Section 9(1)(vi) of the Act, Article 12 of
India-Switzerland DTAA – Since MFN clause in India-Switzerland DTAA provides
for negotiation by both countries for lower tax rate or restricted scope, in
absence of amendment to DTAA, MFN benefit could not be availed. In the absence
of automatic application of MFN clause, make available condition cannot be
drawn into India-Switzerland DTAA.
Facts:
The Taxpayer was an Indian company engaged
in manufacturing and marketing of pharmaceutical products. During the relevant
year, the Taxpayer had made payments, inter alia, to a tax resident of
Switzerland (payee), in consideration for rendering consultancy services. The
Taxpayer did not withhold tax from the payments.
The Taxpayer contended that:
– the
payee did not part with any technical knowhow which could be used by the
Taxpayer independently on its own;
– Protocol
to India-Switzerland DTAA contains most favoured nation (“MFN”) clause in
respect of Articles 10 to 12;
– India-Portugal
DTAA containing ‘make available’ condition in respect to payments made for
technical services was executed and notified subsequent to India-Switzerland
DTAA;
– although
such ‘make available’ condition in respect of technical services was explicitly
not contained in India-Switzerland DTAA, it was deemed to have been applicable
by virtue of India-Portugal DTAA;
– accordingly,
scope of FTS under India-Switzerland DTAA should be restricted to the same
scope as that under India-Portugal DTAA; and
– since
the make available condition is not satisfied, the payments made to the payee
do not qualify as Fee for Technical Services (FTS).
Held
– India-Switzerland
DTAA or Protocol thereto does not have ‘make available’ provision in respect of
FTS.
– The
Protocol to India-Switzerland DTAA provides that if, after its execution on
16-02-2000, India enters into any DTAA/Protocol with a member of OECD, and if
India limits its taxation to a rate lower or scope more restricted than that
provided in India-Switzerland DTAA, then Switzerland and India shall enter into
negotiation without undue delay in order to provide similar treatment to
Switzerland as in case of the third State.
– Since
there is no automatic MFN application, and since Switzerland and India have not
amended DTAA in respect of lower rate or restricted scope, the contention of
the Taxpayer that pursuant to India-Portugal DTAA, ‘make available’ condition
should also be applied to India-Switzerland DTAA cannot be accepted.
