Director Of Income Tax v. Rjo'i'into Teci-Inical Services

IN THE HIGH COURT OF DELHI AT NEW DELHI + INCOME TAX APPEAL NOS. 49112011 & 49212011 Date of Decision : 4tl'Januarv.2012. oh DIRECTOR OF INCOME TAX.... AppellantThrough Mr. Sanjeev Sabharwal, Advocate.Through Mr. Sanjeev Sabharwal, Advocate. .... Appellant a'-1 VERSUS RJO'I'INTO TECI-INICAL SERVICES SERVICES.....RespondentThrough Mr. Salil Kapoor, Mr. Ankit Gupta, Mr.Sanat Kapoor & NIr. Vikas Jain, Advocates. CORAM:HON'BLE MR. JUSTICE SANJIV KHANNAHON'BLE MR. JUSTICE R.V. EASWAR SANJIV KIIANNA. J.: .a Ilor detailed order see ITA 48612011 titled Director of Income Tnx Vs. Rio Tinto Technicsl Services pronounced today. 4"1-l/ L - \_(SANJIV KIIANNA)JUDGE. . t1f \r *--J.. (R.v.fuaswanlJUDGE JANUARY 4,2012VKR Signature Not VerifiedDigitally SignedBy:AMULYA I r iil ['['lli] ]ill[{;{[ [(]0IJRT ]OXr DIr]LlnX A'[' [j\]IlW ][I]U[,X'[I]I I ry{{.}Lt!L_! AX-}flleALNg$,-496lWL [qE}rz0rl- ][a ][aeUlw] Reservccl on : Zi.'l Qq-!gb-c.L 20-1,1..llatc of llccision : -. 4E.Jirlgiu'y".?Q-12'of llccision : -. 4E.Jirlgiu'y".?Q-12'llccision : -. 4E.Jirlgiu'y".?Q-12': -. 4E.Jirlgiu'y".?Q-12'-. 4E.Jirlgiu'y".?Q-12' 't4t llatc of llccision : -. 4E.Jirlgiu'y".?Q-12'of llccision : -. 4E.Jirlgiu'y".?Q-12'llccision : -. 4E.Jirlgiu'y".?Q-12': -. 4E.Jirlgiu'y".?Q-12'-. 4E.Jirlgiu'y".?Q-12'iJltr.irg l'OIL [(.\lr ]tN(.loi\41.: ['J'nX ].... Appcllant''l'lirough Mr. Saniccv Sabharrvai, Aclvrlcate. VfiIISTJS i [till ][ufiltnonun', ]Nrr. ;il]:it8$;ll *,.Sau,:tt l{atporlr & Mr. Vil.as [.la!n, ][Arlvtlon{"cs.] ii ir''! itl [r ][r ]i'r'ritllll.I(^r +.],i;'liA I'vl: ;i[-'ri.{'!dt,ti P.'l E{. .rus'i'uct] sAN.rIv [i(txANNA]I {i.trl'l}l ,t: 11./qi{. .} [iSiX'[C],1 R.V. UIASWAif i2 e [l-..1{i!'-Kt-!.Ari'l ][NA,J. ][:] i)rc\/clrLrc Irais l.rrclcrrt.:cl thcsc appcals rtnr{cr !lcctitln 260/\'oi'tirc!ur:ei1ic'l'11 Ac1,, t96l [(nct. ][[Lrr ][short) ][ancl ][vicle ][ttrclcr ][c{aLcrcl ][[i'i'ALtgusL-] .i(.)| I f hc iiillor.r,ing strlrstaliLiztl [qtrcstiotrs ]oJ'lau,,^).r. [iiitllccl:-] '"i i) V/hcthcr lcitlnccl 1't'A.'t' clrcd in holcling that thcitsscuscc's riotivities ilt'c uot [lt'fS ][witlrin ][l.hc]dctrrrition oJ'F'l'il statcd in [Artiolcs ]i2 [ol'thc:]l)oL.rblc l)cl.lnition o{'l;'tS slatt:cl in [Ar-ticlcs ] [Q(;]ilic J )orrbk:'.1'zrxalion Avoiclancc [Agrcctncnt?]itsscuscc's riotivities ilt'c uot [lt'fS ][witlrin ][l.hc]dctrrrition oJ'F'l'il statcd in [Artiolcs ]i2 [ol'thc:]l)oL.rblc l)cl.lnition o{'l;'tS slatt:cl in [Ar-ticlcs ] [Q(;]ilic J )orrbk:'.1'zrxalion Avoiclancc [Agrcctncnt?] i,:).i Wh,:lhr;r [lcartrcci ][I'|A'I' ][crrctl ][in ][ht;lcling ][tliaii], Artir:lcs 7 of thc lndo-ALlstralia l)'1.'Arl vvill bcapplical:lr: ancl hencc sltch [itic:orrrc ][ltas ][to ][trc]conr;tritccl an lrnsitrcss inconte'l, Artir:lcs 7 of thc lndo-ALlstralia l)'1.'Arl vvill bcapplical:lr: ancl hencc sltch [itic:orrrc ][ltas ][to ][trc]conr;tritccl an lrnsitrcss inconte'l {i) \Vircthoi' triroYisions ol- Sccticl,ll [1llj.4 ][rr:iicl ][rvji.lr]Slcctitln 441) tli'llrc Itrcotnc ['j'ax ][./rt:i", ][l9(r ] ['rirc ][riot]:itlirlicai.rl.: itr l"lic "f'acts [pl'cscul" ][casc'/"]Slcctitln 441) tli'llrc Itrcotnc ['j'ax ][./rt:i", ][l9(r ] ['rirc ][riot]:itlirlicai.rl.: itr l"lic "f'acts [pl'cscul" ][casc'/"] ill,iri,.:- [,iti,i77g'f ]i.4gil2li'i &4']212011 i,:).i Wh,:lhr;r [lcartrcci ][I'|A'I' ][crrctl ][in ][ht;lcling ][tliaii], Artir:lcs 7 of thc lndo-ALlstralia l)'1.'Arl vvill bcapplical:lr: ancl hencc sltch [itic:orrrc ][ltas ][to ][trc]conr;tritccl an lrnsitrcss inconte'l, Artir:lcs 7 of thc lndo-ALlstralia l)'1.'Arl vvill bcapplical:lr: ancl hencc sltch [itic:orrrc ][ltas ][to ][trc]conr;tritccl an lrnsitrcss inconte'l {i) \Vircthoi' triroYisions ol- Sccticl,ll [1llj.4 ][rr:iicl ][rvji.lr]Slcctitln 441) tli'llrc Itrcotnc ['j'ax ][./rt:i", ][l9(r ] ['rirc ][riot]:itlirlicai.rl.: itr l"lic "f'acts [pl'cscul" ][casc'/"]Slcctitln 441) tli'llrc Itrcotnc ['j'ax ][./rt:i", ][l9(r ] ['rirc ][riot]:itlirlicai.rl.: itr l"lic "f'acts [pl'cscul" ][casc'/"] ill,iri,.:- [,iti,i77g'f ]i.4gil2li'i &4']212011 2. 'l'hc rcsprlndcnt asscsscc-ltio 'J'into '['cclrnologici"rl ]tcstlurccs ['l'Y]l.inritcd, cluring Lhc ycars ilr c1ucsl-ion i.c. thc [Asscssltrcnt ][Ycar:i ][1999-]l-()00, 2000-01 and 200.1-02lracl opcratccl in lnclia [tl'rror-rgh ][its ][clivisiori]llio'l'into'l.'cclrnical Scrviccs.'l'hc rcspotrclcnt-asscsscc [lracl ][lllccl]rctunrs t)r1 2"d )..cbruar1,, lggg,l Ttl' Novctnbcr, 2000 [ancl22."'t Oc{.obcr.]2-001 clcclaring loss of l{s.2.00 ,970/-, positivc ittc<lnrc ol' l{s.23.8[3,700/-ancl l{s.12.50-930/- in rcspccL o{- Lhc thrcc elsscssnlcnt vcars [urcrtLioltccl]aborrc. ['l'hc ]ihrcc rcturns vverc takcn up [ilr'rcgulzr zlsscssnrctll- [r,urclcr]liccl.iolr 143(3) ol thc Acl ancl thc Asscssing O1)iccr [I'itlc ][ltsscsinrcttt]rrrdcrs clatccl 25tl' lrctrluzu),,2002,21t' Milrch, 