M/S ORKLA ASIA PACIFIC PTE LTD ,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX (IT) CIRCLE-2(1), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE BEFORE SHRI. B.R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No. 193/Bang/2019 Assessment Year : 2015-16 M/s. Orkla Asia Pacific Pte Ltd., The Deputy C/o MTR Foods Pvt. Ltd., Commissioner of No. 1, 2nd & 3rd Floor, Income Tax (IT), 100 feet inner ring road, ASMNT, Circle – 2(1), Ejipura, Vs. Bangalore. Bangalore – 560 047. PAN: AABCO4087B APPELLANT RESPONDENT Assessee by : Shri Sharath Rao, Advocate : Shri Pradeep Kumar, CIT Revenue by (DR) Date of Hearing : 03-11-2021 Date of Pronouncement : 30-12-2021 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against final assessment order dated 17/12/2018 passed u/s. 143 (3) by the Ld.DCIT, ASMNT, Circle-2(1), Bangalore for assessment year 2015-16 on following grounds of appeal: “The grounds mentioned hereinafter are without prejudice to one another. 1. Barred by limitation The order passed by the Learned Assessing Officer ('learned AO') is barred by limitation in view of the express provisions of section 144C(13) of the Income-tax Act, 1961 ('the Act') wherein, the order should be passed within one month from the end of the month in which Dispute

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Resolution Panel direction is received and hence, the order is invalid and unsustainable, and the consequent demand in not enforceable in law. 2. Addition to the total income on account of professional services  The learned AO and the Honourable Dispute Resolution Panel ('Hon'ble DRP') has erred on fact and in law on making an adjustment to the total income of the Appellant on account of receipts from services.  The learned AO and Hon'ble DRP has erred in not appreciating that the services in question were provided for the export business of the service recipient and therefore not liable to tax as Fees for Technical Services (FTS) under section 9(1)(vii) of the Act.  The learned AO and Hon'ble DRP has erred in not recognizing that payments received by the Appellant fell within the purview of the exclusionary clause of Section 9(1)(vii)(b) of the Act and were not, therefore, chargeable to tax in India under the provisions of the Act.  The learned AO and Hon'ble DRP has erred in not appreciating that professional services provided by the Appellant to MTR Foods Pvt. Ltd. is not taxable as FTS under the India-Singapore Double Tax Avoidance Agreement ('DTAA').  The learned AO and Hon'ble DRP has failed to appreciate that the Appellant does not make available any technical knowledge, experience, skill, know-how or process as the person acquiring the service does not receive any technology contained therein which would enable it to apply the same.  The learned AO and Hon'ble DRP has erred in not appreciating that, the receipts from professional services earned by the Appellant from MTR Foods Pvt. Ltd is not taxable in India.  The Hon'ble DRP has erred in comparing the sales and marketing services offered by the Appellant to a secondment arrangement and therefore erred in holding the receipts as Fees for Technical Services.  The learned AO and Hon'ble DRP has failed to appreciate that the sum of INR 72,68,226 includes re-imbursements of expenses amounting to INR 147,057 which ought not to be characterized as Fees for Technical services. 3. Addition to total income on account of foreign exchange

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The learned AO has erred making an addition to the total income amounting to INR 53,995 on account of difference in conversion rate. 4. Incorrect total income considered in the computation of income The learned AO has erred in considering the amount of professional charges received by the Appellant amounting to INR 1,39,34,515 instead of INR 72,68,226 (gross of re- imbursements as per the draft order of assessment) or INR. 71,21,169 (net of re-imbursements as contended by the Appellant). 5. Incorrect rate of tax on income earned on account of FFS  The learned AO has erred in applying tax rate of 40% on the total taxable income of the Appellant notwithstanding a beneficial rate of 10% under DTAA.  The learned AO has erred in not following the directions of the DRP as per which a tax rate of 10% was to be levied on the total assessed income. 6. Interest under section 234A of the Act  The learned AO has erred in levying interest under section 234A.  The learned AO has erred in levying interest under section 234A as no income is taxable in India.  Notwithstanding above, the learned AO has erred in computing interest under section 234A of the Act amounting to INR 55,418 being consequential in nature. 7. Interest under section 234B of the Act  The learned AO has erred in levying interest under section 234B of the Act.  The learned AO has erred in fact and law by levying interest under section 234B of the Act as the Appellant is a non-resident company, entire tax was to be deducted at source on payments made by payer to it and there was no question of payment of advance tax by Appellant.  Notwithstanding above, the learned AO has erred in computing interest under section 234B amounting to INR 24,93,810 being consequential in nature. 8. Surcharge and education cess  The learned AO has erred in levying surcharge and education cess.  The learned AO has erred in fact and law by levying surcharge and education cess, without appreciating that surcharge/education cess should not be charged when taxes are levied at the rate prescribed under the DTAA.

