ERNST AND YOUNG U.S. LLP,UNITED STATES vs. ACIT, CIRCLE INTERNATIONAL TAX 1(2)(2), NEW DELHI, NEW DELHI

. Ground 2.2: That on the facts and in the circumstances of the case and in law, the findings of the Ld. AO/ DRP, namely that, seconded personnel are employees of the Appellant and that agreement / arrangement between the Appellant and Indian Ernst & Young entities constitutes provision of services by Appellant through seconded personnel is also directly contrary to the specific findings given by the Hon’ble Delhi ITAT in Appellant’s own case dated

20. June 2023. Ground 2.3: That on the facts and in the circumstances of the case and in law, the Ld. AO / DRP has erred in arbitrarily concluding that the appellant is providing services through its employees satisfying the “make available technical knowledge, experience, skill, know-how or processes” condition of Article 12 of the DTAA. This finding given by the Ld. AO/ DRP namely, that “make available” condition / requirement of Article 12 of DTAA has been fulfilled is directly contrary to the specific and categorical findings of the Hon’ble Delhi ITAT in Appellant’s own case dated

20. June 2023. Ground 2.4: That on the facts and in the circumstances of the case and in law, the Ld. AO / DRP has erred in failing to appreciate that the present case is governed by Article 15 ‘Independent Personal Services’ of DTAA and not Article 12 ‘Fee for Technical Services’ of DTAA. The Ld. AO /DRP have also Ernst and Young U.S. LLP completely disregarded provisions of Para 12(5) of the DTAA which specifically excludes from the ambit of Article 12 of the DTAA, all payments covered by Article 15 of the DTAA. Ground 2.5: That on the facts and in the circumstances of the case and in law, the Ld. AO/ DRP have completely disregarded the crucial fact that the same payments have been taxed as salary in the hands of seconded personnel. The Ld. AO/ DRP have also erred in disregarding the fact that tax on said payments has already been deducted under section 192 of the Act on the basis and footing that the same payments constitute salary income assessable in the hands of seconded personnel in India. Ground 2.6: That on the facts and in the circumstances of the case and in law, the Ld. A.O / DRP completely failed to appreciate that the very same amounts could not in law be subjected to tax twice, firstly in the hands of the seconded employees working in India and, secondly, again in the hands of the Appellant. Ground 2.7: That on the facts and in the circumstances of the case and in law, the Ld. A.O / DRP also failed to appreciate that, similarly, the same amounts could not be subjected twice to deduction of tax at source. Grounds challenging addition on account of income from professional services governed by Article 15 of the DTAA as “Fees for Included Services” under Article 12 of the DTAA Ground 3.1: That on the facts and in the circumstances of the case and in law, the Ld. AO / DRP have completely failed to appreciate the crucial factor that Article 15 of the DTAA is not confined to Professional Services rendered in India. The Ld. AO/ DRP failed to appreciate that Article 15 squarely covers Professional Services rendered from abroad to entities located in India. Hence, the interpretation placed by the Ld. AO / DRP on Article 15 of the DTAA constitutes a complete rewriting of Article 15 of the DTAA, which is illegal and impermissible. Ground 3.2: That on the facts and in the circumstances of the case and in law, the Ld. AO/ DRP has erred in making addition of income from professional services amounting to INR 30,73,50,907 as Fees for included services (‘FIS’) under Article 12 of the DTAA on the erroneous premise that such services do not qualify as “professional services” as per Article 15 of the DTAA. Ground 3.2(a): That on the facts and in the circumstances of the case and in law, the Ld. AO / DRP has erred in concluding