2.003 ancl 27'r' .lzuiititrl',2004 hclcl tlrat thc paynrcnts lcccivccl by thc [asscsscc ][liom l{io ]['l'irrto]lnclia t)rivertc l.ilnitecl ancl ltio ["l'into ]Orissa Minirrg Limitocl (l{'l'tl'}l,nnd lt'l'OlVll. rcspectiricl),, for short)'vvcl'c taxablc as f'cc Irtr [l"cchrrical]scrviccsuncicrScctiorr9(l)(vii)rcaclr,r,ithScction ll5n ol'thcAcLartclthc gross rcccipts r,vithout any dccluction v'crc taxat'rlc at thc rtrtc ol'20% it't vicrry ol. scctirln [ztztl) ]of thc Act. Jt [n,as ][hclcl ][tliirt Articlcs ] [arrcl]l? <ll' lhc l)oublc ['J'axation ]Arroiclanoc Ae.rccrrrcnt llctr,vcclr lnclia arrciAustralia (l)'i'An, Iilr sliort) wct'c not i,rpplicablc. ['l'hc ]itrctltlc ol'tlicasscssoc l"br thc lhrcc )/cal's ivers cnhzurccci to l{s. 30.05.20,535/-. [l{s;.]1.41.46.440/- anci Rs.36,53,1tlft/- tbr thc AsscssnrcnI Ycars 1999-2000"?.0i)0-01 arrcl 200I-02. rcspcctivcl),. [ll'I",ir; ]ittctllttc <tt'tltc [gross ][rcccip{.s;] I lA lrlos 486l?.011. [.191 ]l?.01 1 & 4921?011l)agc 2 of 26 ( \\'cl'c hclcl ars Laxablc at thc ller1 raLc of 209/o r,r,ithouI clccluction <tl'c.x[]cl'lscs. 3. 'l'lic asscsscc \\/ils LritsLi,iccss[rl i' thc I'irst appcal. 4. IJon'ct'cr, thc Itrcotrtc ['J'ztx ]Appcllalc ['J'ribunal ](Llrc tr-i[Lrtral. lilrshorL). b)' thcir conlmon rlrclcr lilr thc thrcc asscssnlcrll vcars clatccl lgrl'Marcli. 2010 has acccptccl thc stancJ ancl stancc ol' t6c lsscsscc.l)itritgra;'rlt [zl.3 ]<li thc saicl tirclcr. u'lrich is [hc rryrcra1iric pgrti6rr apclgivr:s thc ratio of thc linclings rccorclccl by thc trjbtural, lor thr: salic ol'curr r.'r:rr i cl rcc is rcpr<lclucccl lrcklvt, : - I lA lrlos 486l?.011. [.191 ]l?.01 1 & 4921?011l)agc 2 of 26 ( \\'cl'c hclcl ars Laxablc at thc ller1 raLc of 209/o r,r,ithouI clccluction <tl'c.x[]cl'lscs. 3. 'l'lic asscsscc \\/ils LritsLi,iccss[rl i' thc I'irst appcal. 4. IJon'ct'cr, thc Itrcotrtc ['J'ztx ]Appcllalc ['J'ribunal ](Llrc tr-i[Lrtral. lilrshorL). b)' thcir conlmon rlrclcr lilr thc thrcc asscssnlcrll vcars clatccl lgrl'Marcli. 2010 has acccptccl thc stancJ ancl stancc ol' t6c lsscsscc.l)itritgra;'rlt [zl.3 ]<li thc saicl tirclcr. u'lrich is [hc rryrcra1iric pgrti6rr apclgivr:s thc ratio of thc linclings rccorclccl by thc trjbtural, lor thr: salic ol'curr r.'r:rr i cl rcc is rcpr<lclucccl lrcklvt, : - "zl.li ['r'lrLrs, ]apprying trrcsc prcl'isions to trrc rerct.s r.. trrcprcscrrt c;asc. it is noticcd that tirc ilsr;csscc lravirrgaclnriil.cd thar it lras [pL: ]in I'clia ancl thc inconrc of'thcns.scssec is-taxablc in Inclia and thc a.sscsscc havi'g oprcclt'bc taxcd as pcr trrc proi,isions ol'thc I)'r'An it is Articlc7 of tlrc r)'r'An rvrrich apprics r.o tlrc asscsscc's casc i'sol?lr as thc asscsscc has a l)ll in l'clia. 