Vanderlande Industries Private Limited Vs ACIT (ITAT Pune)
A cursory glance at the definition of the term `Royalties’ makes it patent that the hitherto content of para 4 of Article 12 comprising of copyright royalty cases only became subject matter of sub-para (a) of the amended para 4 of Article 12. In addition, para 4(b) also came to be added, which deals exclusively with industrial royalty cases, thereby enveloping, consideration for the use of or the right to use industrial, commercial or scientific equipment, subject to certain exceptions, which are not applicable to the case under consideration. Thus, it is manifest that India and Netherlands have agreed to bring industrial royalty, of the nature as obtaining in the present appeal, within the scope of Article 12 of the DTAA w.e.f. 30-08-1999. The assessment year under consideration is 2012-13. As such, it would only be the amended definition of the term `Royalties’ in the DTAA, which will prevail. Since para 4(b) of Article 12 of the DTAA specifically covers consideration for use of any industrial or commercial equipment, the payment made by the assessee for use of the overall ICT Infrastructure set up by its Netherlands entity would fall within the term `Royalties’ under the DTAA. As the case is admittedly covered u/s.9(1)(vi) of the Act and also found to be covered by Article 12 of the amended DTAA, we hold that the amount paid by the assessee is chargeable to tax in the hands of the Netherlands entity. Failure of the assessee to deduct tax at source from payment made to the Netherlands entity clearly magnetizes section 40(a)(i) of the Act. We, therefore, accord our imprimatur to the view canvassed by the authorities in making and sustaining the disallowance.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal by the assessee is directed against the order passed by the ld. CIT(A)-5, Pune on 25-09-2017 in relation to the assessment year 2012-13.
2. The only issue raised herein is against the confirmation of disallowance made by the Assessing Officer (AO) u/s.40(a)(i) of the Income-tax Act, 1961 (hereinafter also called ‘the Act’).
3. Succinctly, the factual matrix of the case is that the assessee, an Indian based Private Limited Company, is wholly owned by Vanderlande Industries Holding, B.V. Netherlands (hereinafter also called“VIBV”). The assessee is engaged in the business of baggage handling at Airports, Distribution Centre, Express Parcel Sortation facilities and related services. During the year under consideration, the assessee paid a sum of Rs.53,53,204/- to VIBV, its Netherlands based holding company, which was claimed as reimbursement on account of IT Support Services. No deduction of tax at source was made. On being called upon to explain the reasons for non-withholding of tax, the assessee submitted that the amount paid to VIBV was in the nature of reimbursement of IT Support Services cost and hence did not require any tax deduction. The assessee further stated that VIBV entered into arrangements in Netherlands for various facilities and services which were to be used by Vanderlande and its group companies located in different countries, including India. The payment made was reimbursement for Desktop services, like storage of data or backup and restore etc.; Communication services like Instant Messaging, remote VPN Access etc.; and Application services like Solidworks, SugarCRM, Primavera, JD Edwards Enterprise, E-mail & Calendering etc. The assessee made out a further claim before the AO that the payment made by the assessee to VIBV was in the nature of `fees for technical services’. Relying on Article 12 of the Double Taxation Avoidance Agreement between India and Netherlands (hereinafter also called `the DTAA’), the assessee contended that no services were “made available” by VIBV to the assessee so as to bring the payment within the purview of `fees for technical services’. The AO rejected the characterization of payment as `fees for technical services’ by the assessee and held the same as `Royalty’ covered u/s.9(1)(vi) read with Article 12 of the DTAA. The ld. CIT(A) echoed the assessment order on the point, against which the assessee has come up in appeal before the Tribunal.
4. We have cogitated over the rival submissions in Virtual Court and scanned the relevant material on record. The issue before the Tribunal is to decide the nature of payment made by the assessee to VIBV. In case the amount paid by the assessee turns out to be chargeable to tax in the hands of its Netherlands associated enterprise and since the assessee failed to deduct tax at source, it would be hit by section 40(a)(i) of the Act mandating the disallowance. On the other hand, if the amount paid by the assessee is found not to be chargeable to tax either as reimbursement, or royalty or fees for technical services either under Act or under the DTAA, the assessee would escape the rigor of the provision.
5. In order to decide as to whether or not the amount paid by the assessee is chargeable to tax in the hands of Netherlands entity, we need to comprehend the real nature of transaction. The ld. AR invited our attention towards the Services Agreement between the assessee and its Netherlands entity (called in the Agreement as `Services’) entered on 01-09-2008, whose copy has been placed at page 49 onwards of the paper book. In the extant appeal, we are concerned only with the nature of Information Communication Technologies (ICT) Services claimed to have been availed by the assessee, as has been set out in clause III of the Agreement, reading as under:
III. Information, Communication Technologies (‘ICT’) and Quality Management Services shall provide all the services in respect of determination, investigation, implementation, improvement and control of overall ICT infrastructure, including, but not limited to, the following services:
