Article 12 and Protocol to India-Belgium DTAA; Article 12, India-Portugal DTAA – due to MFN Clause in Protocol to India-Belgium DTAA, scope of FTS was to be restricted to that under India-Portugal DTAA and ‘make available’ condition was to be read into – as IT support services provided by a Belgian company did not ‘make available’ knowledge, experience, etc., the receipts were not in the nature of FTS.

24. 
[2019] 101 taxmann.com 94 [Delhi – Trib] ITA No: 123 (Delhi) of 2015 Soregam SA vs. DDIT Date of Order: 30^th November, 2018 A.Ys.: 2011-12

Article 12 and
Protocol to India-Belgium DTAA; Article 12, India-Portugal DTAA – due to MFN
Clause in Protocol to India-Belgium DTAA, scope of FTS was to be restricted to
that under India-Portugal DTAA and ‘make available’ condition was to be read
into – as IT support services provided by a Belgian company did not ‘make
available’ knowledge, experience, etc., the receipts were not in the nature of
FTS.

FACTS       

The Taxpayer a tax
resident of Belgium was engaged in the business of providing IT support
services to its group entities. The Taxpayer had provided such services to its
group entity in India and received consideration in respect thereof. The
Taxpayer furnished its return of income declaring NIL income and claimed refund
of tax withheld by the Indian group company.

The AO held that the entire income received by the Taxpayer for
providing IT support services was taxable in India as Fees for Technical
Services (FTS) under the DTAA.

Aggrieved, Taxpayer appealed before the DRP. The DRP held that having
regard to the Most Favoured Nation (MFN) clause in the protocol to
India-Belgium DTAA, the definition of FTS in Article 12 of India-Portugal DTAA
(which was restricted in scope) would apply. The DRP however, held that the
Taxpayer satisfied the ‘make available condition’ and hence, the receipt was
taxable as FTS in India. Aggrieved, the Taxpayer appealed before the Tribunal.

HELD

•     Article 12(3)(b) of
  India-Belgium DTAA defines FTS. It includes payment for services of a
  managerial, technical or consultancy nature. Protocol to India-Belgium DTAA
  provides that if India enters into a treaty with an OECD country after 1^st
  January, 1990 under which, it agrees to a lower rate of tax, or agrees to
  restrict the scope of FTS, then, the same rate or scope shall also be
  applicable under India-Belgium DTAA.

•     Subsequent to 01 January
  1990, India entered into DTAA with Portugal, which is a member-country of OECD.
  Under India-Portugal DTAA, scope of FTS is restricted by incorporating ‘make
  available’ condition. Hence, in terms of Protocol to India-Belgium DTAA, this
  restricted scope of FTS was to be read into definition of FTS under Article 12
  of India-Belgium DTAA

•     The Taxpayer had provided
  IT support services from outside India. No personnel of the Taxpayer had
  visited India in connection with these services. The Taxpayer had not trained
  any employee of Indian group company while providing these services. In the
  order, neither the AO nor the DRP had specified how knowledge, experience, etc.
  was made available nor did they mention how employees of India group company
  could have utilised the experience gained by them.

•     Accordingly, IT support
  services provided by the Taxpayer did not fall within the ambit of FTS under
  Article 12 of India-Belgium DTAA, read with Article 12 of India-Portugal DTAA.