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Income Tax Appellate Tribunal, PUNE BENCHES “C”, PUNE
Before: DR.MANISH BORAD & SHRI VINAY BHAMORE
आदेश / ORDER
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The instant appeal at the instance of assessee pertaining to A.Y.2012-13 is directed against the order 20.02.2017 passed by DCIT u/s.143(3) r.w.s.144C(13) of the Act.
Initially this appeal was heard on 09.12.2021 and was disposed off vide order on 13.12.2021. Thereafter, the assessee filed a Miscellaneous Application and the appeal has been recalled vide M.A.No.202/PUN/2022 order 19.10.2023 for the limited purpose of examining the consideration paid for use of the IT Infrastructure facility under the correct applicable provisions of the DTAA between India and Belgium. Subsequently, appeal was heard by this Tribunal on 08.01.2024 and a draft order was prepared by the Hon’ble Accountant Member but the Hon’ble Judicial Member did not agree with the view taken by the Hon’ble Accountant Member and he passed a dissenting order on 28.02.2024. Consequent to the difference of opinion among the Hon’ble Members, the matter was referred before the Hon’ble President and the Hon’ble President vide order 26.04.2024 has nominated the Hon’ble Third Member to adjudicate the dispute which arose between the view of Hon’ble Accountant Member and Hon’ble Judicial Member. The questions framed by the Hon’ble Members read as follows :
“Questions framed by the Hon’ble Judicial Member: 1. Whether, it is justified on law and facts to hold the "infrastructure facility falls within the specified definition of "plant", ignoring, the absence of term "scientific equipment" in comprehensive treaty, which is applicable to the present issue. Questions framed by the Hon’ble Accountant Member: 1. In given facts and circumstance and in law, what is the jurisdiction of the Tribunal in recalled order or recalled issue? 2. In given facts and circumstance of the case and in law the payment consideration made by the assessee falling within the definition of royally u/s 9(1)(vi) of the Act (as per Tribunals order) whether falls within the ambit of article 12(3)(a) of Indo-Belgium Double Taxation Avoidance Agreement entered between India and Belgium as applicable for the year under consideration.
The Hon’ble Third Member after hearing both the parties concurred with the view expressed by the Hon’ble Judicial Member vide order dated 28.02.2024. The finding given by the Hon’ble Third Member is reproduced below:
“23. I have carefully perused the record and gone through the orders of both the Hon’ble Members. I have also gone through the various decisions placed before me. I find the assessee in the instant case is engaged in the manufacture of steel tyre cord, hose reinforcement wire and advanced filtration products. It is also engaged in trading and distribution of steel tyre cord products and other Bekaert products. The assessee for the impugned assessment year has availed certain IT support services from its Associated enterprise N. V. Bekaert SA, Belgium which include provision of SAP licenses, SAP maintenance and application support and other services such as backup and disaster recovery, client antivirus, remote service helpdesk, maintenance of software applications, internet, VPN etc. For the purpose of rendering the aforesaid services, N. V. Bekaert SA, Belgium has entered into agreements with various service providers at a global level. The suppliers charged for these services to N. V. Bekaert SA who in turn allocated the costs to the group companies including the assessee. Since N. V. Bekaert SA is a tax resident of Belgium, therefore, being a non-resident eligible for the benefits under the India-Belgium Tax Treaty. I find the Assessing Officer was of the opinion that the aforesaid payments made by the assessee for the use of IT infrastructure facilities to its holding company N. V. Bekaert SA, Belgium were taxable as Royalty as well as Fees for Technical Services (FTS) in the hands of N. V. Bekaert SA under the Act as well as India-Belgium Tax Treaty and therefore the assessee should have withheld taxes while making the said payments. Based on the same, he disallowed the impugned payments under the provisions of section 40(a)(i) of the Act. I find the DRP, based on an analysis of the agreement entered between the assessee and N. V. Bekaert SA as well as copies of inter-company invoices, categorized the aforesaid payments made for IT support services received by the assessee in three broad categories and concluded on their taxability, the details of which are already given at para 5 of this order.
I find the Tribunal vide order dated 13.12.2021 re- characterized the entire transaction and concluded that the true nature of the payment was for the use of the IT infrastructure facility set up by NV Bekaert SA and not for availing any IT services. It further held that the DRP should not have bifurcated the payment into further categories and held that the entire consideration was taxable as Industrial royalty/equipment royalty under the Act as well as the Treaty relying on the presence of the specific phrase "for the use of, or the right to use, industrial, commercial, or scientific equipment”. Thus, the Tribunal concluded that the impugned payment constituted royalty for use of equipment (Industrial Royalty/Equipment Royalty) in terms of section 9(1)(vi) of the Act as well as in terms of the definition of Royalty under the Article 12(3)(a) of the India-Belgium Treaty and thereby affirmed the addition made by the AO/DRP.