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The appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided.” 2. Brief facts of the case are as under: 2.1 Assessee is a non-resident company incorporated in Singapore and is a tax resident of that country. It has been observed by the authorities below that assessee is organised as a support and business development centre for all Orkla moved companies in Southeast Asia region. It is observed that they render advice, support and assistance in the area of marketing and sales in Southeast Asia region to Orkla group companies through experienced personnel. 2.2 Asssessee for the year under consideration while it return of income on 20/12/2015 declaring taxable income as “nil”. The case were selected for scrutiny under CASS. During the course of scrutiny proceedings it was noticed that the company received following receipts from MTR: Professional charges: Rs.72,68,226/- Reimbursement of expenses : Rs.1,47,057/- 2.3 It has been stated that MTR Foods Pvt. Ltd., Bangalore is 100% subsidiary of the assessee and that we non-resident assessee had entered into a service agreement with its Indian subsidiary in the year 2010 by which it renders marketing services for the benefit of the Indian company in Southeast Asian country. It has been observed by the Ld.AO that as per the terms of the agreement, MTR Foods Pvt. Ltd. would reimburse 50% of wonderful time position employee provide sales and marketing

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services for the benefit of MTR Foods Pvt. Ltd. and also at the request of MTR Foods Pvt. Ltd. It is also agreed that MTR Foods Pvt. Ltd. may also request to assessee to render additional special services the remuneration of which would be agreed on a case to case basis. The corresponding terms of appointment of assessee as a service provider in Southeast Asia region by MTR Foods Pvt. Ltd. is mentioned in article 3 of the service agreement dated 12/10/2010. 2.4 The Ld.AO observed that M/s. MTR Foods Pvt. Ltd., had initially deducted TDS for 5 months commencing from 1st April, 2014 to August 2014 on the payment of its professional fees and for further receipts TDS were not deducted. The Ld.AO was of the opinion that since the receipts by the assessee were in the nature of the fee for technical services (FTS) were taxable receipts in the hands of the non-resident assessee in India. Accordingly, a show cause notice was issued calling upon the show cause as to why the professional receipts of Rs.72,68,226/- should not be treated as FTS and bring it to tax for the year under consideration. 3. Assessee before the authorities below submitted that provisions of double taxation avoidance agreement between India and Singapore are more beneficial, according to which, assessee was under a bonafide belief that the professional charges received from M/s.MTS Foods Pvt.Ltd., were not in the nature of FTS. The Ld.AO rejected the submissions of assessee for following reasons:  The foreign company is relying on section 90 of the Income Tax Act where it can avail the beneficial provisions of the tax treaty unless the domestic tax laws provided for a more beneficial provision.  Further the company has analysed that whether professional charges received by the company constitute FTS under Article 12 of DTAA by relying on make available clause.

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 Thereafter the company has submitted that there is no permanent Establishment (PE) in India by referring to article 5 of the DTAA and has taken a stand that the income of Rs.71,21,169/- earned by the company during the FY 2014-15 by way of legal and professional charges from their 100% subsidiary company M/s. MTR Foods Pvt Ltds in India is a Business Income and hence taxable at Singapore as per the provisions of the India-Singapore DTAA. The Ld.AO also observed as under: “3.2 As per article 12 of DTAA with Singapore, fees for included services “means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; (b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. 3.3 However, it has to be seen whether the amounts received by the assessee company (OAP) from MTR Foods Pvt Ltd., falls within the meaning of FTS as defined in Explanation 2 thereof to of section 9, which means any consideration including any lump sum consideration for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient of consideration which would be income of the recipient chargeable under the head 'Salaries'. The exceptions to the definition of FTS are admittedly not attracted in this case. The short question, therefore, would be whether payments received by the assessee- company(OAP) are for rendering of any managerial, technical or consultancy services.” 4. After analysing the agreement entered into between the non- resident assessee and M/s. MTR Foods Pvt. Ltd., the Ld.AO concluded that the assessee is assisting MTR Foods Pvt. Ltd. in market research, product launch, price negotiations, consultancy services by the experienced personnel and also to on sales and marketing matters that helps in the business development and decision-making process of MTR Foods Pvt.Ltd.