'r'hus. as pcr Ar.ticrc7(2) ol'thc D'r'AA. trrc pri t.,r'thc asscs.scc ,r,u,ir,r rravc r..lrc u'car.ccl a.s a r'holry increpcncrc't cntcrpr.i.sc, rvrrich isliaLrlc to bc t;rxccl i' Irrclia. [' ]orrcc it is hclcl Ihat tlrcasscsscc is riabrc to bc taxccr as pcr Articlc 7 o| trrcD'l'z\A, sub-crerusc (:r) oI Articrc 7 or-thc r)'r'nn r'rrrrl' c<ltltc ittto plal' att,.l clccluction in ztccorclt'rlrcc rvil.lr thc'srb.icct to tho la*, rci;rtirrg to thc tax in lnclia u,<lulcl appl1,.sirrcc it i.s hcld thatArticlc 7 or-r.hc,,\cr. r.r,oulcl no nrorc bcapplicablc as Arr.icrc 7(?) o| thc r)'r'AA spccirics rhar trrcl)li of'1hc:,ssc.ssc is to lrc trcatcd a., a,r,1,<rlr), inclclrcurlcnr.. ctttct'1lt'isc alrcl it is thc protits ol'such lrl: iir lrrclia n,hiclra.c to bc taxocr. sirrcc Articrc 7 <t| thc J)'r'AA i.s appricci,appl1, scclion irr so [zrzlr) ]a'd far a.s scctio' thcy il54 rclatc 'f to thc fbr.ciglr Act also ctlrnpatrics.rvill nol*'lrercas crausc 12) of Ar{.icrc 7 .r- trrc r>i'urzr spcciricsthat thc [plj ]irr lrrclia is 1o bc trcatccl as il n,holl1,indcpcndcnt cntcrprisc in lnclia. I' such a .situzrtio'. sub_clarsc (-i) ol Ar{.ic.rc 7 of r)'tAA r'clurd co'rc irrto pra1,n.cl r.hc i'corlc ol'thc asscsscc rvoulcl havc t<l [rc as.scsscclby applying thc rcgurar p'ovi-siorrs oI tr," rrrcriarr 'r.axLaws. Irr short. trrc asscsscc rrcrcirr r''urcr bc riabrc t' bcassc.sscd as an cntitl, Scparatcrv asscssabrc irr its.*,n :I :I irrdcpcrrclcnt cerpacitl, in inclia ancl tlrc ltrovisiorrs ol'Scctions 2tl to 43C ol'thc AcL u,oulcl bc availablc to thcScctions 2tl to 43C ol'thc AcL u,oulcl bc availablc to thcasscsscc. What is to br: irndcr.slood hcrc i.s thal it is tlrcbusincss ;lro[its r,vhich arc chargcatrlc unclcr Ar.ticlc 7 ol'thc I)'l'AA. So as to what thc lrirsincss ol'thc asscsscc is.is also to bc cc'rrsiclcrccl. ['i'hc ]busitrcss trl'thc asscsscc is. [zls ][pcr ][Lhc ][contracts ][cntclcd into ][[r1, ][tlrc ][asscsscc ][r,r,il,h ][tlrc]various pcrsolls. ['l'lrc ]contlzrcts arc inclusivc conlr.acLs of'techuical traturc. as zrlso drilling, cLc.. as cxtractccl carlicr.busincss ;lro[its r,vhich arc chargcatrlc unclcr Ar.ticlc 