By Geeta Jani, Dhishat B. Mehta Chartered Accountants
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Make available condition provided in India- Portugal DTAA can be imported into India- Sweden DTAA by virtue of Most Favoured Nations (MFN) clause; Consequently commercial management services rendered by a Sweden Co not regarded as Fees for Technical services (FTS) under the India – Sweden DTAA as it does not make available technical skills or knowledge.
Facts:
The Taxpayer, a Swedish Company, provided services in the nature of commercial, management, marketing and production services to its Indian subsidiaries (I Co). Further, the Taxpayer did not have a PE in India.
Under the Act, there was no dispute with respect to the legal position that the services do not constitute FTS u/s. 9(1)(vii). However, the Tax Authority contended that the fee received by the Taxpayer is in the nature of FTS under India-Sweden DTAA .
The Taxpayer claimed that the fee received from I Co is not FTS as provided in India-Sweden DTAA . Alternatively, by virtue of the Most Favoured Nation (MFN) clause in the protocol to India-Sweden DTAA, the definition of FTS as available in India-Portugal DTAA , which provides for an additional condition of “make available”, can be imported. Tax authority’s contention was upheld by Dispute Resolution Panel.
Aggrieved, the Taxpayer appealed before the Tribunal.
Held:
India-Sweden DTAA incorporates MFN clause, as per which, if under any DTAA , India limits its taxation at source on dividends, interest, royalties, or fees for technical services to a rate lower or a scope more restricted than the rate or scope in the India-Sweden DTAA , the same rate or scope shall apply under the India-Sweden DTAA also. India-Portugal DTAA provides a restricted definition of FTS, wherein services can be regarded to fall within the scope of FTS only if the same makes available technical knowledge, skill etc.
Accordingly, based on the MFN clause and importing the FTS definition from the India-Portugal DTAA, the services rendered by Taxpayer could not be regarded as FTS as the same do not make available technical knowledge/skill to I Co in India.
