannol bc hclcl kr lirll l,itlrirr Articlc l2 ol'thc I)'l'AA erlso. In thcsc circLrnrsturr.:cs, [hc ilsscsscc having optcd t.o bc taxcd unclcr. Llrc I)'l'z\A. l.lris o;ltion carrrrrclt bc clcniecl to thc ilssc.sscc arrcl as ncr srrlr- clauscs (2) ancl (3) oi Articlc 7. 'l'hc asscsscc is to lrc taxccl as au indcpcriclcrrL cntcrprisc iri lucl ia.arril tlrc rcgLrlal provisions clf thc Ilrclian tu.t Lnu's rvoulcl ap1t11. to thc cx<;lusion o['Sccrion 9(l)(vii), scction ,lzll) arrd I l5A r>l- Lhe Act. ln thcsc circunrstarrccs, thc or.clcrs ol' thc lor'cr autlroritics ar.c r.evcrsccl aucl thc appcals'l'tlrc zlssosscc alc al lorvec!." 5. A clisscctiou of- thc saicl paragraph shons that thc tribLrrral has hclcl as ltlllor,r,s.:- (i) I'hc asscsscc hacl apcrillallcrlt esLablishnlcnt (l)l;. lbr slrgr-t) in !1clia. 'l'his is.r vcr)/ important lircL and is not clis;rr-rtccl or clcniccl by thc' I{cvcnuc of thc asscsscc. (ii) Asscsscc had optcc{ to bc raxccl unclcr |)'J'AA ancl in tcrnrs ol' Articlc 7(2). Lhc }ij in ltrclia u,tts to bc trcatccl irs an inclcpcnclcrir ciltcrpf isc, tlrat r,vas liablc to be taxecl jn Inclia. (iii) oncc inc<lmc is hclcl to bc taxatrrc unclcr Arr.iclc 7.' r.hcrr paragraph 3 oJ' thc saicl Articlc has to bc givcn lull cfl'cct to ancl ztccorciiligly (1) dcclLrctiou in accorclancc wilh and sr-rbicct t<l thc lar,r, llA Nos 48612.011.491t2011 & 49212011 Page 4 ol 26 -t 2012:DHC:10211-DB

fr rclzrtirrg to tax in lnclia,uvill appl),: (2) Scctjon 9(l)(vii) ol'tlic AcL is rrot applicablc; (3) Scction 44J) ancl Scction I J5A r,r'ill also uot a;-rpl1', but provisions o[ Scction 28 to 4.iC of lJrc Act arc altplicablc ancl thu asscsscc is cntit-lccl tcl dccinct cxpcuscs bclorc cotnputitlg l.axablc irrcornc. (iv) 'l'hc cotltracts undcr whiclr paLl'lr:cnts havc bcclr tt'titcic u'crc inclusirrc contracts ol'tcohnical sclvic;cs aucl clrilling ztucl cxcavatlitltl ctc. zurcl. tlrcrc[brc. thc activilir:s ol'thc asl;csscc \^,crc not t)l'1rurcll' lcr:hlrical trerturc. 'I'hc ac[ivitics ol" thc asscsscc \,vcrc corrsoliclar{.';cl activitics o['llr-rltifal-ious clraractcl and irrclucic clrilling, cxcilatiott ancl tcsLirrg. (v) lir vicu' t)f "cotrrposite actirti[ics" /r.rLiclc 12 <tl'l)'l'AA is rrot ruplrlicablc. 6. llr orclcr to apprcciatc lhc controvcrsy, it is itu;roltarrL ttl cxatlilrc arrcl inlcrprct Articlcs 7 ancl 12 ol' thc l)'l'AA ancl Scctiorrs 90.9(lXvii) tnr! 4zll) oIthc i\ct. 'J.'hcsc ltartc bcctt rcproclurtccl lrclou': "AGl{I,lItMI,lNT ItIt'l'WEItN ]'Iilt GOVIII{NMIIN'I O}t 'I'lII,l ltDl'UBLIC Oli INI)Iz\ ANI) TIItrt GOVIiI{i{M}tl\1' OF AriS't'llALIA li0ll ]'ltlt AVOIDANCII ()l{' X)O|'lBLnt 'I.AXA'I'ION AND TIrII PIIIDVITINTION Ot" F'ISCAL EV^SION WITII lutst'}nc'['[()'t'Axlis ()N lNCoMIt AI'ticlc 7--t] l..JSlN I iSS l'l{Oirt'l'S t. l) 'l'hc profits o['ettr otrlcrpriso of ottc ol' tlrc (".ontractirrg Statc:; slrall bc taxablc ottllr i11 that Statc rttrlcss thc cttLcr;lrisc carrics rltr [rusipcss in Llrc otlrcr (jontlactirrg Stzrtc Lltrouglt zt ltcrttritncttt cstablishnrcnt sil.uatccl thctcin. If' thc cntcrprisc cat'ric.s oll f f A Nos. 48612011. 49112011 & 49212011 l)age 5 o[ 26 2012:DHC:10211-DB

Ie [rusincss as erlorcsaici, tlrc profi1s o{'thc ctll"orpt'isc ttray bc taxccl irr thc othcr Star{.c btrl' onll' 5e ttttrch tll'thcnr as is attritrtrtablc lo: 1a) tlraL pcrnlancnt cstablislttlrcnt; or it i salcs rvithin thaL olhcr Contracting Statc rr['. goocls . or nrclchanclisc oIthc Sallle ol'a sit]liltrr ltirrcl as tlrosc sold.,ot'clthct' busincss activitics of thc sal'l'lc ol'a sirlrilar l<incl as thosc carriccl o rr. llt rou glt llrett pcrttr attcnt cstab I islr mcnt' (2.) Sr-rlr.lcct to thc provisions <ll' llaragraph (:i )' rr'ltcrc Att ",ri"rprir" of.o'c of tlic Contractirrg Statc carrics ou ['rsiucss iu tlrc clthcr corrtracting statc throughit pct'ttrancnt cstablishttrclrl situzrtccl tlrercin, thlrc shalt irr caclr contractirrg Statc bc attributcc{ to thal" pcrnrancnt cstablishmcrrt thc prolits tvltich it rilight lrc cxpcctcrj lo uralic if iL u,crc a clistinct i,ttrcl scparatc ' c,.,t"rltrisc criSiagccl irr tlrc sall'lc ol' sirrrilar activitics ttnclcr [ltc salllc or sinrila[ cottclitiorrs arrci clcalirrg wltol[f incicpcnclcrrtll' $itlr thc crrtcr.prisc ol'rvhiclr i1 is ri pcrnl2lllcl'lt cstatrlisltnlcnt ot' rvitlr <ltltcr olltct'pt'iscs u'ith trylrich it dcals' (:f) llr tlrc clctcrtttittalitltt ol' thc p'ol:1s,l' tr pct'ttlalictrt csiablishmcnt, thcrc shall bc allorvccl as clccluctiorrs, irr accordancc tvil.lt ancl sLrbjcct to thc lirlitations o['tlrc latv rclating to tax irr ttrc CorrtracLing Statc in r'vhiclr thc pcf lllallcl'lL cstablishulcut is situatcci. c;ipctrscs ol'tlrc cntcrprisc. bcing c\pcl.lscs rvlrich arc iucurrccl ftlr thc pLlrposcs ot'thc br-r-sincss ol' tlrc pcrnrnuent cstablishmcnt (incltrcling cxcctttivc atltl .s.ctrcr:tl aclntiuistrativc cxpcrrscs scl itlourrccl), rvlrctlrcr ittct'tt'rccl in thc (.orrtt.actirrgStatcirrwlriclrlltcpcrtnatrcntcstabIisltttrcntis sittratccl clr clscu'ltclc. (rl) No prolits shall bc attribLrtccl to a pct'l'llzuicnt cstatrlisltttrcnl lrri '.c.," ',.,, Ol- thc nrcrc ltttrchasc [ry tlraL.'crll'lallc11[ cstablishrttcrtL ol' goocls ot' ttrcl'cltatrdisc lbr tltc ctrtcrprtsc' (5)Whcrcllrccclrlcctatrro.tttrtg|ipro|itsirttri[rLrl"a[rlctoa po',','tn,'t",'tt cstablishmcnt is inoapablc of'clctornritrat'ion b1' tltc iaxation authority 01' otlc o[ thc corrtracting statcs o| thc ascortairring thcrcof by tliat authoritl' prcscnts cx.ccptiotral clif'licLrlties, notSirrg in tiris Artiolc s6all all'cct lhc applicatiort ol' nny lo," o{' fhat Slafc rclatiirg to thc clctcrttritratiotr of tltc tax tiafitity ol.a pcrson, proviclccl llrat llrc larv slrall bc allpliccl. so lar as thc i'fbrnratiorr availablc to t6at atrthoritl' 'cr.tits' irt accortlatrcc rvitlr thc prirrcilllcs of'this Articlc' ((l)|.or.tlrcpurlloscso|.thcllrcccdingparagraplrsol.l"lrisAr.l.iclc. llic pr.olits to bc attributccl to tltc pcrttrancnl' cstatrlislrtTctrt sltall ' bc clctcrmiuccl b5' tltc satrc nrcthclcl ycar [r1' ycitr ttnlcss tltolc is goocl ancl sLrf-l rcicnt rcasoll to thc contrary' Page 6 of 26 l'T'A Nos. 486t2o11, 4g1l?-O11 & 49212011 2012:DHC:10211-DB