7 ol'thc I)'l'AA. So as to what thc lrirsincss ol'thc asscsscc is.is also to bc cc'rrsiclcrccl. ['i'hc ]busitrcss trl'thc asscsscc is. [zls ][pcr ][Lhc ][contracts ][cntclcd into ][[r1, ][tlrc ][asscsscc ][r,r,il,h ][tlrc]various pcrsolls. ['l'lrc ]contlzrcts arc inclusivc conlr.acLs of'techuical traturc. as zrlso drilling, cLc.. as cxtractccl carlicr.'l'lrus, it catll'lot lrc saicl that hc activitics of thc as.scsscc ispurclv tcclrrrical scrvicc. ['l'hc ]drilling ancl cxcavatiorr arrdtcstiug carrnot bc clc-lilrl<ccl lioru thc cvaluation arrcl lhctcstiug carrnot bc clc-lilrl<ccl lioru thc cvaluation arrcl lhcf'casibilitl, stuclics. lt is a cousoliclatcd erctivit),. 'l'lrus, thcactivitics of thc assessco cannol bc hclcl kr lirll l,itlrirrArticlc l2 ol'thc I)'l'AA erlso. In thcsc circLrnrsturr.:cs, [hcilsscsscc having optcd t.o bc taxcd unclcr. Llrc I)'l'z\A. l.lriso;ltion carrrrrclt bc clcniecl to thc ilssc.sscc arrcl as ncr srrlr-o;ltion carrrrrclt bc clcniecl to thc ilssc.sscc arrcl as ncr srrlr-clauscs (2) ancl (3) oi Articlc 7. 'l'hc asscsscc is to lrctaxccl as au indcpcriclcrrL cntcrprisc iri lucl ia.arril tlrctaxccl as au indcpcriclcrrL cntcrprisc iri lucl ia.arril tlrcrcgLrlal provisions clf thc Ilrclian tu.t Lnu's rvoulcl ap1t11. tothc cx<;lusion o['Sccrion 9(l)(vii), scction ,lzll) arrd I l5Athc cx<;lusion o['Sccrion 9(l)(vii), scction ,lzll) arrd I l5Ar>l- Lhe Act. ln thcsc circunrstarrccs, thc or.clcrs ol' thclor'cr autlroritics ar.c r.evcrsccl aucl thc appcals'l'tlrclor'cr autlroritics ar.c r.evcrsccl aucl thc appcals'l'tlrczlssosscc alc al lorvec!." 5.A clisscctiou of- thc saicl paragraph shons that thc tribLrrral hashclcl as ltlllor,r,s.:-hclcl as ltlllor,r,s.:- (i) I'hc asscsscc hacl apcrillallcrlt esLablishnlcnt (l)l;. lbr slrgr-t) in !1clia.'l'his is.r vcr)/ important lircL and is not clis;rr-rtccl or clcniccl by thc'I{cvcnuc of thc asscsscc. (ii) Asscsscc had optcc{ to bc raxccl unclcr |)'J'AA ancl in tcrnrs ol'Articlc 7(2). Lhc }ij in ltrclia u,tts to bc trcatccl irs an inclcpcnclcrirciltcrpf isc, tlrat r,vas liablc to be taxecl jn Inclia. (iii) oncc inc<lmc is hclcl to bc taxatrrc unclcr Arr.iclc 7.' r.hcrrparagraph 3 oJ' thc saicl Articlc has to bc givcn lull cfl'cct to anclztccorciiligly (1) dcclLrctiou in accorclancc wilh and sr-rbicct t<l thc lar,r,llA Nos 48612.011.491t2011 & 49212011Page 4 ol 26ol 2626 Page 4 ol 26ol 2626 i. rclzrtirrg to tax in lnclia,uvill appl),: [(2) ]Scctjon [9(l)(vii) ][ol'tlic ][AcL is ][rrot]applicablc; (3) Scction 44J) ancl Scction I J5A [r,r'ill also uot ][a;-rpl1', ][but]provisions o[ Scction 28 to 4.iC of [lJrc ]Act [arc ][altplicablc ][ancl ][thu]asscsscc is cntit-lccl tcl dccinct cxpcuscs bclorc cotnputitlg [l.axablc]irrcornc. (iv) ['l'hc ]cotltracts undcr whiclr paLl'lr:cnts havc bcclr tt'titcic u'crcinclusirrc contracts ol'tcohnical [sclvic;cs aucl ][clrilling ][ztucl ][cxcavatlitltl]ctc. zurcl. tlrcrc[brc. thc activilir:s ol'thc [asl;csscc \^,crc ][not ][t)l'1rurcll']lcr:hlrical trerturc. ['I'hc ]ac[ivitics [ol" ][thc ][asscsscc ][\,vcrc ][corrsoliclar{.';cl]activitics o['llr-rltifal-ious clraractcl [and irrclucic ][clrilling, ][cxcilatiott ][ancl]tcsLirrg. (v) lir vicu' t)f "cotrrposite actirti[ics" /r.rLiclc [12 ]<tl'l)'l'AA [is ][rrot]ruplrlicablc. (iv) ['l'hc ]cotltracts undcr whiclr paLl'lr:cnts havc bcclr tt'titcic u'crcinclusirrc contracts ol'tcohnical [sclvic;cs aucl ][clrilling ][ztucl ][cxcavatlitltl]ctc. zurcl. tlrcrc[brc. thc activilir:s ol'thc [asl;csscc \^,crc ][not ][t)l'1rurcll']lcr:hlrical trerturc. ['I'hc ]ac[ivitics [ol" ][thc ][asscsscc ][\,vcrc ][corrsoliclar{.';cl]activitics o['llr-rltifal-ious clraractcl [and irrclucic ][clrilling, ][cxcilatiott ][ancl]tcsLirrg. (v) lir vicu' t)f "cotrrposite actirti[ics" /r.rLiclc [12 ]<tl'l)'l'AA [is ][rrot]ruplrlicablc. 6. llr orclcr to apprcciatc [lhc controvcrsy, ][it ][is ][itu;roltarrL ][ttl ][cxatlilrc]arrcl inlcrprct Articlcs 7 ancl [12 ]ol' [thc ]l)'l'AA [ancl ][Scctiorrs ][90.9(lXvii)] tnr! 4zll) oIthc i\ct. ['J.'hcsc ][ltartc ][bcctt ][rcproclurtccl ][lrclou':] "AGl{I,lItMI,lNT ItIt'l'WEItN ]'Iilt GOVIII{NMIIN'I [O}t]'I'lII,l ltDl'UBLIC Oli INI)Iz\ ANI) TIItrt GOVIiI{i{M}tl\1'OF AriS't'llALIA li0ll ]'ltlt AVOIDANCII [()l{' ][X)O|'lBLnt]'I.AXA'I'ION AND TIrII PIIIDVITINTION Ot" F'ISCALEV^SION WITII lutst'}nc'['[()'t'Axlis [()N ][lNCoMIt] AI'ticlc 7--t] l..JSlN I iSS l'l{Oirt'l'S t. l) ['l'hc ][profits ][o['ettr ][otrlcrpriso ][of ][ottc ol' ][tlrc ][(".ontractirrg ][Statc:;]slrall bc taxablc ottllr [i11 ]that Statc [rttrlcss ][thc ][cttLcr;lrisc ][carrics ][rltr][rusipcss in Llrc otlrcr [(jontlactirrg ][Stzrtc ][Lltrouglt ][zt ]ltcrttritnctttcstablishnrcnt sil.uatccl thctcin. [If' ][thc ][cntcrprisc ][cat'ric.s oll] l)age 5 o[ 26 f f A Nos. 48612011. 