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4.1 He thus held the receipts by assessee from Indian subsidiary measures MTR Foods Pvt.Ltd., to be taxable under the act as well as the DTAA as FTS. The draft assessment order was passed under section 143(3) read with 144C on 27/12/2017 arriving at a taxable income at ₹ 72,68,226/-. Aggrieved by the proposed addition, assessee filed its objections before the DRP. 5. Before the DRP the assessee relied on para 4 of Article 12 of India Singapore DTAA that defines FTS to be managerial, technical consultancy nature if such services make available technical knowledge, experience, skill, know-how or process to the Indian entity. The assessee before the DRP submitted that since the technical knowledge was not made available to the Indian entity (MTR foods Private Limited), treating the payments as FTS and charging the same to Income tax under section 9 (1) (vii) of the act is incorrect. 6. The DRP after considering the submissions of assessee decided the issue by observing as under: “2.1.2 The sole bone of contention as to whether the secondment charges paid in respect of the professional services rendered by Shri Mithun Sachdeva falls under the classification as FTS and thus taxable u/s. 9(l)(vii) of the Act or otherwise. The AO has relied on four decisions which are as under:  International Hotel Licensing Co. 158 Taxman 231 (AAR)  Shell India Markets (P) Ltd (20120 342 ITR 223 (AAR)  Guangzhou Usha International Ltd (2015) 62 taxmann.com 96 (AAR)  GVK Industries Ltd (2015) 54 Taxmann 347 (SC) The AR has relied on the below mentioned decisions:  Commissioner of Income tax vs. De beers India Minerals (P) Ltd (2012) 21 taxmann.com  214 (HC) (Kar)

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 Raymond Ltd vs DCIT (80 TTJ 120) (Mum 1TAT)  Shell International B.V vs ITO (2013) 37 taxmann.com 142 (Ahmedabad Trib)  Batliwala & Karani Securities (India) (P) Ltd vs DCIT, Circle-5, Kolkata(2016) 71 taxmann.com 142 (Kolkata Trib)  Lufthansa Cargo India (P) Ltd vs DCIT (2004) 91 ITD 133  DIT Vs. Lufthansa Cargo India (2015) 60 taxmann.com 187 (Delhi)  Titan Industries Ltd. Vs. ITO [2007] (11 SOT 206) (Bangalore Trib.)  WNS North America Inc vs ADIT (Intl Taxn)-2(2), Mumbai(2012) 28 taxmann.com 173 (Mumbai Trib) 2.1.3 The Authorized Representative are of the opinion that since the corresponding technical knowledge possessed by Shri Mithun Sachdeva is not made available, as per Article 12 of India Singapore DIM, the same cannot be categorized as FTS, so the AR pleaded that the receipt of moneys by OAP from MTR is exempt. 2.1.4 The contention of the AR and the case laws relied upon have been carefully considered. The professional qualification and the experience of Shri Mithun Sachdeva, as submitted by the assessee proves that he is technically competent, highly qualified and a skilled person. The services rendered are in the nature of consultancy in the field of sales and marketing at South East Asian Region. Even the contents of the service agreement requires providing of one full time position experienced personnel to provide market research, product launch, price negotiations, sales, etc. Therefore it remains an undisputed fact that the technical prowess, experience, skill, the knowledge in sales and marketing have been made available to MTR and thus, it requires to be termed as ITS, even as per Article 12 of India-Singapore Tax Treaty. But for the technical knowledge, experience and skill of Shri Mithun Sachdeva, the Indian entity MTR would not have paid such a huge sum of Rs. 70 lakhs approximately. 2.1.5 On the aspect as to whether the secondment charges paid for skills deployed by employees of nonresident overseas companies, the decision of the Delhi High Court in the case of Centrica India Offshore Pvt. Ltd. vs. CIT reported in [2014] 44 taxmann.com 300 (Delhi) squarely applies to the fact situation in the present case. Similar to that of the case under consideration, the technology was only deployed for rendering services to the. Indian entity and such technical knowledge was not passed on to the