Ernst and Young U.S. LLP that the definition of professional services under Article 15(2) of the DTAA is exhaustive in nature. Ground 3.2(b): That on the facts and in the circumstances of the case and in law, the Ld. AO/ DRP, in the guise of interpreting Article 15 of the DTAA, rewritten and redrafted the Article by inserting therein new requirements / conditions which do not exist on a plain reading of Article 15 of the DTAA. Ground 3.2(c): That on the facts and in the circumstances of the case and in law, the Ld. AO / DRP has erred in concluding that the services rendered by specified functionaries such as Economists, MBA Graduates, Diploma holders and other trained technical professionals do not qualify as 'professional services’ under Article 15 of the DTAA completely ignoring that Article 15 of the DTAA covers the “professional services” as well as “other independent activities of similar character”. Ground 3.2(d): That on the facts and in the circumstances of the case and in law, the Ld. A.O/DRP failed to appreciate that a plain reading of Article 15 itself shows that it covers artistic, musical and other activities which are not governed or regulated by any statute, nor are they subjected to any disciplinary control by any specified body. Ground 3.3: That on the facts and in the circumstances of the case and in law, the Ld. AO / DRP has erred in holding that professional services rendered by the appellant satisfies the make available clause and therefore qualify as FIS under Article 12 of the DTAA. Ground 3.3(a): Without prejudice to above, on the facts and in the circumstances of the case and in law, Ld. AO/ DRP failed to appreciate that in any event and in any view of the matter, the mere rendering of training services, as part of rendering professional services which are covered by Article 15 of the DTAA cannot possibly be considered to comply with “make available” requirement of Article 12 of the DTAA. In any event, as already stated, the Ld. AO/ DRP also failed to appreciate that this issue is irrelevant and immaterial as no income with respect to training service(s) was earned by the Appellant under the specified contract in the subject year. Ground 3.4: That on the facts and in the circumstances of the case and in law, the Ld. AO / DRP has erred in applying the facts of one agreement having training services as part of the overall scope of work to all other independent agreements without appreciating that the services under other agreements are different and findings related to one agreement cannot be applied to all agreements unanimously.

Ernst and Young U.S. LLP Ground 3.5: Without prejudice to any of the above arguments, on the facts and in the circumstances of the case and in law, even assuming, without conceding, that the taxability of the services performed by EY US is not governed by Article 15 of the DTAA, the Ld. AO / DRP failed to appreciate that in any event be taxed in India because it is undisputed position that the Appellant does not have a Permanent Establishment in India. Other grounds Ground 4: That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in initiating the penalty proceedings under section 270A of the Act for alleged under- reporting of income. All of the above grounds of appeal are without prejudice to and notwithstanding each other.”

Reimbursement of Secondment Charges:

4. This issue stands covered by the order of the Co-ordinate Bench of Tribunal in assessee’s own case in ITA No.

Ernst and Young U.S. LLP 2332/Del/2022, order dated 20.06.2026. The relevant part of the said order is as under:

6. The assessee is a limited liability partnership firm, incorporated under the laws of United States of America and is engaged in the business of providing professional services in the field of assurance, tax, transaction and business advisory services etc to its clients across the globe including India. The assessee is eligible for availing treaty benefits as per the treaty between India and USA. 7. During the year under consideration, the assessee has offered its income to tax as per section 115A of the Act r.w. the provisions of Article of the India-USA Tax Treaty. Return so filed was selected for complete scrutiny and accordingly, statutory notices were issued and served upon the assessee. 8. During the course of scrutiny assessment proceedings, inter alia, the Assessing Officer issued a show cause notice to the assessee requiring the assessee to show cause as to why the payments received by the assessee on account seconded employees amounting to Rs. 4,50,99,38,561/- should not be taxed as FTS/Independent Personal Services [IPS] as per the treaty provisions. 9. The assessee filed detailed reply alongwith documentary evidences pursuant to which, the Assessing Officer framed draft assessment proceedings proposing to make the following valuations to the returned income of the assessee: Total income as declared by the assessee : Rs. 32,73,620/- Add: Secondment cost taxable as FTS Under the provision of DTAA : Rs. 50,99,38,561/- Total proposed assessed income : Rs. 51,32,12,181/- Ernst and Young U.S. LLP 10. The assessee raised objections before the DRP but without any success.

11. Before us, the ld. counsel for the assessee vehemently stated that the personnel, after receiving approval from EY India member firms, were seconded by the assessee to EY India member firms and were released/discharged from all the obligations and rights of employment in their home country, USA and were subsequently employed by EY India member firms for their business and as employees of such India member firms.

13. The three EY India entities to whom employees were seconded were: i) EYGBS [India] Pvt. Ltd. ii) EY Global Delivery Services India LLP [EYGDS] iii) Ernst & Young LLP 14. It is the say of the ld. counsel for the assessee that pursuant to the agreement, seconded personnel were employees of the Indian member firms and, accordingly, invoices raised by the assessee are pursuant to salary cost and other related costs paid by the assessee on behalf of India member firm for administrative convenience.

16. The ld. counsel for the assessee emphatically stated that the invoices raised are for amounts which have already been Ernst and Young U.S. LLP subjected to tax as per provisions of Section 192 of the Act as the same is income in the hands of the seconded personnel.

18. We have given thoughtful consideration to the rival contentions and have carefully perused the order of the authorities below. Since the ld. DR has placed strong reliance on the judgment of the Hon'ble Supreme Court [supra], we would like to address it first.

19. At the very outset, we have to state that the judgment has to be read in the context in which it is delivered and in the words of the Hon'ble Supreme Court, the judgment was delivered for: “48. The task of this court, therefore is to, upon an overall reading of the materials presented by the parties, discern the true nature of the relationship between the seconded employees and the assessee, and the nature of the service provided – in that context - by the overseas group company to the assessee.”

20. The Hon'ble Supreme Court, in the above context, observed as under: “33. The issue which this court has to decide is whether the overseas group company or companies, with whom the assessee has entered into agreements, 24 provide it manpower services, for the discharge of its functions through seconded employees.

Ernst and Young U.S. LLP and business considerations result in payroll retention and salary payment by the foreign entity, which is claimed as reimbursement from the host entity. The crux of the issue is the taxability of the cross charge, which is primarily based on who should be reckoned as an employer of the secondee. If the Indian company is treated as an employer, the payment would in effect be reimbursement and not chargeable to tax in the hands of the overseas entity. However, in the event the overseas entity is treated as the employer, the arrangement would be treated as service by the overseas entity and taxed.” XXXXX 53. Facially, or to put it differently, for all appearances, the seconded employee, for the duration of her or his secondment, is under the control of the assessee, and works under its direction. Yet, the fact remains that they are on the pay rolls of their overseas employer. What is left unsaid- and perhaps crucial, is that this is a legal requirement, since they are entitled to social security benefits in the country of their origin. It is doubtful whether without the comfort of this assurance, they would agree to the secondment. Furthermore, the reality is that the secondment is a part of the global policy – of the overseas employer loaning their services, on temporary basis. On the cessation of the secondment period, they have to be repatriated in accordance with a global repatriation policy (of the overseas entity).

21. And finally, the Hon'ble Supreme Court concluded as under: “65. It is held, for the foregoing reasons, that the assessee was the service recipient for service (of manpower recruitment and supply services) by the overseas entity, in regard to the employees it seconded to the assessee, for the duration of their deputation or secondment. Furthermore, in view of the above discussion, the invocation of the extended period of limitation in both cases, by the revenue is not tenable.

27. The co-ordinate bench in the case of Boeing India [P] Ltd 121 Taxmann.com 276 which has been affirmed by the Hon'ble High Court of Delhi, had the occasion to consider an identical issue and held as under: “30. We have given thoughtful consideration to the orders of the authorities below. We have also carefully perused the salary reimbursement agreement, which is placed at pages 296 onwards of the paper book, and as per clause1.1, it is provided that the secondees have expressed their willingness to be deputed to BIPICL [the 20 appellant] and TBC [AE] have agreed to release these employees to BIPICL. It is provided that TBC will facilitate payment of salaries in secondees home country on behalf of BICIPL. Under the head employment status, it is provided that the secondees shall be working for BICIPL and will be under supervision, control and management of BICIPL as an employee of BICIPL.