(7) Whcrc llrolits inc|tlrJc itcrls <r|- inconre tl,lriclr ar.c clca|t u,illr t1 i"fr-r*i"iV 'i't otlrcr- Articlcs ol' this Agrccnrcnt' thcn 1ltt: ;;l;;l.i",it o[' those ArLicles shall not bc allbctccl [r1' tltc provisitltts oI this A rticlc' (ti)Not|ringirr[lrisArticlcslrallaf.fccttlrcopcrationtll.atrl.latl, of a (lorttracting Statc rciating to tax inrl-''osocl orr.prolits liont ittsttt.atrocwlttrrron-resictcntsprcviclcclllraIif'tlrcrclcr,antlztrvitt lirlcc in cithcr conrr.u"ti,.,g siatc at Lho rlatc ol'sigrraturc ol'tlris A1;ra"nl"nt is vat'iccl (othcrlvisc than in-miror rcspoctri so as l'lot to a[{bct its gcnc,ai charactcr) tlrc Corrt|actirrg sl.atcs shall "o'r.sutt r','ith -cach othcr u'ith tt t'icn' ttl agt'ccine to tllly arr]cndurcut of tlris paraglaph that rtray' bc approp|ial"c' (9) wltetc: g statcs is bcrrcliciaill, iaj a rcsiclcnt of onc ol- Lltc (loritractttr cntirlccl. ivhcther ,fit""1fy or thioLrglr on" ot tt'rorc intcrptlsctl ' t*rst cstatcs, ,o o tt't"'" tlf thc busincss protits o[' an ctll"ct'llrisc carriocl on in tlrc othcr contracti'g slatc by thc trLrstcc ol-a,trrrsl cstatc olhcr than a trust,cstatc luhLh is t|catcd irr tlrtrt otltcr statc ils a c()l'l'lpilll)'for tax;lLrrposcs; ancl . .,;..,. ..,.-.,1,r f h\ irr Icltttiott to that enLcrpflsc' thlt ' trltstcc s'or"tlcl' ll'l :'l'",,i:i^j;",-;;; ;;. p,:i',"ipi"' it-Artictc 5. lravc a r)c,''ra.c'rr csittf',lishnrcrrt in that other Contractirig Statc' thc ctttcrprisc carrictJ on ['ry thc tl'l'lstec shalt bc clcctrrccl lrt l-rc zt trusirrcss carriccl o,, i,'r that tttlrr:r coutlacting Statc by tlrat rcsi4crrt tlr'ough er pcflt'lallcllf establishr'ent sit''iatcct thct'citr atrtl 'i [hat sharc of bufirrcss prolrts shall bc attlitrutccl ttr tltal' gtcrtuzrtrcltI cstabI ishmcnt' Articlc l2---lloY A L' l'l llS (l) l{oyaltics arising in.oirc "l lJt" Corrtiactirrg Statcs' lrcirrgl royaltics to rvhich rircsiclont ,:f thc othcr cclrrl.r'actirrg statc is fr"it"fi.inf fy cntitlccl' nray lre taxccl in that otlrcl SLatc' (2) Srrch loyaltics rnay also bc taxccl in thc Contractitig Statc itt rvhicrr trrc),arisc. anJ'u"c,rrcring to rhc raw oIthat Statc. but tlrc tax stl chalgccl shall rrot' cxc;cccl: (a) in thc case ol': ili,lntul,rri"t rclcrrccl to itr strb-paragraph (3Xb); (ii)pal,nrcntsot.creclits|olserviccsrcl-cr.r.cclttlinsulr-paraglraph (:i)Gl). sr-rtrjcct r',i"1'l'-i'u':nsraphs (3)(h) to (l)' thtt at'c ancillarl' a'ci sutlsicliary t. tlrc application or.,',iuyn'r"t'rt ol'cqLripnrcnI lirr wlriclr pa)/ulcnts o,."r"dit, arc ntaclc unrlcr sub-pat'ttgt'aplr (3xb): l'J,,i ,"r"'t"'cs rclct'rcd to in strtr-p"tt',i':l]ll-.,(])(l) that rclatc to cclr"riptlctrt tnentionccl in sLrb-;raraglaph (3)(b): iii fl,-."n, of the g'nss un''ou'rt ol-thc loyaltics;; arrd (b) in thc cttsc of othcr royalties: l)age 7 of26 I lA Nos. 4tJ6t?O11, 49112'011 & 49?'t2011 2012:DHC:10211-DB

(i) cluring tlre fir'st fivc years of incclrnc for rvlrich this z\ grccrlcul has cf'l-cct: (;\) rvhcrc tltc pai,cf is thc (itx,ct'trtncnt or a llolitical strb- clivi:;iorr ol'tlrat Statc ot'a public sector collrpulll\/: l5 1;cl ct:lrt. ol' tltc gr<lss atrroutrt crl- thc ro),altics: and (li) iu all othcr cascs: 20 pcr ccnt. o{'thc gross an'lotint ol'thc t't:1,2ltics'2111d (ii) during all sLrbscrlLrcnI ycars of incottrc: l5 pr;r ccrtt. ol'lhc gross eurlolrrrt ol' l.lrc royaltics. (3)'l'lrc [cft.n " r'o)'altic,: " irr this arl.icle n]celus l)ar)/nlcnts or' crcclits. rvlrctlrcr pcriodical or nr.rt. aucl. lr<lrvcvcr clcsclitrccl or' courputccl, to Llrc cxtcut to whiclr thcl,arc mndc as consiclcratiou klr: (a) tlrc usc ol, or thc right to usc. arry copl'right, pntcnt, clcsigrr or rntlclcl, plarr, sccrcl fbrnrula of pfoccss, Lraclc nrat'l<, or othcr lil<c propcl'L); or riglrt; (b) thc usc o[, or tlrc right to usc. alty inclLrstrial. conlncrcial rlr scicnti llc cquiprncnt; (c) tlrc supply ol'scicntifio, tcchnical. irrdustrial ot' cotlrrtcrcial l<rron,lcclgc or i rr lilrmation; (cl) thc rcnclcriug o[' eur1, l.cchuical or corrsultancy scrviccs (inclLrcling thosc ol' tcclrrrical or" otlrcr' 1;crsorrucl) rr'lricli urc itttcillarl, arrcl sLrt:siclizll'y 1.'t thc applicatiorr ot' cttiol,tttcpt ol' atty' such propcrl), or righL as is nrcntioncd in srb-palagrallh (a), an1, such cquiprncnt as is nrentionccl in sub-paragraplt (ll) <tr atty suclr l<norvlcdgc or rntilrrnatiorr ils is nrcntiouccl ilr su[r- paragraph (c); (c) thc usc ol or thc righl. [o r,rsc: (i) nrotion picturc filtnsl (ii) lilnrs or viclco tapcs lor usc in conncction rvith tclcvision: or' (iii) tapcs lbr usc in conncotion n,ith raclio bloacloasting: (t) Lotal or partial fortrcarancb in lcspcct of'thc usc or suppll, ef' iu'ry pfol)crt), or right rcl-crrecl t0 ilt sulr-paiagraplts (a) to (c); 0r (g) thc rcndcrirrg ol'arry scrviccs,(inclucling thosc of'tcclrfiical or ol.hor pcrsonncl) r,l,hiclt trtal<c availablc tcchnical linou,lcclgc, c.tpcricncc, sltill, lcnorv-hou, or proccst;cs or c()r.lsist ol' thc clcvcloprrrcnt and translbr of a tochnical plan or clcsign; trLrt Llrat tcrnr clocs not incluclc [)ayt'l'lcnts or clcclits rclatins Lo scrviccs rrrcutiouccl in sutr-trraragraphs (cl) ancl (g)'that alc rraclc: (h) for scrviccs that afc ancillarv arncl sLrbsicliary. arrcl irrc.rLricabll, and csscnLizrlll' 1i111,.,1, to a .salc ol'llropc't1': (i) lbr scrviccs that alc zurcillary arrd subsiclior'1, 1., thc rcrrLal ol' sltips. aircrall, coutaincls or othcl cqui;lnrcnt Lrsccl in corrucctiorr u,ith Lhc opcrartion of ships or erircraft in intcrnatitlnal tral'llcl fi) lbr tcaclring in or lry an cducational institution; (l() [ur scrviccs for the personerl usc ol- thc incliviclual of inclivicluals rrral<ing thc paynrcnts er crcclits: or I lA ltlos 4B6l?01'1. 4911201 I & 4921201 | 5 Pagc t) of 26 2012:DHC:10211-DB