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Indian entity. Even other vise, the Hon'ble Delhi High Court held as under: "Section 9 of the laconic-tax Act, 1961, read with article 13 of DTAA between India and UK and *article 12 of DTAA between India and Canada – Income- Deemed to accrue or arise in India (Royalties and fees for technical services) - Assessee, an Indian company, was a wholly owned subsidiary of Centrica Plc., a company incorporated in United Kingdom (‘UK’) - BSTL and DEML were also subsidiaries of Centrica Plc. and those overseas concerns were in business of supplying gas and electricity to consumers across UK and Canada – Overseas entities outsourced their back office support functions to third party vendors. in India - To ensure that Indian vendors comply with quality guidelines, assessee was established in India to act as service provider to overseas entities - To seek support during initial year of its operation, assessee sought some employees on 'secondment' from overseas entities - In terms of secondment agreement, assessee reimbursed salary cost to overseas employers - It was noticed that employees of overseas companies used their technical knowledge and skills while assisting assessee in conducting its business of quality control and management – It was also undisputed that seconded employees were also making available their technical. expertise and know- how to regular employees of assessee company during initial years of its operation - Whether on facts, amounts reimbursed by assessee to overseas companies in terms of secondment agreement amounted to 'fee for technical services' liable to tax in India and, thus, assessee was required to deduct tax at source while making said payments - Held, yes [In favour of revenue] " We note that the contents of Paras 4,5,6,7 & 8 of Article 12 of India Singapore DTAA and the contents of Paras 4,5,6,7 & 8 of Article 13 of India UK DTAA are essentially the same and hence the above case law is squarely applicable to the case of the Assessee. 2.1.6 Additional reliance is placed on the decision of the 'A' Bench of Bangalore ITAT in the case of Food World Supermarkets Ltd. Vs. Deputy Director of Income-tax (International Taxation), Circle -I (1), Bangalore reported in [2015] 63 taxmann.com 43 (Bangalore - Trib.) wherein under identical circumstances it was held that "once it was found that secondees were rendering managerial and highly expertise services to assessee, payment for such services fell within ambit of FTS defined in explanation 2 to section 9(1)(vii)". In the case under consideration, since the professional qualification and experience of Shri Mithun Sachdeva is found to be highly skilled and

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technically competent and not an ordinary employee of OAP, the rendering of managerial or professional services of such high expertise also falls under the ambit of FTS defined in explanation (ii) to See.-9(I)(vii). Under such circumstances, the position taken by the AO to. treat the amount received by OAP from IVITR as per the terms of the agreement dated 21.10.2010 as fees for technical services and subjecting it to tax @ 10% is Upheld.” On receipt of the DRP directions, the Ld.AO passed the final assessment order making addition amounting to ₹ 1,39,34,515/- in the hands of assessee. Aggrieved by the final assessment order passed by the learned DCIT to, the season appeal for us. 7. At the outset alone they are submitted that assessee do not seek to press the issue raised in Ground No.1. Accordingly, the Ground No.1 raised by assessee stands dismissed as not pressed. 8. Ground number 1-4 is in respect of the taxability of receipts received by assessee from M/s.MTR Foods Pvt.Ltd., as FTS under section 9(1)(vii) of the Act. 8.1 The Ld.AR submitted that it is an undisputed fact that professional services were rendered by non-resident assessee to M/s. MTR Foods Pvt. Ltd. and the invoices were raised on a monthly basis by the non resident assessee in respect of services rendered by one Mr. Mithun Sachdeva at Singapore. The Ld.AR submitted that the invoice includes cost towards rental, administrative support, office cost, office maintenance, staff expenses, office expenses and travelling expenses. The details of the invoice raised by the non resident assessee are as under: S.No. Month SGD INR 1 Apr-14 16120 772613 2 May-14 14916 703309 3 Jun-14 10506 506635 4 Jul-14 11143 541210

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5 Aug-14 12704 616182 6 Scp-14 11096 537814 7 Oct-14 12079 576207 8 Nov-14 15678 747351 9 Dec-14 9450 455678 10 Jan-15 12643 533904 11 Feb-15 14523 665046 Mar-15 10257 46522 12 0 15111 71211 Total 5 69 8.2 The Ld.AR submitted that since the technical knowledge possessed by Shri Mithun Sachdeva is not made available, as per Article 12 of the India Singapore DTAA, the same cannot be categorised as FTS. He also emphasised that the payments made to Shri Mithun Sachdeva cannot be categorised as secondment charges as he was never employed with assessee to render the services. He was always stationed outside India and advised on marketing strategies to MTR Foods Pvt. Ltd. in South East Asia Regions. He thus submitted that decision relied by the DRP in case of Centrica India Offshore Ltd. (supra) is distinguishable on facts. 8.3 The assessee received a sum of Rs. 71,21,169/- from MTR Foods Pvt. Ltd. towards provision of shared services. It is the plea of the assessee that the said receipt is not chargeable to tax in India as the services were rendered outside India; and payments were received outside India by the person who provided services. Assessee submitted that it being a non-resident, in terms of section 5(2)(b) & (c) of the Act, it is only income that is chargeable to tax in India that which accrue or arise in India or is deemed to accrue or arise in India. Since the services in question was rendered outside India, payment cannot be regarded as income that accrues or arises in India. Assessee also pointed out that payment in question cannot be regarded as “Fees for

