ELECTRICAL MATERIALS CENTER CO. LTD.,,BANGALORE vs. DY.D.I.T., BANGALORE

The grounds raised by the assessee are as under:- “The grounds stated hereunder are independent of and without prejudice to one another. The Appellant submits as under:

Learned AR of the assessee submitted that the case of the revenue is this that the receipt in question is Royalty and therefore, as per DTAA between India and Saudi Arabia and u/s 115A of I T Act, it is taxable @ 10% and the case of the assessee is his that the receipt in question is not Royalty and it is FTS and therefore, it is not taxable because there is no specific provision for taxability of FTS in this treaty between India and Saudi Arabia. He further submitted that the A. O. has also stated in the assessment order that solar days (360) are to be considered and not man days (90) for the purpose of deciding the existence of PE in India and on this basis, he held that there is PE in India and therefore, the income in question is taxable @ 40%. He submitted that only solar days can be considered for this purpose and in support of this contention, he placed reliance on the tribunal order rendered in the case of Clifford Chance vs. DCIT as reported in 76 TTJ 0725/82 ITD 0106. As against this, learned DR of the revenue placed reliance on the tribunal order rendered in the case of ABB FZ – LLC vs. DCIT in IT (TP) A No. 1103/bang/2013 dated 21.06.2017. He submitted a copy of this tribunal order and drawn our attention to Para 46 of this tribunal order. In rejoinder, the learned AR of the assessee drawn our attention to Para 49 of this tribunal order and submitted that in that case, the dispute was about service PE without physical presence of the employees and it is noted by the tribunal that service, information, consultancy, management etc. can be

We have considered the rival submissions. We have to decide this issue first that whether there is PE or not in India because if a PE is there, income is taxable @ 40% and if no PE is there, income whether Royalty or FTS is taxable @ 10%. In our considered opinion, there is no PE because as per the tribunal order cited by the learned AR of the assessee having been rendered in the case of Clifford Chance vs. DCIT (Supra), only solar days are to be considered and not man days. The decision of tribunal is this: “Multiple counting of the common days is to be avoided so that the days when two or more partners were present in India, together, are to be counted only once. Multiple counting would lead to absurd results. For example, if 20 partners were present in India together for 20 days in one fiscal year, multiple counting would result in 400 days. There cannot be more than 365 days in a year.” Regarding the tribunal order cited by the learned DR of the revenue having been rendered in the case of ABB FZ – LLC vs. DCIT (Supra), we would like to observe that in the present case, this tribunal order is not relevant because of difference in facts. In that case, the assessee had rendered managerial and consultancy services and as per the tribunal, these services can be rendered without physical presence of the employees. In the present case, as per the invoice on page 37 of the paper book, the assessee has raised a bill of USD 57,764 for 2063 man days @ USD 28 per day. This is not a case of the revenue that any other invoice is raised by the assessee. When admittedly, the only invoice raised is in respect of stay of 4 Engineers in India on the basis of man hours spent by them in India, it cannot be said that any other service was rendered in the present case without physical presence by way of virtual modes like e mail, internet, video conference etc. and therefore, physical presence of employee is not essential. Because of these differences in facts, this tribunal order cited by the learned DR of the revenue is not applicable in the present case. We, therefore, follow the tribunal order cited by the learned AR of the assessee having been rendered in the case of

Now the second issue to be decided is this that whether the impugned receipt is Royalty or FTS and the third issue to be decided is this that whether the income is taxable in India if it is FTS. If it is found that the income is taxable even if it held to be FTS than the second issue will be of academic interest only because both these incomes i.e. Royalty & FTS are taxable at the same rate i.e. 10%. Hence, we first decide the 3rd issue. Regarding this issue, this is the submission of the learned AR of the assessee that in the DTAA between India and Saudi Arabia, there is no clause regarding taxation of FTS and therefore, FTS is not taxable in India. In support of this contention, he placed reliance on a judgment of Hon’ble Madras High Court rendered in the case of Bangkok Glass Industry Co. Ltd. vs. ACIT as reported in 2015 (4) TMI 503. He filed a copy of this judgment. We have gone through this judgment. We find that in Para 8 of this judgment, it is noted that as per the assessee in that case, FTS was not taxable as Royalty under Article 12 of DTAA between India & Thailand. The case of the A.O. in that case was that this receipt is not taxable as Business Profit under Article 7 of DTAA between India & Thailand. The A.O. held in that case that the impugned receipt will fall under Article 22 i.e. residual clause and could be taxed only in the contracting state where the income arose. We reproduce the said clause of DTAA between India & Thailand. This reads as under:-

Now we reproduce the said clause of DTAA between India & Saudi Arabia also. This reads as under:-

There are some exceptions provided in Article 22 (2) where Article 22

Now, we have to decide the second issue as to whether the impugned

In the result, the appeal of the assessee is partly allowed for statistical