r6 . c1.o (l) tt; lrrr cltrploycc of'thc pcr'soll tTal<itrg tltc pzr-vtucrtts or crcclits ,r,: ,,, u,,1, inciiviclual or fi'r ol- irrclividtrzrls (othcr' lltan at dorn'auyi lor prot-cssi'ual scrviccs as clol-tnccl irr nrl"iclc lzl- I (,1) 'l'lrc prclvisiotts ol'paragraphs (l) ancl (2) sltall nrrt apllly il- it.'. p"rr,in bcnclicially'cnt'rllcd to tlc royaltics, trcirrg a rcsidcnt 0l'.,uc of'thc Contraciing Statcs, carries on trttsitrcss itr thc othcr (.trntr.acting Statc, iu u,lrich thc royalties arisc, th|ough eI l.,crnrancnt"ostatrlishl.l1cnt sitrratcd tltereilt. or pcrfortns in .l'hat othcr Statc ittclcpcnclcut pcrsonal scrvices ll'onr a llxcd basc sitLraLccl tlrcrcirt. alrcl tltc propcrty, right or scrviccs itl rcspcct o{' $,hich tlrc loyaltics or. lrrii.l or cie<Jitccl are cl'fcctivr:l)' cotrtrcctccl rr,ith such pcnnanct'll- cstablishmcnt or f txccl basc. Itr suclr a casc' tlrc llrovisio's o['Ar.ticle 7 or Articlc 14, as thc cemc tlrav [rc' slrallapply. (5) ttol'aitics shall bc clccnrocl to arisc ilr a (lont|acting Stato ,,.l,cn tirc paycr is tSat Statc itsclf or a politioal stlb-clivisio' or I.cal ilUthor.ii,v ot'that SLatc oI a pc'Sol'l u'lro is a rcsicicnt o['that Statc lilr tlrc pttrposcs ol' its tax' \\r'hcrc, hotvcl'of' llrc pcrson 1'rr,in.u tlrc xlyaltics. *,hctlrcr thc pcrstltt is a rcsiclcltt ol-otrc rll' it.,. ('i.,,.,tro"ting Statcs or 'oL, ltas itr tllrc ol'L6c Cont'actirrg statcs of oLrtsiclc both corrtracting Statcs tl [)cf l'l1ell'lcl'lt cstablishurcnt or [lxctl basc in conncctiotr rvitlt rvhiclr thc liatrilitl' to pay tlrc royalties wers incurrccl, aucl thc ro1'alLics arc 6rlr.n,: lry tlrc pcrura'tnt establishmcnt or llxccl lrasc. t6cn t5c rtlr,altic"shallbcc{cctrrccltoariscirrtlrcstatcirrrvlriclrt|tc pct'nratttctrl cstatrlisltrlcrrt or llxcd lrasc is siltrat'ccl' (6) Wlrcrc, otving to a spccial rolationship trcl'tvcctr thc paycr aml thc pcfsol.l tlcrrclicialll, curitlccl to tlrc royalLics. or bcttvcclt lttltlr ol'thcru aucl soluc otltcr pefs0l], thc at.lrouttt ol-1hc royarltics llaitlorcrcclitct|.lravirrgr.cgardto'ur4rattlrcyarcllaidorcrcclitccl li,,:, "^c"ccls thc amoLrrrt ivtrich nriglrt havc bccn cxpcctcd to Itavc bcctr agrccd r'tllott b1' thc paycr ancl thc pcl'sol'l so cntitlcd in thc abscncc rll'such rclationship. tlrc provisiorrs ol'tltis ar'l.it:lc- shall a1:ply orrll' [o the last menrionccl atrtottltt' ln t'hat casc' tltc cxccss lrnit nt' thc amount of thc inLcrcst paicl or crcclitccl's6all rcurititr taxatrlc irccording to [au" rclatirrg to [ttx' tll- -caclt (.().tracLirlg Statc, trut s,.it1..t to t6c otlrcr provisiorrs 'l- tlris Agrccttrcttl". Incourc I'nx Act" 19(11 Scction 9-- lncomc decntcd to accruc or arisc in India' (l)'t'trc l<lllorving irrcorncs shall bc dcclrtccl to accrtlc or arisc irt Inrlia XXX X (vii)ilrcomcb5'rvar'ofltcslortcchrricalscrt'iccspal'.ablc [)) __ I ln Nos 4t1612O11, 49ll?.O11 & 49212011 Page 9 of26 2012:DHC:10211-DB

t? o .F (a) thc (iovcrurlrcu[ ; or (b) a pcrson rvlro is er rcsiclcrrt, cxccltt u,lrcr.c tlrc lbcs arc pa1';n[r1" in rcspccl. of'scrviccs utilisccl in er busincss or prnlcssiorr carriccl on [r1, suclr pcrson outside lnc'lia or lor.thc purposcs ol' rnal<ing or carning urn' iricr)rnc ll'our anv souroc outsiclc Inclia; ol' (c) a lterson rvho is a tron-rcsidcnt. rr,hcrc thc l-ccs ar.c payat:lc in respcct rJI'scrvises utilisccl irr er busincss or prol'cssiorr calriccl orr [r1,5ush pcfson irr India or lor the purposcs ol'rral<inr3 rlr carning any incorlc fi.olt any sourcc irr lnclia: l'rrrviclccl that nothine containccl in this crausc shall applv in rclaLiou tt) zrrr1, incolrre by vvi11, of I'cc.s lbr tcchlical scrviccs l)ayi1111" in pursuancr: r)larr a!]r'eot'l'lcr'rt rnrc.|c bclillc tlrc l:;I cla\, Apiil. 1976, arrcl approvccl b1, 11'" Ccntr.al (jovcr.rrrlcut. l:xplarration l.--For thc purposcs ol'thc tbrcgoing 1)ro'iso. arr agfccntcnt lraclc olr rlr aftcr thc lst cial'ol'April, lg76.,shall bc clccnrccl t<l havc becn nracle bclbrc that clatc il'thc agr.ccrncrrt is rradc irr nccorcJancc rvilh;lroposals altpr.ovccl [r1, lhc ('cntr.al (iovcninrcnt bcfure that clatc. l:xpla'ation 2.--l;or r.hc purposcs of this clerusc, "ltcs lirr. tccltnical scrviccs" t'ucAns anlr gOllsidsr.atiotr (ipclLrcling ap;, lulrrp . sun'r considcration) fbr rhc lcuclcring ol' any nrauzr*ecrial. tcch'ical or c<lrrsultancy scrviccs (incrucrirrg tlrc prrviskln of' scrviccs of tcchnical or othcr pcrsonncl) but clocs uot irrcluclc con.sidcratiotr l'br any consl.r-uction, asscnrbll,. rliliilrg or lil<c projcct urrclcrtal<crr [r1, 1h" rcccpicnt <lr consiclcr-atiorr u,hich tl'oulcl lrc irrcornc of- thc rccipicnt chargcablc Lrrrclcr thc lrcacl "Sa lat'ics". licclion 44D-- spccial provisioris tirr conrputing incomc by rr,:r\' ol' royaltics, ctc., iu thc casc ol' lrlrcign conrpanics.__ lrlotrvil.hstalrdilrg an1,111ing Lo thc cdrrtrarl, contarincd itr scotiolrs 2ll to zlzl(1, in tlrc cnsc ol'an asscsscc. lrcirrg a forcigrr cor.ll)ar]),.-- (a) l.hc clcclucl.ious aclrnissible uncjcr trrc sairi scctiorrs i' cotnputing thc inconrc by rva1, ol ro1,al1v or l'ccs tbr tcchriical scrviccs rccciveci fi'onr Govcrnmr:nt or an rncriarr coirccr.rr in pursuancc ol'arr agrccrncnt rnaclc b), 1;.," for.cign corngrarllr 1vi1l1 (iovcnr'rcnt or rvitlr lhc Inclian conccrr bcloic thc fst cta1,ot' April. lc)7(r. shallnot cxocccl irr tlrc aggrcqaLc t\\,crlty pcrccrrt. tll' fltc gross ittuourrt o['such royaltl, rlr lbcs as rccluccd [r1,so rtruclr <ll'thc gross amounL of sLrch t'o1,alt1, as consisLs ol'lunrp .sunr corrsiclcrati<lrr for thc trarrsl'cr outsicic lnclia oI or. thc irrrpar:tirrg ol' inlillnration outsicjc India ilr fcspcct ol, ar.l)/ clata. clocurrcntation, clrar,virrg <.li'spccification r:cratirr.g ttl an), patcnt, I lA No:;. 4861201 1, 491 t201 1 & 492t?.011 Page 10 of ;.)(j 2012:DHC:10211-DB