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Technical Services” (FTS). The assessee has brought our attention to the provisions of section 9(1)(vii) that which defines the terms of FTS to mean any consideration for rendering any managerial, technical or consultancy services. The plea of the assessee was that back office services rendered by the assessee were neither managerial, technical or consultancy services. The assessee, therefore, submitted that the receipt in question cannot be brought to tax as FTS. 8.4 It was submitted that if the services provided by the assessee are considered to be technical or consultancy services, even otherwise, the payments in respect of the same would be considered as FIS/ FTS only if –  They are ancillary and subsidiary to the application or enjoyment of a right, property or information for which are royalty payment is made; or  They make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Therefore, under paragraph 4 of Article 12 of the DTAA, technical and consultancy services are considered included services only to the extent they make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. The assessee pointed out that by providing the back office services referred in the earlier paragraph, nothing is made available to the recipient of services from the assessee. The Ld.AR relied on the following decisions.  Raymond Ltd. reported in [2003] 86 ITD 791 (MUM.)  ABB Inc. reported in [2015] 59 taxmann.com 159 (Bangalore - Trib.)  Koninklijke Philips Electronics N.V. reported in [2018] 99 taxmann.com 23 (Kolkata - Trib.)  Guy Carpenter & Co. Ltd reported in [2012] 20 taxmann.com 807 (Delhi)  QlikTech International AB in IT(IT)A No. 173/Bang/2021

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8.5 On the contrary, the Ld.CIT DR relied in the written submission that reads as under: “May it please Your Honours In the present case filed by the assessee, the Grounds of Appeal as raised by the assessee has been broadly categorised into the following headings for A.Y: 2015-16 and D.R.submissions thereon. (1) The Ld.A.O, Hon'ble DRP erred in not recognizing that payments received by the appellant fell within the purview of the exclusionary clause of Section 9(1)(vii)(b) of the Act and were not, therefore, chargeable to tax in India under the provisions of the Act. The Ld.AO and Hon'ble DRP has erred in not appreciating that professional services provided by the appellant to MTR Foods Pvt.Ltd., is not taxable as FTS under the India-Singapore Double Tax Avoidance Agreement (DTAA). Submission: The Hon'ble DRP perused the details submitted by the assessee and the case laws relied by the AO in deciding the secondment charges paid in respect of the professional services rendered by Shri Mithun Sachdeva as FTS and thus taxable u/s 9(1)(vii) of the Act or otherwise. It remains an undisputed fact that the technical prowess, experience, skill, the knowledge in sales and marketing have been made available to MTR and thus, it requires to be termed as FTS, even as per Article 12 of India-Singapore Tax Treaty. On the aspect as to whether the secondment charges paid for skills deployed by employees of nonresident overseas companies, the decision of the Delhi High Court in the case of Centrica India Offshore Pvt.Ltd vs CIT reported in [2014] 44 taxmann.com 300(Delhi) squarely applied to the fact situation in the present case. Additional reliance is placed on the decision of the 'A' Bench of Bangalore ITAT in the case of Food World Supermarkets Ltd., vs.Deputy Director of Income-tax (International Taxation), Circle-I (1), Bangalore reported in [2015] 63 taxmann.com 43 (Bangalore — Trib), wherein under identical circumstances it was held that "once it was found that secondees were rendering managerial and highly expertise services to assessee, payment for such services fell within the ambit of FTS defined in explanation (ii) to section 9(1)(vii)'. In the assessee's case, since the professional qualification and experience of Shri Mithun Sachdeva is found to be highly skilled and technically competnent and not an ordinary employee of OAP, the rendering of managerial or professional services of such high expertise also falls under the ambit of FTS defined in explanation (ii) to Sec.9(1)(vii). Under such circumstances, the position taken

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by the AO to treat the amount received by OAP from MTR as per the terms of the agreement as fees for technical services and subjecting it to tax @ 10% is upheld. I agree with the decision of the Hon'ble DRP and the same may be upheld. (9) Levy of Interest u/s 234A, 234B of the Act and levy of education cess. Submission: Charging of interest u/s 234A and 2346 are consequential in nature and they are automatic and they are as per specific provisions of the Act and the same may be retained. Levy of cess is as per the tax determined and the same may be retained. Conclusion : In view of the submissions made above, examination of submissions made by the assessee, the order of the Ld.A.O. and Hon'ble DRP Bangalore are not erroneous and not bad in law. The assessee's appeal may be dismissed. Prayer: In the wake of the above submissions, it is humbly prayed to dismiss the appeal of the assessee / appellant and any other order as may please your honours. Respectfully submitted.” We have perused the submissions advanced by both sides in the light of records placed before us. 9. The relevant agreement based on which amount has been held to be taxable as FTS in the hands of the assessee is necessary to be analysed at this juncture.