I find the assessee preferred a Miscellaneous Application submitting that there was an inadvertent error which had crept into the order of the Tribunal by relying upon the treaty test which was not applicable for the year under consideration. It was further submitted that while the assessee was not disputing the nature of the transaction nor questioned to be in the nature of equipment royalty under the Act, the clause relating to the same being consideration for right to use industrial, commercial or scientific equipment (Equipment royalty/Industrial royalty) was absent in the India-Belgium Treaty, and therefore the sum was not taxable in the hands of N. V. Bekaert SA as equipment royalty/industrial royalty under the treaty. It was accordingly submitted that no tax was required to be withheld and consequently no disallowance was warranted under section 40(a)(i) of the Act. The Tribunal accepted that there was an error while adjudicating on the taxability of the impugned payments as Royalty under the treaty and recalled the order partly to examine the taxability of the said payment in light of the correctly applicable treaty on the ground that the same would have a bearing on the ultimate decision as regards the taxability and allowance of the said amount.
I find the Hon’ble Judicial Member was of the opinion that since the caluse relevant to industrial royalty / equipment royalty being "for the use of or the right to use industrial, commercial or scientific equipment, was absent, impugned payment wat not taxable under the India Belgium Treaty and therefore the disallowance made by the AO/DRP was to be deleted. The Hon'ble Accountant Member, although agreed that in the language of the India Belgium Treaty, the relevant clause regarding industrial royalty / equipment royalty being "for the use of or the right to use industrial, commercial or scientific equipment,” was absent, however, held that the impugned payment was covered under the term "Plant” and therefore taxable as industrial royalty equipment royalty, without appreciating that the word appearing in the India Belgium Treaty is "Plan" and not "Plant". Under these circumstances, I have to decide as to whether the word appearing in the India-Belgium Tax Treaty is ‘Plan’ or ‘plant’ for which this confusion arose.
I find Gazette Notification No.S.O.54(E) dated 19.01.2001 regarding India Belgium Treaty both in English as well as Hindi reads as under:
MINISTRY OF FINANCE (Department of Revenue) (FOREIGN TAX DIVISION) NOTIFICATION New Delhi, the 19th January, 2001 (INCOME TAX)
S. O. 54(E), - Whereas the Agreement between the Government of the Republic of India and the Kingdom of Belgium for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income came into force on the 1st day of October, 1997, after the notification by both the Contracting States to each other of the completion of the procedures required under their laws for bringing into force the said agreement ;
And whereas the Central Government in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961), section 24A of the Companies (Profits) Surtax Act, 1964 (7 of 1964) and section 44A of the Wealth-tax Act, 1957 (27 of 1957), had directed that all the provisions of the said Agreement annexed to the notification of the Government of India in the Ministry of Finance. (Department of Revenue) (Foreign Tax Division) No. G. S. R. 632(E), dated the 31st October, 1997, shall be given effect to in the Union of India;
And whereas paragraph 1 of the Protocol dated the 26th April, 1993, to the aforesaid agreement, provides that if after the 1st day of January, 1990, under any Convention or Agreement between India and a third State being a member of the Organisation for Economic Co-operation and Development, India should limit its taxation on royalties or fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in the present agreement on the said items of income, then, as from the date on which the Agreement between India and Belgium or the relevant Indian Convention or Agreement becomes effective ; whichever date is later, the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this agreement;
And whereas in the Convention between India and Sweden which became effective on the 1st April, 1998, in the case of India, and on the 1st January, 1998, in the case of Sweden, which state is a member of the Organisation for Economic Co-operation and Development, the Government of India has limited the taxation at source on royalties and fees for technical services to a rate lower and a scope more restricted than that provided in the Agreement between India and Belgium on the said items of income ; Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby directs that the following modifications shall be made in the Agreement notified by the said notification which are necessary for implementing the aforesaid Agreement between India and Belgium, namely :--- I. With effect from the 1st April, 1998, in India and, with effect from the 1st January, 1998, in Belgium for the existing paragraph (2) of article 12 relating to 'royalties and fees for technical services', the following paragraph shall be substituted, namely :
“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 State, but if the beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent. of the gross amount of the royalties or fees for technical services.”
II. With effect from the 1st April, 1998, in India and with effect from the 1st January, 1998, in Belgium for the existing sub-paragraph (a) of paragraph 3 of article 12 relating to 'royalties and fees for technical services', the following sub-paragraph shall be substituted, namely :
“(a) The term 'royalties' as used in this article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience.”