31. The DRP has affirmed the decision of the AO by holding that the assessee has deducted withholding tax on substantial payments and yet argued that the tax is not deductible u/s 195 of the act and provision of section 40(a)(i) cannot be invoked in the case of said payment.

32. The Special Auditors in their Audit Report have worked out particulars of payments in respect of which no TDS was deducted u/s 40(a)(ia) of the Act. Consequently, an amount of Rs. 54,06,328/- was not to be allowed as expenditure.”

Ernst and Young U.S. LLP 33. We have also perused the TDS certificates, Forms 15CA and 15CB, tax deducted by the assessee and all these documents are part of the paper book. There is no dispute that the assessee has deducted tax at source u/s 192 of the Act. On the given facts of the case, we are of the considered opinion that the provisions of Section 195 of the Act do not apply. Considering the facts of the case in totality, in light of judicial decisions referred to hereinabove, we do not find any merit in 22 the disallowance made by the Assessing Officer/DRP. We, accordingly, direct for deletion of addition of Rs. 56.58 crores.”

28. Affirming the order of the co-ordinate bench in dated 11.10.2022, the Hon'ble High Court held as under: “11. As far as disallowance under Section 40(a)(ia) of the Act is concerned, this Court finds that there is no dispute that the assessee has deducted tax at source under Section 192 of the Act. This Court is in agreement with the opinion of the ITAT that Section 195 of the Act has no application once the nature of payment is determined as salary and deduction has been made under Section 192 of the Act.

12. This Court is further of the view that the judgment in Centrica India Offshore Pvt. Ltd (supra) has no application to the present case as the ITAT has returned a finding that the real employer of the seconded employees continues to be the Indian entity and not the overseas entity.

13. In Director of Income Tax (IT)-I vs. A.P. Moller Maersk A S, the Supreme Court in Civil Appeal No.8040/2015 decided on 17th February, 2017 has held as under:- “11. Aforesaid are the findings of facts. It is clearly held that no technical services are provided by the assessee to the agents. Once these are accepted, by no stretch of imagination, payments made by the agents can be treated as free for technical service. It is in the nature of reimbursement of cost whereby the three agents paid their proportionate share of the expenses incurred on these said systems and for maintaining those systems. It is reemphasized that neither the AO nor the CIT(A) has stated that there was any profit element embedded in the payments received by the assessee from its agents in India. 16 Record shows that the assessee had given the calculations of the total costs and pro-rata division thereof among the agents for reimbursement. Not only that, the assessee have been submitted before the Transfer Pricing Officer that these payments were Ernst and Young U.S. LLP reimbursement in the hands of the assessee and the reimbursement was accepted as such at arm’s length. Once the character of the payment is found to be in the nature of reimbursement of the expenses, it cannot be income chargeable to tax.”

Ernst and Young U.S. LLP "10. The foreign company had deputed one of its employees to look after the affairs of the Indian Company. The salary payable to this employee was to be borne by the foreign company. The Indian company was to reimburse this salary at cost, i.e. without any mark-up. Thus, it was merely the question of payment of salary to Mr. Peter Laser. There is no question of any technical fees being paid to the foreign company. Assuming for the sake of argument that it was in the nature of technical fees paid to the foreign company; then, as rightly pointed out by the learned Page 8 of 9 counsel, Article 12.4 was applicable and not Article 13.4 as contended by the learned DR. Even if Article 12.4 was applicable, the said Article specifically excludes payments mentioned in Article 15. Article 15 states that salaries, wages and other similar remuneration derived by a resident of a Contracting State (Germany) in respect of an employment shall be taxable in the other Contracting State (Indian) only if the employment is exercised there. In other words, salaries paid to such personnel like Mr. Laser are taxable in India and they cannot be considered to be fees 18 for technical services. Further, even as per Section 9 of the Act, the payment cannot be treated as fees for technical service. Explanation 2 to Section 9(1)(vii) gives the meaning of the expression "fees for technical services" as per which, inter alia, any consideration which would be income of the recipient chargeable under the head "salaries", then such payment will not be considered as fees for technical services. Thus, even as per the provisions of the Act, the payment in question cannot be treated as fees for technical services. Moreover, since it is paid as salary to Mr. Laser, tax has been deducted under Section 192 of the Act."