“4. In order to understand this, it is relevant to understand the agreement between the assessee-company(OAP) and MTR Foods Pvt. Ltd., The assessee company has produced the copy of the services agreement entered into with MTR dated 12th October 2010. As per the terms, the agreement was for a period of two years and shall remain in force unless and until terminated by either party with a three months' written notice. The said agreement is, therefore, relevant for the previous year under consideration. The relevant parts of the agreement are reproduced below. Article 1 THE PARTIES This agreement is concluded on 12 October 2010 between 1. Orkla Asia Pacific Pvt Ltd, (hereinafter called "OAP), a company organized and existing under the laws of Singapore, having its principal office in Singapore and

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REMUNERATION FOR SERVICES RENDERED 11. MTR will pay for 50% of Jasmine's regular working hours during the term of this contract, Any additional use of services each year will be invoiced by hour.. The costs payable by jasmine for services rendered by or through OAR ("service fee") shall be calculated according to a cost plus principle. 12. Mark-up. To ensure compliance with the arm's length principle, a mark-up (profit element) of 3 (three) per cent on the costs payable by MT R except for costs representing out-of-pocket expenses and externally purchased services, 13. Withholding taxes. If the service fee is subject to withholding taxes, such amounts shall be withheld and paid by MTR to Indian tax authorities, at the applicable rates from time to time. Proof of such withholding taxes paid shall be provided by MTR to OAP by way of appropriate certificates. 14. VAT If the service fee is subject to VAT or similar levies, such amounts shall be paid by M TR. However, the Parties agree to use all reasonable endeavours to have such charges recovered. Article 6 PAYMENT 15. Unless otherwise agreed, OAP shall invoice MTR monthly for the net costs payable for rendering the services referred to in this agreement. Invoices shall be paid within 30 days. Article 7 RECORDS AND DOCUMENTATION OF COSTS 16. GAP shall keep an acceptable cost accounting system enabling identification of costs i-elated to the services. All books shall be audited annually by a recognized independent certified public accountant. Article 8 TERMS AND TERMINATION 17. This agreement shall be effective as from 1 October 2010 until 31 December 2012, unless terminated according to the provisions set out below. The agreement shall remain in force after the lapse of the aforementioned period of time, unless and until terminated by either party with a 3 (three) months' written notice. 18. Either party may terminate this agreement with immediate effect in case of a repeated and non-remedied failure of the other party to comply with the material obligations, which it has assumed under this agreement, or for any other grave cause. The burden of proof for such

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other grave cause is placed on the party, which claims termination of the agreement on these grounds. Article 9 GOVERNING LAW This agreement and the rights and obligations of the Parties hereto shall be governed by Singapore. Article 10 OTHER PROVISIONS 20. In the event that any term or condition of this agreement shall be declared invalid, this agreement shall be construed as if such term or condition had not been inserted. The headings or titles used herein are for the purpose of convenience only and are not to be used in construing the meaning or intent of this agreement: 4.2 Therefore, from the description of the services rendered by OAP by providing experienced personnel, Assisting MTR in market research, product launch, price negotiations, etc” 9.1. On perusal of the above Service Agreement, we observe that MTR Foods Pvt.Ltd., entered into an agreement with assessees as a company and not with the employee of assesses, who was to render the marketing research and sales support services. It is also observed that at the time of entering into the service agreement in 2010 the personnel who was rendering services wasone ‘s ms. Jas’sne Lee Sock Khoon and sequentially there was a change in the person was providing services and we know that one Mithun Sachdeva who rendered services on behalf of assessee from April 2014. Assessee has also provided the certificate of residents therein categorically states that assessee is a resident in Singapore for income tax purposes for assessment year 2015. We therefore agree with the argument advanced by the Ld.AR that this cannot be considered similar to the case of secondment of employee as the employee of assessee on behalf of assessee is

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rendering the relevant services to MTR foods Private Limited who is located outside India. It is also pertinent to note that the services are rendered by assessee outside India. Based on the above facts it has to be analysed whether section 9 (1) (vii) of the Act is applicable. Section 9(1)(vii) reads as under: (1)The following incomes shall be deemed to accrue or arise in India:- (vii) income by way of fees for technical services payable by- (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non- resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: 2 Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976 , and approved by the Central Government.] 3 Explanation 1-For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976 , shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.] Explanation 4 2].- For the purposes of this clause," fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head" Salaries". (2) Notwithstanding anything contained in sub-section (1), any pension payable outside India to a person residing permanently outside India shall not be deemed to accrue or arise in India, if the pension is payable to a person referred to in Article 314 of the Constitution or to a person who, having been appointed before the 15th day of August, 1947, to be a Judge of the Federal Court or of a High Court within the meaning of the Government of India Act, 1935, continues to serve on or after the commencement of the Constitution as a Judge in India. Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of

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sub-section (1) and shall be included in the total income of the non- resident, whether or not,— (i) the non-resident has a residence or place of business or business connection in India; or (ii) the non-resident has rendered services in India. The contention of ld.AR is that, all the services were rendered by the non-resident assesee outside India and therefore the statutory provisions under the Act cannot be attracted. Hon’ble Delhi Tribunal in case of Lufthansa Cargo India Pvt.Ltd., vs DCIT reported in (2004) 91 ITD 133, while deciding a similar issue held that income can be said to have been earned from a source of income outside India if source from which income is derived is situated outside India and in context of an international transaction source can be said to be outside India if- (i). It is a non-resident, or (ii), or (iii) activity yielding income takes place outside India. Further Coordinate Bench of this Tribunal in case of Titan industries Ltd vs. ITO reported in (2007) 11 SLT 206 held that, as the source of earning income was outside India the amount paid will be covered in exception provided under section 9 (1) (vii) (b). Hon’ble Supreme Court in case of GVK Industries Ltd. vs.ITO reported in (2015) 371 ITR 453 while dealing with the exception under section 9(1) (vii) (b) of the Act, observed that, such exception applies to a situation when fee is payable in respect of services utilised for business or profession carried out by an Indian payer outside India or for the purpose or making or earning of income from any source outside India. There is no doubt that the services rendered by assessee to MTR Foods were ‘managerial’ in the nature. In the present facts of the case such services rendered by assessee were utilized in a

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business carried on by MTR Foods outside India. Therefore the services rendered by assessee cannot be deemed to have been accrued or arisen in the hands of the assessee in India. It is also necessary to analyse if the services rendered by assessee could be taxed in India as per India Singapore DTAA. Article 12 of India Singapore DTAA is reproduced as under: ARTICLE 12 ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 1[2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10 per cent.] 3. 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 : (a) any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information ; (b) any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities described in paragraph 4(b) or 4(c) of Article 8. 4. The term "fees for technical services" as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received ; or (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein ; or (c ) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. For the purposes of (b) and (c) above, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person. 5. Notwithstanding paragraph 4, "fees for technical services" does not include payments :

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(a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in paragraph 3(a) ; (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic ; (c ) for teaching in or by educational institutions ; (d) for services for the personal use of the individual or individuals making the payment; (e ) to an employee of the person making the payments or to any individual or firm of individuals (other than a company) for professional services as defined in Article 14 ; (f ) for services rendered in connection with an installation or structure used for the exploration or exploitation of natural resources referred to in paragraph 2(j) of Article 5 ; (g) for services referred to in paragraphs 4 and 5 of Article 5 6. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply. 7. Royalties and fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub- division, a local authority, a statutory body or a resident of that State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical services was incurred, and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. 8. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of royalties or fees for technical services paid exceeds the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the last- mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement.

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A plain reading of above clause makes it clear that only such technical and consultancy services are covered by Article 12(4) as either (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information referred to in Article 12(3), or (b) 'make available' technical knowledge, experience, skill know-how etc. In the present case, only clause 12(4)(b) is applicable because there was no right, property or information that was transferred. The case of the Revenue therefore hinges on the applicability of Article 12(4)(b) which applies to rendering of only such technical or consultancy services as 'make available' technical knowledge, experience, skill or know-how etc. In other words, in order to attract the taxability of an income under Article 12(4)(b), not only the payment should be in consideration for rendering of technical or consultancy services, but in addition to the payment being consideration for rendering of technical services., the services so rendered should also be such that 'make available' technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. The meaning of the expression make available were considered by Hon’ble Mumbai Tribunal in the case of Raymond Ltd. v. Dy. CIT reported in (2003] 86 ITD 791. The Tribunal after elaborate analysis of all the related aspects observed that :— "The words 'making available' in Article 13.4 refers to the stage subsequent to the 'making use of' stage. The qualifying words is 'which' the use of this relative pronoun as a conjunction is to denote some additional function the 'rendering the services' must fulfil. And that is that it should also 'make available' technical knowledge, experience, skill etc. The word which occurring in the article after the word 'services' and before the words 'make available' not only described or defines more clearly the antecedent noun '(services') but also gives additional information about the same in the sense that it requires that the