[Notification No.20/F. No. 505/2/89-FTD] VIJAY MATHUR, Jt. Secy.”
A perusal of the above Notification shows that the term ‘royalty’ was redefined and the expression 'use of industrial, commercial or scientific equipment’ was excluded from the same. A perusal of the above would show that with effect from the 1st April, 1998, in India and with effect from the 1st January, 1998, in Belgium for the existing sub-paragraph (a) of paragraph 3 of article 12 relating to 'royalties and fees for technical services', the following sub-paragraph has been substituted, namely :
“(a) The term 'royalties' as used in this article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience.”
(emphasis supplied by me)
I also find merit in the submission of the Ld. Counsel for the assessee that even as per the language of section 9(1)(vi) of the Act, the word appearing is “Plan” and not “Plant”. I find merit in the submissions of the Ld. Counsel for the assessee that the word Plant is nowhere mentioned in Article 12 of any tax treaty entered into by India, let alone the India Belgium tax treaty and even the OECD Model Convention as well as the UN Model Convention both have the word “Plan” in the Article relevant for Royalty and not “Plant”.
I find the Chennai Bench of the Tribunal in the case of Baggerwerken Decloedt En Zoon (supra) has categorically held that the word “Plant” appearing in the India Belgium treaty is on account of a typographical error and therefore the correct word is “Plan” and thereby the concerned receipts were out in the nature of Royalty under Article 12 of the India Belgium treaty. The relevant observation of the Tribunal reads as under:
"We find that on facts the Appellant merely supplies dredger to ISDPL on hire on boreboat basis. As evident from Article 12 of India-Netherlands DTAA that term ‘Royalty’ does not include payments for the use or right to use industrial, commercial or scientific equipment, as mentioned by the AO in the SCN. The judgment in the case of Van Oord ACZ Equipment BV and orders of the Tribunal in the case of DDIT Nederlandsche Overare Baggermaatschappiji AV (2010) 39 SOT 556 (Mum) page 23 of CLC) and M/s International Seaport Dreding Ltd (ITA No-418/Mds/2015 dated 22.07.2016 (Pg 1 of CLC) referred supra also strengthen the argument of the assessee that hire charges of bareboat charter would not constitute "Royalty and hence not taxable as "Royalty” under Article 12 of India Netherlands DTAA. We also note that the word plant in India – Belgium DTAA under Article 12 is typographical error for word plan. This factual error has been acknowledged in the Notification SO 54 (No.20 (F.NO.505/2/89 FTD) dated 19.01.2001 (refer Pg 83 of Paper Book). Hence, we are of the considered opinion that hire charges of boreboat charter does not fall under the garb of definition Royalty and hence, not taxable as Royalty under Article 12 of India- Begins DTAA. (Emphasis supplied)
In view of the above discussion and in the light of the Gazette Notification No.S.O.54(E) dated 19.01.2001 I hold that the payments made for use of IT infrastructure facility do not fall within the ambit of industrial royalty / equipment royalty on account of exclusion of the expression ‘use of industrial, commercial or scientific equipment’ and therefore, the transaction would be out of the ambit of taxation as royalty under Article 12 of the treaty. I further hold that the payment for the “use of IT infrastructure facility” do not fall within the definition of “Plant” since the language in the Article 12(3)(a) of the India Belgium Tax Treaty contains the words ‘Plan” and not “Plant”. Therefore, on account of absence of the relevant clause ‘for the use of or right to use industrial / commercial, scientific equipment’, the payments made by the assessee for the use of IT infrastructure facility would not be liable for TDS. The Hon’ble Accountant Member in my opinion has proceeded on an inherently wrong footing and based his entire conclusion on the word ‘Plant’, without appreciating that the same is coming in the treaty due to a typographical error and the correct word appearing under Article 12 of the treaty is ‘Plan’ and not ‘Plant’. Accordingly, the order of the Hon’ble Judicial Member is upheld.
The Hon’ble Third Member while concurring with the view point of Hon’ble Judicial Member held that payment for the “use of IT infrastructure facility” do not fall within the definition of “Plant” since the language in the Article 12(3)(a) of the India Belgium Tax Treaty contains the words ‘Plan” and not “Plant”. Therefore, on account of absence of the relevant clause ‘for the use of or right to use industrial / commercial, scientific equipment’, the payments made by the assessee for the use of IT infrastructure facility would not be liable for TDS.
In consequence of the same and in view of the majority opinion, the appeal of the assessee is allowed.
Order pronounced on this 14th day of October, 2025.