HIGH COURT OF BOMBAY
Director of Income-tax, (International Taxation)
Chiron Bearing Gmbh & Co.
IT APPEAL NO. 2273 OF 2010
JANUARY 8, 2013
M.S. Sanklecha, J.
This appeal by the revenue challenges the order dated 04.07.2008 of the Income Tax Appellate Tribunal (the Tribunal) relating to the Assessment Year 2002-03.
2. Though, the appeal has formulated five questions of law, only following two questions of law are pressed by the revenue for consideration of this court.
(a) Whether on the facts and in the circumstances of the case and in law was the Tribunal correct in holding that the respondent can be considered to be a tax resident of Germany?
(b) Whether on the facts and in the circumstances of the case and in law the Tribunal was correct in holding that no interest was chargeable u/s 234B of the Act?
(a) The respondent- assessee being a Non-Resident (Foreign Company) filed its return of income for the Assessment year 2002-03 declaring an income of Rs.3.35 crores. The respondent-assessee in its Return of Income had claimed benefit of Article 12(2) of the Agreement between India & Germany for the Avoidance of Double Taxation with respect to taxes on Income and Capital (DTAA) in respect of Royalties and Fees for technical services received by it in India.
(b) The Assessing Officer by an order dated 28.05.2005, did not extend the benefit of the DTAA as claimed on the ground that the respondent- assessee is not liable to tax in Germany being a limited partnership. This conclusion was reached on the basis of the OECD Publication “The Application of the OECD Mode Tax Convention to Partnership.”
(c) In appeal the CIT(A) by order dated 15.05.2006 held that the respondent- assessee are paying Trade Tax in Germany which is tax paid on profit of the business. This trade tax is covered by Article 2 of the DTAA. Further reliance is also placed upon the Tax Resident Certificate dated 18.03.2005 issued by the Authorities in Germany which certified that the respondent- assessee is liable to pay Trade Tax in Germany since 1996. In view of the above, it was held that the respondent- assessee satisfied the requirement of DTAA and are entitled the benefit of lower rate of tax as provided in Article 12(2) thereof in respect of Royalty and Technical fees earned in India.
(d) Being aggrieved, the Revenue carried the matter in appeal to the Tribunal. The Tribunal by its order dated 04.07.2008 upheld the finding of the CIT(A) that the respondent- assessee is a person liable to pay tax in Germany. Consequently, the benefit of Article 12(2) of the DTAA was held available to the respondent- assessee.
4. Mr. Pinto in support of the appeal submits that the respondent- assessee is limited partnership and cannot be considered to be a taxable unit in Germany for the purposes of the DTAA. In support of the aforesaid submission reliance is placed upon the order dated 28.03.2005 of the Assessing Officer wherein on the basis of OECD publication the Assessing Officer has held that limited partnership in Germany are not liable to tax. Therefore, he submits that the benefit of DTAA including Article 12(2) thereof cannot be extended to the respondent- assessee.
5. As against the above, Mr. Irani for the respondent- assessee points out that the respondent- assessee is a taxable entity under the German Law as is evident from the certificate dated 18.03.2005 issued by the German Authorities. Further, in terms of Article 2(3) of the DTAA is applicable even in respect of payment of Trade Tax in Germany. Consequently, in his submission the order of the Tribunal dated 04.07.2008 calls for no interference.
6. We have considered the submissions. We find that respondent- assessee is receiving royalty and fees for technical services rendered in India. In terms of Article 12 of DTAA, royalty and fees for technical services received in India by a person resident outside India are not liable to tax in India in excess of 10% of the gross amount received. On examination of the DTAA, we find that in terms of Article 2(3) thereof the trade tax paid in Germany is one of the taxes to which DTAA applies. Further, in the Article 3(d) of DTAA person includes any entity treated as taxable unit in Germany. The term ‘resident’ in terms of Article 4 of the DTAA means “any person who, under the laws of Germany is liable to tax therein by reason of his domicile, residence, place of management or any criterion of a similar nature”. We find that both the CIT(A) and the Tribunal has on examination of records found that respondent- assessee is filing Trade Tax Return in Germany and therefore is paying tax to which the DTAA applies. Further, the Tax Resident Certificate dated 18.03.2005 issued by German Authorities evidences the fact that the respondent- assessee is considered as a taxable unit under the taxation laws of Germany. Therefore, the DTAA is applicable to the respondent- assessee and in particular the benefit of Article 12(2) thereof cannot be denied. We do not find merit in the submission of the Revenue that the respondent- assessee cannot be considered as a taxable entity in view of the OECD commentary. This is for the reason that entire issue is governed by the DTAA and on the basis of evidence led before the authorities. In these circumstances, it is not open to deny the benefit of the DTAA on the basis of the OECD commentary.
7. In view of the above, we find no reason to entertain the question of law at (a) above.
8. In so far as question (b) is concerned it is agreed between the Advocates for the appellant and the respondent that the issue is covered in favor of the assessee by the decision of this court in the matter of Director of Income Tax (International Taxation) v/s. NGC Network Asia LLC reported in 313 ITR page 187. In view of the above, we find no reason to entertain the question of law at (b) above.
9. Accordingly, the appeal is dismissed with no order as to costs.