ls invcntir)n. moclcl, clcsigri. sccrct Iounuler or lriocc:ss or traclc nrall( ur sinrilar pr0pcrt\/; (b) no dcclucti<ln iu t'cspcot o[- any cxpcttclitLrrc tlt' alltttvttltcc slrall bc allorved undcr tury ol'tlrc said scctions itr cottrptttiltg Lltc iuctlnrc [r1, rva.v ol'ruyalt-r, or lbcs lbr tcchrrical sc;'viccs rcccivccl firrnr (iovcrrrmcul or an Itrdian col'lcern itr llursuatrcc ttl' atr agrccrncnt madc by tlrc firleig,n con'lpany rvith Govcltrntcul ttt r.r,ith thc Incliarr conocnr alicr the 3 Ist clav o1'Marclr. | 97(r. l')xp lanatiorr.--lror tlic Dr I l)o:ics o f tlr is s;cc Iiorr,-- (a) "[-ccs frlr tcclrniczrl scrvicel;" sharll lravc thc saurc rncauius as in l')xlllanation 2 ttl.:lausc (vii) ol'strb.-scc[ir.ltr (l) ol'scctiott (): '(b) "[urcign ct)ur1)atry" sltall ltitvc tltc sittttc tttcattitr.tl as itt scctitln tiOl] ; c) "rtt1,al1y" shall havc Llrc sanrc rircarrirrg as irr thc l.,r.plarratiurr 2 [u clausc (vi) ol'sLrb-scc:ticltr (l) of sccLiorr !); (cl) r'o1,n[11' reccivc.l llonr Govct'nnrcttt or att lttclian cllncct'tt itt pursuancc <ll au agrccnrcnt nraclc [r), a ,Or"'*u cornparny n,itlr (]ovcrumcul ol l,ith thc Incliau concunr aftcr thc 3lst clal'ol' IVIarch. 1q76. shall lrc c{cenrcd to havc bcctr rcccivctl irt pufsuanoc of an agrcctrrent tttadc bcfbrc thc lst clatv ol'A1lrii. W76. if such agrccrncut is dccmcd, Ibr thc put'poso.s o[-Lhc proviso to clar.rso (vi) of'sub-scction (l) ol- scctitlu 9. to ltavc lrccrr rnerdc bclorc t.hc lst clay of'Arrril. l97ti. Iicction 90. Agrccnrcnt 'n'ilh torcign coun{rics.--i l) 'l'ltc Ocntral Covcrnmcnt lnav cn(cr in{o iln nllrccrncnl n'ith thc (Jovcrnmcnt of au5, courttr'5' outsidc hrtlil-- (a,1 lol tlrc glanting oI r'clicl'in icspcct ol' (i) inconrc orr rr,liiclt ltavc hccn paici both ittctltttc-l.atx utttlct' this Act and irrccurrc-l"ax in tltaL countt'y ; or 1ii) incornc-l.ax r,hargcilblc unciel tlris Act aucl urrclcl tltc corrcspondirrg letu, irr lbrcc in Lhat cout'lir')/ to prontoLc rrrulual cctlncltrtic rclations, traclc and irrvcs{-urcrrt, or (b) lol thc avoiclarrcc ol'cloublc taxatiott ol'ittcotttc ttnclct' tltis Act arrcl uuclcl thc corrcsltoncling !aw.in lrlrcc in thal" c()unU')/. or (c) fitr cxolretngc of inlornratiou for tlrc prcrrcrrl.iorr ol'cvasiorr or' avcliclauoc ol- irrcotlc-tax clratrgcablc urrclcr this Act trr urrclcr tlrc colrcsponcling larv in lorcc irr thait cotll'ltr)/, ot' ittr'cstigittiolr crl' ctrscs <ll'such cvztsiott ot' at,oidnrtcc, <lt' I l"A Nos 4BOl2-011. 49112011 & 49?i2011 l)ag;c 11 of 2(! 2012:DHC:10211-DB

(d) for recovery of income-tax under this t\ct and under 1he corresponding law in I'orce in that country, and rnay, by notification in the Official .Gazette, nral<e such provisiorts as may be uecessary for implementing the agreernent. (2) Where the Cerrtral Government has entered into alr agreenrent with the Govelnment of any country.oLrtside India unclcr sub-section (l) for grarrting relief of tax, or as tlre case may be, avoidarrce of double taxation, then, in relation to the assessee to wlrom such agreeurent applies, tlte provisions of this Act shall apply to the extent they are tuore beneficial to tlrat assessce. Explanation.-For the lcmoval of doubts, it is [rereby declared l.hat the charge of tax in respecJ of a foreigrl cornpany at a rate higher tlrari the rate at which a domestic company is clrargeable, slrall rrot be regarded as less favoLrrable charge or levy ol'tax in respect of sucli foreigrr company, where sttch foleign colttpally Iras not made the prescribed afl'angement for cleclaration and payment within India, of the dividends (inclLrding dividencls orr preference shares) payable out ol'its income in India." 7. Section 90(2) mandates that rvhele the Central Govet'nment has ontcrcd into a D'[AA under sub-section I for granting relief of tax or, ab the case lnay be, avoidance of double,taxation, then in relatiou to the assessee to whom the agreelnent applies, the provisions of the Act apply to the extent they are filot'e beneficial to the assessee. In othcr wol'ds, \,vhere an Afticle in a DTAA and a provision of the Act apply to . the assessee, then the Article of the DTAA or the provisioll the Act' will apply dependilg upoll whic'h one of the two is lnore bencficial/aclvantageous to the assessee. The first reqllirement, thercfore, is .to see whether provisions of the Act apply to a particular transaction undeftaken/income earned by an aSSeSSee, which is taxable irr Inclia under the Act. In case the transaction/income is not taxable r-rrrder tlte ITA Nos. 4861201 1.,191 l2O1 1 & 4921201 1 Page 12 of 26 n 2012:DHC:10211-DB

At:t- tlrc irrr:onrc carnccl r,voulcl llot bc laxocl. llr casc Lhc saicl lO Lrarrsactiorr or inconrc oi.'ellt asscslsce is Laxal'rlc utrclc.r tlrc Act. tltcn tlrc prt:visions oJ'l)'l'AA. il'applicablc, t:ray bc t'csorlccl l.o il'thc1, n1".' rttor.'c bcrrcfir:ial ancl erclvauLagcous to tlic asiicsscc i.c. iJ'thc1,' Lrc,qatc orrcdrrcc tlrc lzrx liabiliti,. InAz.utli. Ilucltuo tirrtlolutt vs. UOI (2003) 263 l'l'lt 706 (S(l) allcr rcfcrring to {.hc saicl scctiorr it ]ras lrccn hclcl:- "21.'l'lrc provisions of Scc.tions 4ancl 5 of'thc Act arc cxprcssl5' rnaclc "sub.iccL to thc plovisions cl[' tltis u\ct". rt,lticlt rvtltlcl irrclLrdc Sccticln 90 ol'tho Act. As'to u,hat rvoulcl happcu iu tlrc crrcrrt of'er couflict bctnccn thc provi.sion ol'l"hc lncorrrc'l'ax Act arrcl a uotification issuccl urrclcr Scction 90, is rro longlcr rcs itttcgt'it. XXXXX Ztl" t\ sr,rt'vc)/ tll' thc afilrcsaicl cascs rrralics it clcar that tlrc .luclicial consor.rsus in lnciia has bccu tha[ Scctiou 90 is s;pccilicalll, intcrtclccl to etltblc attcl curpor.r'cr" thc ('ctrtrai (iovcrnurcnt Lo issr-r,; a rrotillcartion lbr ittrplcttrctttatiori ol'litc tcrrls <ll'a Doutrlc 'l'a.\atir)lr .Avoidancc Agrccrncut. Whcrr tlrat lralipcns. tlte llrovisious ol- suclt an agfccn'rcnt. tt,ith t'csltcct ttl cascs to rn,hiclr {.lrcy appl1," rvoLrld opcratc ctctt i['iltcottsistcttt rviLli tlrc provisions ol- tl-rc lucomc 'fax Ac{.. Wc ap1:r'tlvc oi'thc rcasoniug irr thc dccisions rvhich rvc htvr: uclticccl. ll'it war.; urrt thc irrLcrrtion of tlrc lcgislaturc to uralic a dcltarl.urc liorrr thc gcrrcral principlc o1'chargcatrilit,v to tax unclcr Scctiorr 'l arttl tltc: plcucral prirrciplc of asccrtaiunrcrrt oFtotal irtoontc Ltnclcr Scctiolt -5 ol'thc Act, tlren llrcrcrvas llo purposc in rnalcitrg tlto:ic scctiotts "sLrbjcct to thc provisions of thc AcL". 'l'hc vcri' otr.icct ol- grafiin-u thc said tu,tr scctiotts rvitlr Lhc saicl clattsc i:; to ctratrlc thr: (-'ontral (iovcrnnrcrtt to issLtc a Irotilication ttitclct' SccLiorr 90 lirrvtrrcls iurpleurcrrlattion ol'tltc tcittts ol- l)'l'A(ls rvltich rr'(lttltl autornar{.icall), ovclricic thc lriovisiorrs ol'[hc lnc:on'rc 'l'a.r Act irr ihc nratt.cr of asccr'LzrirrrlcrrI o('chargcatrility to inct:rrrc tnx aurl asccrtairrrnont of'total ittcotlc. to thc cxtcnt ol' ittcoltsistcttcl' rvi[lr lhc tcrrrrs ol'l)'l'4C." IS -) ti. thc At thc ou[sct, wc 11]ily noticc onc Iulct ihart tht:r'c asscsscc ltacl a P.li in Inclia as defirrccJ in Articlc rro dispLrl.c tlritl of thc l)'l'nn. I l'l\ Nos 48G12011. 49112011 & 49212011 Pagc.: 13 of 26 2012:DHC:10211-DB

?t 'i his.iLrclg.nrcnt procccds or.r thc saicl aclnrittcd lirct, r,r,hich is cxl-rcnrclli rclcrrarrI arrci nraLcrial. 9. Articics 7 and i2 ol D'fz\r\,n1afc a clistinction lrctrvccrr irrcorrrc carnccl by \very of "royaltics" and'"busincss prolits". 'J'hc tcrrrr "r'<11ri1f11i" has lrccn dclirrccl in ArLiclc 12 paragraph 3. u,hich c;onsists ol' srtb-paragraph a to l. As noticcci abovc. thc triburral has lrclcl tlrat Arl.iclc 12 ttl'l)'iAn is not applicablc as l"hc pzl)/nrcn[s rcccivcci n,crc ol' cotrp<x;ilc cliaracLcr lol divcrsc u,<)rk eurci u,crc not corrcrccl by Lhc tcl'rl "rirvalt\," as clcfinccl in paragraph 3 of Articlc 12. 'l'lris is clcur frcrr thc obscrvatior-rs rccorclccl b), th" tribLinal on thc rraLurc ol'activitl, LrttclcrLalicn by thc I'1.'l o1'thc asscsscc in lrrdizr rrrcntiorrccl irr palagraph 4.3. On tlris aspect rvc harvc ach,ersclv cclnllrrcntcd erncl rcvcn;ccl lirc lindirrgs ol'thc tlibunal, in a subsccltrcnt portion ol'this ciccisiorr. 10. l)itritgraph 4 o1'Arliclc 111 statcs that paragraphs I arrcl 2 <ll' Articlc l2 rvill not apply i.l"'royalty" ariscs through a I)l.l situratccl in l.hc cotrLrztcting Statc rvhcrc Lrusincss is carriccl on, cll r,r,hich thc amscsscc is rrol- ir rcsiclcrrl.. Paragraph 4 stalcs tiral. in such czrscs Articlc J or ltl tt'(lulcl a1r1)11,. 'Jl'ibulal is, thcrct6ro. rigftt ip holcling.t6al Articlc l2 tll' l)'l'An is not .rpplicablc buL.thc l'ctrsoll is paragraplr 4 ol' Articlc 12. Orrcc an asscsscc has a Pli in thc contrercting statc ot'r,r'hich lrc is rrot rcsidcrrt, thcn paragrnphs 1 alrcl2 of the saici ArLiclc ckl not- appl),. | | A l\os 48til?Q11, 4911201 1 & 49212011 l)agc 14 of 26 2012:DHC:10211-DB

Il. 'l'lLrs, tbr thc rcasorls clif'fci'cni tharr thosc. nrctrtiorrcd [r1' tltc lribrrnal n'c Lrolcl lhat Articlc 12 o.f- tirc l)'l'nn is; not applic:ablc. !lcrlLriLor is Articlc 7 oI thc l)1'nA is apillicatrlc. inLcrprctatiotr ztrrtl llrovisions oJ- Articlc 7 havc becn cxdminccl rvhilc ansu,critrg cluostiotr No.3. Qucstion Nos. I and 2 arc accorclingll' n11s1v.,-"c1. 1?. ArLiclc 7 dcals u,ith bursincss prol.its an<J rvill appl1," otrcc il is hcld tliat Articlc l2 is not applicable. l)aragraph 3 o1' Ar'liclc 7 is thc cclillcc u'hich is to bc cxarninctj to ansu/cr tl-rc substarrtial ctr"icstiorr l.itl.3 rlcnLioircc! abuvc. A carc.[r-rl criulirtztlion oJ'thc saicl par-agr-zt|lr shorr,s Lliat Lo. clctcnrrinc thc pro.lits oJ- a l)ll. thc asscsscc i:; to bc alkx,r,cd clccluctions "in accbrclance rvitlr rurt.l strbiccl- t<l lirrritali<lns ol' thc [au," r:clatin_q to tax in thc contracting Statc. i.c.. in [lrc prcscnI czrsc Incorrrc'l'erx Act jrr Jndia. It lirrLhcr stipulatcs l.hat cxpcnscs incuri'ccl [<lr thc plrrposc ol'thc bursincss oJ- a Plj rvoulcl irrcluclc cxccutivc artrl gcncral aclministrativc cxpcnscs so incurrccl rcgalcllcss u'hcthcr Lhcl' havc inclrrrccl in ally conl"racting Statc. i.c.. lrrclia/A'-rstrrlia or clscn,hcrc. Uorrycvcr, lhc nratcrial r\'orcis in paragmp.h .) ol'ArLiclc '7 arc -'thc zlsscsscc sliall bc allovvcci as clccir.rclion, in accordallcc t,t'itlt and sub.icct to linrilalion oJ'{"hc lar,r, rclating to tetx (i.c., thc lncorrrc'l'ax Act. l9(rl) in tlrc contracLing Statc ii.e., lnAia) irr rvhich thc.pcrtiratrctrl cstablish'ncnL is situatcd". What is stipLrlatccl ancl siatcd irr palagralth.i o['/rrticlc T is that lhc cx.pcnslrs il'lcLtrrcd bi, tltc asscsscc ctll'] br: liA ltlos 4t]6/?011,,19112011 & 49212.011 i)agc 1li of 26 )u 3 2012:DHC:10211-DB

)3 clainrccl ers a clccluctiorr but only in accrlrderncc r,r,iLh aricl sLrlr.icct. to linritatiorr stipLrlatcd in t.irc Act. 'l'ire prorrisiotrs ol'tlic Act. l"lrcrclirrc. rclating ttl clccluction o.l'cxllcncliture, bccomc applicablc litr compLrtilrg [rr-rsincss prolits r-Lndcr Articlc 7(3). .l'hc linritati<lrrs turcl conclitions stalcd ancl stipulatccl in thc Act vvith regarc] to clcclr-rctiorrs accorclirrg[1, gct at"tractccl ancl rcl.ain thcir suprcmacy eurd arc noL obliLcratccl/clilLrtccl in vicu'ol. paragrzrph 3 of Articlc 7. Irr othcr u'orcls. paragraph 3 ol' Articlc 7 -eivcs paramounc'y ancl acccpls l-l'rat Lhc clccllrcLiorrs clrrr bc only clirimcd in accorrlatrcc u'ith ancl subicct to litrrilations of'Lhc Act anrl not othcrn,isc. 13. '.I'hc rrct cllcc.t of thc albresaid conclllsion is thal. to courlrutc irLrsincss pr<llits uudcl Articic 7(3) o1'thc l)'l'AA, \r,c havc lo cxatlinc rr,lrr:thcr a parLicr-rlar cxpcllsc/cxpcnscs can bc allou,cc[ as a clccluction Jiorrr thc irrcomc camccl in accorclancc u,ith ancl is sub.icct [o' lhc liuritations rclating to thc clccluction availatrlc to llrc i.rsscsscc t-rnclcr Lltc Act. 'l'lris ncccssarill, rccluircs cxertirinatiou eurcl consiclcratitur ol'Lhc pnli'isiorrs of'thc Act lo fjncl oLrt tvhcthcr lol' colrtpr-rtirrg ta.rablc incon'rc, ali cxpctlsc carl bc ciaimcd'as a clcch-rcriclrr urrclcr thc Act. ll' dccluction can bc claimccl turder the Act. thon l-hc saicl clcclLrr:tion is t pr:rrrrissitrlc ancl has 1o bc allorvccl btrt i1'€u'l cxpcnsc cerrrn<lt bc clairrrcil as ii clccluction bcoerusc o1'thc stipulations iu thc Act irr rcspcct ol'thc ITA Nos 486l?011. 4911?-011 & 49212011 l)agc 16 of 26 2012:DHC:10211-DB

),t cilnrccl irlc{)n'rc, thcn tlrc said cxpencli'rtu'c is rrol. l.o llc i1ll611;1.;6'[ ;:s ti clcili.icti un/cxpcnsc. 14. Sccond pal't ol- paragraph 3 to Articlc 7 protccts eurd statcs ilrat [lrc lsscsscc is cntitlcd.to clairn dcdlrction <r1'cxpcrrscs b<lth in lrrclizr as; u'cll es ac{nrirristrativc and general cxpcnscs u'hctlror [hc1, arc incurrcd irr thc contracting Statc in which 1hc Plr is sitrlatccl or ourtsiclc thc saitl corrl.ractirrg Stzrtc. IJou'ct,cr. [hc 1lrst parl ancl Lhc sccor.rcl part ol' paragraph .j ol'Articlr: 7 havc io bc rcad lrarmonioursly g,,iving fLll cfl'ccttotlrr.:trvoparls.asiJ'thclcisnocon[lictbctwccnthcrn.'l'hcllrsl 1larl, as noLicccl abovc. is a parL r,r,hich slatcs r,r,ltctt tJcclLrc[iorr <ll'atr cxpensc carr bc allou,ccl, i.c., clcchlction shor-rlcl bc in erccorclancc: u'itl'r iincl lsr-rt'r.jcct to thc linritation ot'lar,r, of thc corrtractilrg Statcu,lrct'r-'I)lr isl sitLratcci. 'j'liis conclition nrr-rst bc sal.isJrccl lrcl<lrc thc arcfiri.rrrtagc or bcnclit of'sccrlnclparl of para-eraplr 3 czrn bc tal<cn [r),thc asscsscc. i.c.- [lrc c:lpcnscs ol'rvlrich decluction can bc clairncc{ eu'c tr<lt rcr.;tt'icl,ccl to rrri:rcl1' cxl)crlscs in thc contracl.ing Statc [rut also cxccurtiric arrcl gcttcra! acirtinistrativc cxpcnscs u'hicir r,vcre incurlccl'otrtsidc Lhc contrzrcting Stal.c. 'l'o this cxtcnt iraragrarph 3 of Articlc 7 n,ill ovcrriclc arrcl r,r,ill havc prirnacy ovcl'anv slipr"rlation in thc Act, il-any. tlrat c.xccutivc arncl gcrrcral acllrrirristrativc cxpcnscs or-rtsir!c Jnclia carrr<lt bc tal<clr itrl.o r:orrsiclcraliou. !ln hlos 4BGli1O11 49'll2O11 & 492,12.011 Pagel/ <tI 26 2012:DHC:10211-DB

1r 15. Irr vicr'r' ol-thc rcasoning given al-iovc. it is riot possiblc io itsi'cc rvitlr th<: conclusion arrcl llro Iinclin.gs rccoi'clcc] by thc tribLrnal tltat ottcc Articlc 7 applics. Scctiort tltll) rcacl u,ith Sibction I l5n is ttot applicatric. 'l'hc tribunal has ovcrlooi<cd zuicl uot girrcrr cluc crcclcnc:c ancl imixrrtarrcc to parargraplr 3 of Articic 7 o1- tlrc l)'l'nn. 'l'hc sairJ paragraph as noticcd ab<lvc, statcs that thc provisiorrs rclarlirrg t<l Lltc tar: cnactnrcrrI ol'r thc clucstion of clcdLrction ol' cxpcnclrtLu'c ilrc lirllv protcctcd; arc to bc cnlilrccd and arc applicatrlc. l)ccir-rction can onll' trc claimcci in accorclancc r,r,ith ancl sr-rb-icct to thc'lilnitatitllrs ol'Lhc Act in [hc contractirlg Statc- i.c., lnclia or Australia, as thc casc nray i1g. ln this t'niul'lcr. Paragraph 3 oi Articlc T has givclt prillrilcy Ltl Lhc pro\,ir.;iorrs sl,ipulatccl in thc clorncstic tax lcgislzrtiorr u,ltilc cotlpurLing lrrrsirrcss inconrc undcr ArLiclc 7(3) in casc thc alsscsscc lrzrs et I)l'l in thr: n<lr r-rcs i clcnt corrntt'1r l(1. In vicvv of thc albrcsaicl rcasoning, ,"" llou" to cxalttinc Lhc provisions ol'thc Act..to find ou1 rvhcthcr thc atsscsscc,is cutiLlccl ltt clcductiorr o.l' cxpcnscs aucl i.[' t;o, to tvhat cxtcut or thcrc is llll\i prolribition or bar tcr clainrillg a clccl',rction utrdcr tlrc Act. 'l'liis "c1r.rcstion" is in built or ar par'" ol'clurcstion No.3. 17. Ilr-rsincss incomc in Inclia is taxablc ttuclct'Chir.ptcr lV-l) "prolits aricl gzrins oJ- busincss or prol'cssion". Scctioris 2ti to 4tll)lJ itrt: lttlclcr lhc saicl hcading. ]-iach scction anclprovision ol'thc sait{ pal'l has [o bc i'tn Noi; 486t2011 , 491i2011 & 492t2-011 l)age 18 of 26 2012:DHC:10211-DB

)0 $ considcrcd altd cxalllitied to Jlncl or"rt u,lrctlrcr a particr-tlur clcc{uction or cxltcnclil"Lrrc call lrc clairlecl u'hcn inc<lnrc is taxatrlc rrrrclcr Lht'hclcl :'inr:(iltrc li'otu br-rsil'lcss''. ' Scctiott 44l) has bccrt clLtotccl. 'l'hc saicl Iicctiolr bc-ains u'itlr a non-c.,bstantc or ovcrriciing cxprcssi<ltr alrcl stzttcs thuL sccLions 2ti to 44C u,oLrlcl not bc applicablc ancl dcclr-rcliot'ts utrclcr tlrc saicl Sccticins cannot lrc allorved ancl arc not aclrrris*siblc irr casc ittr rrssosscc is a fbrciglt contpany ancl has carnccl ilrconrc lry r,t'ay 111' "r'of i1l11;" r)r' "fcc Jiorrl tcchnioal scrviccs'' frclttt Jnclian (]ovcrnttrcnt or lndian collccrn. Iiclr tlrc purposc of Scction 44D, thc cxprcssiorr '-l'cc f rlr rcclltic.al scr-viccs" Alrcl "r'oyalty" havc thc surlrc tttoalting as ciclincd iir l,)xplanaLir>n2 to clausc (vii) arrcl (vi) ol'sr"rb-scctiorr I ol'SccLiorr 9 ol' thc Act. 'l'hc tcmr "lorcign cclrrrpany" lras also bccn clof irtr:cl in cl;tusc (b) to thc lixplanation Lo Scclion441)to nloull a colllpatl),, 1:vhish is trot l clorncstic coll'rpan), as l)cr SccLion [30I] of tlic Act. lt is rrot irr clispLrtc bclbrc us that thc assesscc \\/as a lilreign oorltpuul)/. Itt 'l'hc ncxt qucstion- u,hir:h arisis Ior consiclcration is u'hcUrcr LIr,: urcon'rc carnccl bt, thc as:icsscc is "l-cc lortcchnical scn,iccs" n,illiiLr th,: rncaning ot'llxplanaLion.2.to clausic (vii) of sr-rb-sccLion I ol'SccIitltr 9. 19. 'l'ho tribiural in thcir linclings rcoorclc:11 11'r perragraph 4..3 lras hcltl ]'\ lhat thc colrtracts arc inclr-rsivc contracts oJ'tc:ctltical tral"ul'c its; r,t,c.ll as ol'rlrilline ctc. lt has bccn liu'thcr obscrr,'ccl that it ceurrrot bc saicl tlral hc activitics of'thc ilsscsscc wcre of pLlrcly tcchnical uatturc. | | A Nos 4861201 'l . 49112011 & 4921?.011 [)agc 1!) ot 26 2012:DHC:10211-DB