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services should result in making available to the user technical knowledge, experience, skill, etc. Thus, the normal, plain and grammatical meaning of the language employed is that a mere rendering of services is not roped in unless the person utilizing the services is able to make use of the technical knowledge, etc. by himself in his business or for his own benefit and without recourse to the performer of the services in future. The technical knowledge, experience, skill etc. must remain with the person utilizing the services even after the rendering of the services has come to an end. A transmission of the technical knowledge, experience, skill, etc. from the person rendering services to the person utilizing the same is contemplated by the article. Some sort of durability or permanency of the result of the 'rendering services' is envisaged which will remain at the disposal of the person utilizing the services. The fruits of the services should remain available to the person utilizing the services in some concrete shape such as technical knowledge, experience skill etc." Hon’ble Mumbai Tribunal in Raymond's case (supra), the also held that rendering of technical services cannot be equated with making available the technical services. Hon’ble Karnataka High court in case of CIT v. De Beers India Minerals (P.) Ltd.I reported in (2012) 21 taxmann.com 214 dealt with identical issue of FTS being made available. In that case, the assessee therein was a domestic company, engaged in the business of prospecting and mining for diamonds and other minerals. For the purpose of carrying out geophysical survey, etc, assessee entered into an agreement with Furgo, a company based in Netherlands. Furgo had a team of experts who were specialized in performing geophysical survey, etc. The said experts provided technical services to assessee under the said agreement. The Ld.AO therein treated the consideration paid to Furgo under the aforesaid agreement as falling within the definition of fees for technical services under India — Netherlands Tax Treaty. Hon'ble Karnataka High Court held that as per the Article 12 of the India Netherlands Tax Treaty, fees for technical services means the payment of any amount to any person in consideration for

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rendering of any technical services only; if such services make available technical knowledge, expertise, skill, know-how, etc. If the technical knowledge, expertise, skill, know-how, etc. is not made available by the service provider, who renders technical services, it would not constitute fees for technical services. Accordingly, to attract the tax liability, technical knowledge, experience, skill, know-how, etc. which is used by services provider to render the technical services should also be made available to the recipient of the services, so that the recipient also acquires technical knowledge, experience, skill, know-how, etc. so as to render such technical services. Further, court held that merely because business of service recipient is dependent on technical service which he receives from service provider, it does not follow that he is making use of technology which service provider utilizes for rendering technical services. The crux of the matter is after rendering of such technical services by the service provider, whether the recipient is enabled to use the technology which the service provider had used. Therefore, unless the service provider makes available his technical knowledge, experience, skill, know-how, etc. to the recipient of the technical service, the liability to tax is not attracted. Accordingly, if the technology is not made available along with the technical services and what is rendered is only technical services and the technical knowledge is withheld, then, such a technical service would not fall within the definition of technical service in Tax Treaty and not liable to tax. Based on the above requirement of taxation of FTS as above, court held that there is no doubt that the services performed by Furgo are using

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technical knowledge and expertise but such technical experience, skill or knowledge had not been made available to assessee and accordingly, the said services are not taxable as fees for technical services under India - Netherlands Tax Treaty. The relevant extract of the decision has been reproduced below: '22. What is the meaning of "make available". The technical or consultancy service rendered should be of such a nature that it "makes available "to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology "making available", the technical knowledge, skill?, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as "fee for technical/included services" only if the twin lest of rendering services and making technical knowledge available at the same lime is satisfied.' While deciding the case of De Beers India Minerals (P.) Ltd. (supra) Hon’ble Court followed the case of DIT (IT) v. Sun Microsystems India (P.) Ltd. reported (2014) 48 taxmann.com 93, wherein a Singapore based company had provided spare management services, provision of buffer stock, defective repair services, managing local repair centers, business planning to address service levels etc., to the Indian company. It was held that Singapore Company has not made available any technology or

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technological services to the Indian company which are required to provide the aforesaid services. On the facts and circumstances of the present case, based on the above discussions, we are of the view that, nothing is made available by non resident Assessee to MTR Foods in India. Accordingly the services rendered by the non resident assessee to MTR Foods are not taxable as per India Singapore DTAA. Since the non resident assessee do not have a permanent establishment in India, the income so arising cannot be taxed under Article 7as ‘business profits’ either. Accordingly we direct the Ld.AO to delete the addition in the hands of the non resident assessee. In the result, the appeal of the assessee stands allowed. Order pronounced in the open court on 30th December, 2021.

Sd/- Sd/- (B.R. BASKARAN) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 30th December, 2021. /MS / Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file

By order

Assistant Registrar, ITAT, Bangalore