4. Learned counsel also submitted that thereafter in the Assessment Year 1990-00 as well as 2000-01, the amounts reimbursed in identical manner were treated as “salary” to Mr. Laser. He further states that no appeal was filed against the aforesaid order of the Tribunal by the Revenue.”

15. Consequently, this Court is of the view that the issues of ‘receivables’ as well as ‘disallowance’ under Section 40(a)(ia) of the Act are essentially questions of fact, which give rise to no substantial questions of law especially when the findings of the ITAT are not perverse.”

29. Considering the facts of the case in totality, in light of the deputation agreement, we are of the considered view that cost Ernst and Young U.S. LLP to cost reimbursement on account of secondment of employees cannot be treated as FTS as defined under Article 12 of India USA-DTAA and seconded personnel are employees of EY India firms whose income has been taxed as salary in their respective hands. Therefore, the very same amount could not, in law, be subjected twice – firstly in the hands of the seconded employees working in India and secondly again the hands of the assessee. The Assessing Officer is accordingly, directed to delete the impugned addition.”

5. In the absence of any change in the factual matrix and legal proposition, the appeal of the assessee on this ground is allowed.

Professional Services – Article 15 – FIS – Article 12:

6. The AO treated the amount of Rs.30,73,50,900/- received by the assessee on account of professional services as Fees for Inclusive Services as per the Article 12 on the premise that such services do not qualify the definition of professional services as per Article 15 of DTAA.

7. Aggrieved the assessee filed objections before the ld. DRP. The adjudication of the ld. DRP on this issue is as under:

4.3.5 The panel has carefully considered the submissions of the assessee and has also gone through the analysis and the observations of the AO in the DAO. Article 15(2) of the India US DTAA defines the term professional services to include independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants. Hence, only those services which are enumerated in Article 15(2) qualify as professional services and consequently exempt under DTAA. The mere fact that the word includes has been mentioned in Article 15(2) don not reply

Ernst and Young U.S. LLP that services by every conceivable kind of professionals or skill/qualification holder can be bracketed within the specified category of professional services. More particularly, as observed by the AO, the services rendered by functionaries such as economist, MBA graduates, diploma holders and other trained technical professional do not fulfill the criteria of being professional within the meaning of the term "professional services sunder Article 15:21 of India US DTAA. The panel, therefore, is in agreement with the AO's observation that the quantum of receipts from Indian clients for services rendered in Indie which do not strictly qualify as professional services, cannot be claimed as exempt in terms Article 15 of India US DTAA. In the instant case, after examining the breakup of all the services claimed amp under Article 15, the AO has found that a sum of Ra. 29,89,50,386/- does not pertain to professional services and therefore, the criteria of exemption under Article 25 is not satisfied.

4.3.6 Nevertheless observed by the AO in para 59 as well as in para 5.15, the receipts for sessions, other than professional services, i.e. Rs. 29,89,50,386/- are in respect of the services which are technical as well as consultancy in nature. Since, the services provided through other professionals (not strictly qualifying to be ‘professional services' within the meaning of Article 15(2)), are technical in nature, Article 12 of India US DTAA, is attracted in the instant case. Further as evidenced by the service agreement, these services also include rendering training to the customers of the assesses which provides enduring benefits to the sections of the service. Consequently, the "make available" criteria as laid down in Article 12 DTAA stands satisfied. In view of the above, the panel finds no ground to interfere with the conclusions of the AO, and accordingly, the objections raised in Ground Number 3 are rejected.