rt I 20. In llaragraplr 4, llic tribr-rnal has cxtracl-ccl a porliott of' tlrc argrccrncrrt bctwccn 1hc asscsscc ancl itPti. zrncl lil'l'S. 'l'lrc said ptlrti<ltt rc:acls as lrtrcicr:- '"1'ltc et,aluatiott ol'tltc resottrccs rvill tlcitilr tvitlt il gcological rtraplting. dri I I ing arrcl ccl iting' progratlrttrc attcl bc follor.vccl b5, i1'e11 olc qualitl' tcstirrg atttl t'cstlltrcc rrodclilrg. Spcoifically. thc ob.icctivcs ol'thc lllc-l'casib!litl' plrasc 2 prograr'r'l |.l'lc 8rc to: " Imprt>vc 1hc l<rrowlcdgc of' thc orc liocly arrcl olc charactcristics by a Lrull< sarnpling tttrd clrilling prograllllllc; o Invcstigaf.c prclinrimaD/ nrctallurgical atrcl tt'cttttttcttt characl.cl'istics, dcfirrc optiorts attcl cstitltttc costsl " luvestigatc in trastrlrcturc rcquilcrrcuLs. attcl cxisting calracitics. clcl'irrc option ancl cstirnatc costs: o Carly out a prelinriuarl' cnvit'ounrcrrtal asscssn'lct'!tl u lclcntil), nraior issues rvlriclr nright prcvcnt thc pro.jccl llroccccling; " lclcntil)'nrajor options for furtltcr sttrcly; ' o l)rcparc thc l)hase 2 Prc-f'casibilily, stucll' rcport onoapsulatiltg all oI tlrc alrovc listccl clcttrctrts. inclucling prclinrinary ltlirritrg platt, [lou' sltccts, antl cclsl.s, attd inclicative financial ttnaly5i5." 2l-. Inrnrocliatcll, aLicr cxtracting thc porl"ioll of' tlrc otlc ol' thc colttracts, thc tribLrnal in paragra1lh 4.1 Iras obscr\/cd as Ltllclt:l':- "il.l A roadirrg of- portion cxtt'aotccl atrovc slttltt's tltal. thc priuterrv olrjcctivc is tcchuical r.r,oll< ltlt' l"hc cvalttatiort of iron orc rcsoufcis arrd the corrcspottcltng fuasibilit-'" stLrdy for lraltsportation ol'orc by rail attd l.lrc clcvclopnront ancl hanclling of ship loacling caPacilict ^t thc spccificcl proccss. 'l'hc cvalttatiorr ol'tltc t'csottrccs \vas to bcgirr ri,ith gcological ntappiltSl, dl'illing arrcl ccliting programn'lc. to lrc [ollou,ccl [r1, 1t,r'', orc clttalitl' tcstiug rlf'thc rcsottrces rnodcling. 'l'hLrs, tlris is trot a casc rt,hcrc a silnplc tccltlrical ol' cottsttlttttrcl' scrvicc is frcvidccl. bUt it irrcluclcs spccilic activitics r'r'hich arc rccluirccl to bc clorrc on sitc, i.c.- by various activiLics sLrclr as thc gcological mappirrg. drillirrg, tcsLing or cltralitl', qLrarrLil),ipq tlrc possiblc qtrarrtity ttttd rcs()l-lrccs. I IA Nos. 48612011. 491t2011 & 49212011 Page 20 of 26 2012:DHC:10211-DB

cxillninil'lg tlrc cnvirontti.cntll ltazat'ds. l:tlt' thc pcrlblnraucc ol'1lic contract, it is rrotir:ccl, Lltc ztsscsscc ltas otriairrccl ncccssaf)I pcrtuissirln liour thc ltlll. rvlrich is thc sarrctioning nuLhority for opcnirrg a pro.icct ol-f !cc.irr lndia. lL is an acccp.tcll lact that thc assscs:;cc lrns opcrrccl ilr pro.jcct officc irr lnclia and ltas cutcrccl iuLo a cotttract lo clo llrsincss itt linc rvith th.c pcrtttissiott grarrtccl b)' Ill]1. l[ is also an acccptcd lact that ltc asscsscc cloc,s ltavc a pcnnerncut cstablislrttcut (Pl')) irt Inclia." '1.2. 'l'hr: tlibr-ural has not spcr:ilicall1, caalninccl )ixplarralion 2 [o Sccliorr 9(l) (vii) ancl ivhcther or rlotthc saicl cxplanati<ln is applic;alrlc an(l tlrc incomc canicd by thr: asscsscc is covcl'ccl b;, tlrc sair-l cxplarnation. ',|'hc cxprcssiolr "fccs for tcrftnical sorviccs" has lrccrt clcllnccl irr l')xplanaticln 2 Lo Scction 9(1)(vii) to urcau rr11; gr111<ir.lct'ation irrclLrcling lumpsum parrnrcnt lbr rcnclcring uranagcrial" tccirnicztl or i c<lrrsurlling scrviccs ancl incluclcs provisions oI scrvicc of'tcclrrrical or oLlicr pcrsonncl. Scction 441) rcacl u,i[h l')xlrlanaLi<ln 2 lr) Scc{.ion 9( I )(r'ii) rxlvisagcs clilI'crcnt and scparatc ttcatrncnL lor taxal.itltt pLrrposcs ol'incomc rcgardctl as "lbc lbr tcchnical si:rviccs" ars rroLicc.l abo.,/c. 23. 'l'hc tritrr"rrlal bas alstr crrccl in holcling thal thc cxl.i'aclcd portitln <rl'thc ag,l-ccllcllt cstahlishcs and shorvs [lrat thc consiclcrarLi(lrt rcccivr:d I n'as lilr a collltosilc c<lntract. ljurthcr, ovcn ill a oelsrr oJ'a conlllosilc contmct lilr sr-rpply o1'goocls/ccluripmcnt/nrachincry anci lbr prtlviclinil tccJrriical scr\/iccs, bifirrcation, iI aircaciy rnaclc iri thc cotitl'acL" ltas ltl bc consiclcrccl ancl accorciineh; thc incornc hzrs to lrc taxccl. ln itbscncc I IA Nos. 48612.011. 4911?-011 & 492.t2011 f'age 21 of 26 2s 2012:DHC:10211-DB

It l ol'bilirrcation. an cstimatcd allocation is.iLrstilicd arrcl has Lo l>c trraclc lilr tlic purposc ol. tax. ?.4 'l'hc pa1'11cnt in thc prcscnt.i:asc i:; Jbr .firrrrishing ol'qralLration rcllort. 'l'lrc ['cc paicl is lbr thc said purrposc,. 'l'o collcct zurcl colkrtc [lrc infilrrlation arrcl lurnish cvaluation rcporl", thc asscsscc \,\;as rcclLrircd arrcl iL \vas ncccss&r1r 1s unclcrtal<c cer[airl tcsts" mapping auci s[uclics. l)riJlitig lbr tpsts as to cvaluate js to gain infirrmation arrcl l<nor.vlcclgc. 'l'ltc pul,prcnt u'hich is rcccivccl is lbr lhnrishing oJ- irrlilnrrettion ancl tiot "btrsincss" incomc or conlpositc incomc inclucling "bLrsirrcss" irrcorrrc Lts hclcl b), thc triburnerl. '['lrc asscsscc ll1av !c citrryrillo o11 irrartulactr-rring or tracting activitics but czrn cntcr inlo a crlntr-uct to lirrrrish tcclinical inlbnlation lbr a f'cc to a thii'cl purt)/. 'l'cclrrricai infilr"rrration li'hich is furnishod nrav bc er rcsr-rlt ot- thc l<no',r,lcclgc. cxpcriqncc and cxpcrtisc gaincd by thc zlsscsscc ers ar rcsult ol'br-rsiiru;s; or tracling zrctivitl,; or tcsts, nlappillg ctc. nra)/ lrc rcclitirccl lilr' liu'riishing thc saicl inJonnation, but this is inrrlatcrial. 'l'hc i'cc r-cccivcd lioni lhc tliircl party in such casci; is t'cc lilr l-ccluricitl sclviccs. il'it satisllcs ancl is covcrccl b1, thc lixplanation 2 to Scctiorr 9( l)(r,ii). '['hc pal,plclrt lladc is to accluirc technical intormation.'['hcrcJilrc it is ''l'cc lirr tcchnical scrvices". It ivill bc in'unzrtcrial rvhcthcr tl,c ilsscssctl hacl actluirccl ancl gainccl thc said tcchnical inlilrrrrarliorr bccausc'oI lrusirrcss tlr trercling actirrit), or attcr r:oncluc{ing tcsts, lrrappirtg ctc. 'l'hc I fA Nos. 486l?.011. 49'll2o11 & 49212-411 I)age 2? <tl 2G 2012:DHC:10211-DB