Ernst and Young U.S. LLP 4.3.7 In the DAO, the AO has mentioned that of the total sum of Rs. 103,63,94,946/- claimed as exempt under Article 15 of the DTAA receipts amounting to Rs. 29,89,50,386/- do not pertain to professional services but full within FTS under Article 12 of India US DTAA. The AO is directed to spell out the breakup of the receipts claimed as exempt from professional services in the final order, so as to clearly distinguish the receipts as professional services from those categorized as FTS Ground number 3 along with all sub grounds are accordingly disposed of.” 4.3.3 Since, there is no change in factual and legal matrix, the arguments of the AO (in the DAO) as well the submissions of the assessee from A.Y. 2020-21, the panel finds no ground to deviate from its directions in A.Y. 2020-21. Accordingly, the directions of the panel in A.Y. 2020-21 on the issue will apply for A.Y. 2021-22 as well, mutatis mutandis. Ground number 3 along with all the sub grounds are accordingly disposed of.”

8. Subsequent to the addition by the ld. DRP, the AO made addition of Rs.30,73,50,900/- as FIS.

Ernst and Young U.S. LLP 12. The ld. DR argued that the Article 15 of India-USA DTAA is attracted if only such services rendered in India. The ld. DR submitted that the assessee rendered these services from outside India. Therefore, the transactions undertaken by the assessee cannot be covered by Article 15 of the DTAA. The ld. DR argued that the services rendered by the assessee for Indian clients by staying in USA, hence do not fall under Article 15 of DTAA. The ld. DR argued that under Article 12 of the DTAA, FIS do not include, amounts paid 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 15 (Independent Personal Services). Therefore, exemption under Article 12 is applicable to only for professional services rendered by a firm of individuals. The ld. DR argued that the term professional services has not been defined in Article 12 of DTAA but defined in Article 15(2) of DTAA which includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants and argued that only those services which are related to the activities mentioned in this Article only does qualify as professional services and exempt under DTAA. The ld. DR argued that as per the details provided by the assessee and after going through their scope of services and deliverable, the same cannot be treated as professional services rendered rather they qualify for services which are technical or consultancy in nature. The ld. DR submitted that services rendered by functionaries such as Economists, MBA Graduates, diploma Ernst and Young U.S. LLP holders and other trained technical professional does not fulfill the conditions for being professional.

14. Heard the arguments of both the parties and perused the material available on record.

15. We have gone through the two volumes of paper book filed by the assessee containing 222 pages.

Ernst and Young U.S. LLP book page 84 to 91, the nature of the services rendered consists of expatriate tax services, TP documentation, tax services & advisory, talent management & leadership development, merger & amalgamation advisory services, HR performance improvement services, technology implementation support, valuation of tangibles for purpose of purchase consideration, payroll services, SAP implementation, customer relationship & billing. For the sake of ready reference, some of the services provided by the assessee are mentioned below:

17. In the background of these services, the provisions of the Income Tax Act and Articles of the DTAA are examined.

“Fees for professional or technical services.

194J. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of— (a) fees for professional services, or (b) fees for technical services, or (ba) any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192, to a director of a company, or (c) royalty, or Ernst and Young U.S. LLP (d) any sum referred to in clause (va) of section 28, shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to two per cent of such sum in case of fees for technical services (not being a professional services), or royalty where such royalty is in the nature of consideration for sale, distribution or exhibition of cinematographic films and ten per cent of such sum in other cases, as income-tax on income comprised therein :

Provided that no deduction shall be made under this section— (A) from any sums as aforesaid credited or paid before the 1st day of July, 1995; or (B) where the amount of such sum or, as the case may be, the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed—

(i) thirty thousand rupees, in the case of fees for professional services referred to in clause (a), or (ii) thirty thousand rupees, in the case of fees for technical services referred to in clause (b), or (iii) thirty thousand rupees, in the case of royalty referred to in clause (c), or (iv) thirty thousand rupees, in the case of sum referred to in clause (d) :

Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed one crore rupees in case of business or fifty lakh rupees in case of Ernst and Young U.S. LLP profession during the financial year immediately preceding the financial year in which such sum by way of fees for professional services or technical services is credited or paid, shall be liable to deduct income-tax under this section :

Provided also that no individual or a Hindu undivided family referred to in the second proviso shall be liable to deduct income-tax on the sum by way of fees for professional services in case such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family:

Provided also that the provisions of this section shall have effect, as if for the words "ten per cent", the words "two per cent" had been substituted in the case of a payee, engaged only in the business of operation of call centre.

(2) [***] (3) [***] Explanation.—For the purposes of this section,— (a) "professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section; (b) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (ba) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9; (c) where any sum referred to in sub-section (1) is credited to any account, whether called "suspense account" or by any other Ernst and Young U.S. LLP name, in the books of account of the person liable to pay such sum, such crediting shall be deemed to be credit of such sum to the account of the payee and the provisions of this section shall apply accordingly.

22. Further, the provisions of relevant Articles of the DTAA are examined.

23. Article 12(4)(b) reads as under:

“ARTICLE 12 - Royalties and fees for included services – 1. Royalties and fees for included services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

3. The term “royalties” as used in this Article means :

(a) payments of any kind received as a consideration for the use of, or the right to use, any copyright or a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with 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 or property which are contingent on the productivity, use, or disposition thereof ; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial, or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of Article 8.

Ernst and Young U.S. LLP (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, or consist of the development and transfer of a technical plan or technical design.

5. Notwithstanding paragraph 4, “fees for included services” does not include amounts paid :

(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 payments ; or (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 15 (Independent Personal Services).

(b) Where under sub-paragraph (a) royalties or fees for included services do not arise in one of the Contracting States, and the royalties relate to the use of, or the right to use, the right or property, or the fees for included services relate to services performed, in one of the Contracting States, the royalties or fees for included services shall be deemed to arise in that Contracting State.

Ernst and Young U.S. LLP 24. Article 15 reads as under:

“ARTICLE 15 - Independent personal services – 1. Income derived by a person who is an individual or firm of individuals (other than a company) who is a resident of a Contracting State from the performance in the other Contracting State of professional services or other independent activities of a similar character shall be taxable only in the first-mentioned State except in the following circumstances when such income may also be taxed in the other Contracting State : (a) if such person has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other State; or (b) if the person’s stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 90 days in the relevant taxable year.

2. The term “professional services” includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants.”

25. We have also examined the qualifications of the engagement partners and principal responsible for engagement, we find that these consultants are having qualifications in business management, business administration, masters of science and doctorate in economics or maths, commerce & finance.

Ernst and Young U.S. LLP 26. We have also examined the various orders of the Tribunal namely, MSEV Vs. DCIT (83 TTJ 325), EC Group India Pvt. Ltd. (84 taxmann 108) and the Hon’ble Apex Court in Union of India Vs. India Fisheries Pvt. Ltd. (57 ITR 331). The Hon’ble Apex Court held that if there is an apparent conflict between two independent provisions of law, the special provision must prevail. Respectfully, we hold that there are no two calms about the principle laid down by the Hon’ble Apex Court, there has to be two independent provisions which are in conflict between each other. In the instant case, there are two Article of DTAA which are totally different with different explanation neither overlapping nor in conflict in each other. These two Articles of DTAA operate in fundamentally different arenas and the area of operations and definitions are clear and easily discernable. With regard to the provisions of interpretation of the clause includes, it is prima facie extensive as held by the Hon’ble Apex Court in Hamdard (W) Laboratories Vs. Deputy Labour Commissioner (5 SSC 281) and it always includes the words, professions which are easily relatable and includable in the absence of specific mention of such profession or service. It can be inclusive of same kind of meaning like investments have to be construed with shares or securities. The principles of ejusdem generis have to be applied to treat the subjects which are of the same kind or alike.