3d naturc atrcl cireuaclcr ol'thc irriilrrlation f r-rrrrishccl aurd filr u'lriclr tlic l'cc or corrsiclcnrtior"r is paicl is thc rclcvant critcria lilr clccic{ing u'lrctltc:t'<lr rrot lixplanation 2 [o Scction 9(1Xvii) is applicatrlc. ]rr thc prcscrrI ursc, as pcr Llrc clauscs cluotccl abol'c, thc fcc vvas paicl to zrccluirc tcchrrical arrcl rnanagcrial irrJ.omration. 25. AI this.stzrgc- it r,vill bc appropriatc to nol.icc ancl clcciclc tlrc contcntion oJ.'tl'rc asscsscc flraf llxplanatiorr 2 to Scctirln 911)(riii) is not applicalric in vicu, oJ'ilic cxclnsjon i.c.- lhc cxprcssion " lcc iirr lhr: tccJrrrical scrviccs, [rr"rl docs not inclLrclc c<insiclcraticlrr iirr an\.' r.:<lnstrucIion, asscmbll,. rlinirrg or lil<c pro.jcct r;ndcrtal<cn b1, Llic asscsscc". 'J'hc albrcsaicl cxcltrsion startcs that thc consiclcrartion rcccivccl lry an asscss'cc Jbr constrlrction, asscrnbll,, mining trr likc pi'o.iccl has Lo bc cxcltrdccl and is not hc Jbt tcchnical scrviccs. 'l'hc usc tlJ'[hc rvor,-l "pro.iccti' in ihc cxprcssiorr is rclcvant ancl :;i,gnilicant. (lorrstruction, asscrrr bJy or mining pro-iccts urrc nonrral 11, artcl in cou'rr11()r1 prillarrrce not rcgarclc-d as sclvit:cs rclatirrg to lcc lilr- Lucirrriual scn,iccs. l,)xplanaLion 2 io ScoLioir 9(l )(vii) rnaltcs arrcJ clrarvs il clistinction bctwccn incomc carneci b1, luny o['lbc lor l.cclrnical scrt,iccs. rvhicir havc bccn clc.finocl to rllearl euly rnanagcrial, tcclrrrical or' consultancJ, scrviccs, inclucling pr"ovisiori on scrvicc.s ol'tcchnical ancl oLhcr ;lcrsonncl, in ccrntlaclisLinclion [o irrcr)nic r:at'rtcd lklnr nlal'lLrtircturing or tradc acl.ivit1,. 'lihc lcgislatnrc by thc saicl c.xprcs:riott l)aEa 23 ot itG I TA Nos. .1861201 1,.tt91 12.01 1 & 49?-1201 1 2012:DHC:10211-DB

34 has clarifiecl and as a nratter of arburdant calrtion stated that constrr-rction, assetnbll, or like project uncleftakcn by the recipicnt should not be regarclcct and tr:eated as considcration for fee for technical scrvices. Thc reasouing .aud justification is obvious; constrnction, assclltbly or mining activities may not strictly fall witliin and be rcgarclcd as the manufacturing, or tracling activity, when intcrprcted in a narrow manncr. 'Lne intention of thc lcgislatr-rrc is that thc narrow interpretation is not wananted. 'Ihe aforcsaid expressicln. thcrefore, is mcrcly clarificatory and cleclaratory of what is lairly obvious and clear. It rcmoves cloubts and ensures that ariy debatc on this score is avoiclecl. It does not seek to curtail the scope ancl ambit oJ. managcrial, technical or consultancy selices which are taxable as fee for tcchnical services. IJse of the worcl."project" in the said cxpression requires and tnandates that there shoulcl be construction proiect, assembly project or a rniuing project or a like project urdertaken by the rccipient and thc considcration paid should be on the saicl acr:ount. It is appnrcnt and the clauses of the agreement do uot clisclosc that the assessce had undertaken any mining'project or a construction proiccl.. 'I'hcre is no such finding recbrded by the tribunal also. 26. Lcarned counsel for the petitioner assessee harcl relicd Llpor'l clecision of the Supreme Court in Union of India snd 'Anotlter versus A. Sanyasi Rcto and Others, (1996) 219 I'IR 330 and has subtnittccl l'lA Nos. 48612011.49112011 & 49212011 Page 24 of 26 2012:DHC:10211-DB

tlrat Section 44'D is a draconian pror.'isiou ancl should be read down as an.option availablc to an assessee and is not a manclatclry provision. It is submittecl that taxation on gross income basis is unconscionable. 27. Constitutional yalidity of the said provision is not challcnged bclbre us ancl cannot be examined in an appeal under Scction 260A ol the Act. We have to decide the appeal on the basis that this Section is constitutionally valicl, though courls can read clown a section while interprcting a provision. in case of ambigtrity/cloubt to ensurc that the provision does not fall foul of the constitutional limits. It may be relevant to note that taxation of non-residenl on gross receipt basis rryas one of tlre contentions or defences raised by the Revenuc in A. Sanyosi Rcro cose (supra) to defend thc presumptive provision nnder challenge in thc said case. The Supreure Court dealt with the said del-ence, obscrving as under:- "Courrsel lor the Reveuue broLrght to our notice sections 448, 44Bll, 44BBA and 44D ancl contettded that there at'e olher similar provisions in tlie Act. We should state that they relate to non-resiclents carrying on lrusiness in India attd are not muclt relevant in construing sections 44AC and 206C of the Act." 28. It is clear fi'orn the aforesaid quote that the Supreme Court had drawn a clistinction betr,veen not resident assessees and assessees wh() ale residcnt in Inclia, as far as taxatiolt olt gross receipt basis is collccrned. It rnay be also notecl drat the rate of tax uncler Section 44I) is 20Yo, rnhereas rate of tax at the normal rates in the years in questiorl ITA ltf os. 48612011. 49112011 & 49212011 Page 25 of 26 3> 2012:DHC:10211-DB

was lnuch higher. In some cases, Section 44I) ma1' work to thc acivaltage of an assessee aird to the disadvautagc of the lLevenue and in ot6er cases to the aclvantage of the Revenue and to thc clisadvantagc o[' thc asscssee. 'l'his conteution is rejectecl. 29. In vier,v of the aforesaid findings, the questions of law mentiotlcd erbovc are arlswered as under: (i)QuestionNo. 1 is answcled in.negative ancl it is helcl that ALticle 1j of thc DTAA is not "rpplicablc. (2) Question No. 2 is also answered in negative and it is lield that Alticlc 7 of the DIAA applies but on intelpletation of the saicl Articlc, spccially paragraph 3, we have to examine the frovisions oI 1hc Indian Income fax Act to find out whether or not deduction of cxpenses is pcnnittecl ol allor,ved. (3) Question Io. 3 is answerecl in negative and it is helcl that Scction 441) is applicable as the income earned by the assessee is taxable as'"fec 1'- fol tectuical selvices" audaaded{$ingly,tsestla{q4qDds-dPdq€{6lb' 'I'he appeals are accordingly disposed of' No costs. ,q JANUARY 4 ,2012lvlflt ITA Nos. 48612011. 49112011 & 49212011 -4 l, t 1-'rl (SAN.XMI{,{NRIA) J{JDGE t! r L\*^=-"'- (R.v. EASWAR.) JUDGE Page 26 ot 26 3t 2012:DHC:10211-DB