49112011 & 49212011 [rusincss [as ][erlorcsaici, ][tlrc ][profi1s ][o{'thc ][ctll"orpt'isc ][ttray bc ][taxccl]irr thc othcr Star{.c [btrl' ][onll' ][5e ][ttttrch ][tll'thcnr ][as ][is ][attritrtrtablc lo:]1a) [tlraL ][pcrnlancnt cstablislttlrcnt; or]it i [salcs ][rvithin ][thaL ][olhcr ][Contracting ][Statc ][rr['. ][goocls ]. [or]nrclchanclisc [oIthc ][Sallle ][ol'a ][sit]liltrr ][ltirrcl ][as ][tlrosc sold.,ot'clthct']busincss activitics [of thc ][sal'l'lc ][ol'a ][sirlrilar ][l<incl ][as ][thosc ][carriccl]o rr. llt rou [glt ][llrett ][pcrttr ][attcnt ][cstab ] [islr ][mcnt'] (2.) Sr-rlr.lcct to thc [provisions <ll' ]llaragraph [(:i ][)' ][rr'ltcrc ][Att]",ri"rprir" tlrc clthcr corrtracting [of.o'c ][of tlic ][statc ][Contractirrg ][throughit ][Statc ][pct'ttrancnt cstablishttrclrl][carrics ][ou ['rsiucss ][iu]situzrtccl [tlrercin, ][thlrc ][shalt ][irr ][caclr contractirrg ][Statc ][bc]attributcc{ [to ][thal" ][pcrnrancnt cstablishmcrrt ][thc prolits ][tvltich ][it]rilight lrc cxpcctcrj [lo ][uralic ][if ][iL ][u,crc ][a ][clistinct ][i,ttrcl ][scparatc]' c,.,t"rltrisc criSiagccl irr tlrc sall'lc ol' sirrrilar activitics ttnclcr [ltcsalllc or sinrila[ [cottclitiorrs ][arrci ][clcalirrg ][wltol[f ][incicpcnclcrrtll']$itlr thc crrtcr.prisc [ol'rvhiclr ][i1 ][is ri ][pcrnl2lllcl'lt ][cstatrlisltnlcnt ][ot']rvitlr <ltltcr [olltct'pt'iscs ][u'ith ][trylrich ][it ][dcals'] (:f) llr tlrc clctcrtttittalitltt [ol' ][thc ][p'ol:1s,l' ][tr ][pct'ttlalictrt]csiablishmcnt, [thcrc shall ][bc ][allorvccl ][as ][clccluctiorrs, ][irr]accordancc [tvil.lt ][ancl ][sLrbjcct ][to ][thc ][lirlitations o['tlrc ][latv rclating]to tax irr ttrc [CorrtracLing ][Statc ][in ][r'vhiclr ][thc ][pcf ][lllallcl'lL]cstablishulcut [is ][situatcci. c;ipctrscs ][ol'tlrc ][cntcrprisc. ][bcing]c\pcl.lscs rvlrich [arc ][iucurrccl ][ftlr ][thc ][pLlrposcs ][ot'thc ][br-r-sincss ][ol']tlrc pcrnrnuent [cstablishmcnt (incltrcling ][cxcctttivc ][atltl ].s.ctrcr:tlaclntiuistrativc [cxpcrrscs scl ][itlourrccl), rvlrctlrcr ][ittct'tt'rccl ][in ][thc](.orrtt.actirrgStatcirrwlriclrlltcpcrtnatrcntcstabIisltttrcntissittratccl clr [clscu'ltclc.] (rl) No prolits shall bc [attribLrtccl ][to ][a ][pct'l'llzuicnt ][cstatrlisltttrcnl]',.,, lrri Ol- thc [nrcrc ]ltttrchasc [[ry ][tlraL.'crll'lallc11[ cstablishrttcrtL]'.c.," ol' goocls [ot' ttrcl'cltatrdisc ][lbr tltc ][ctrtcrprtsc'] (rl) No prolits shall bc [attribLrtccl ][to ][a ][pct'l'llzuicnt ][cstatrlisltttrcnl]',.,, lrri Ol- thc [nrcrc ]ltttrchasc [[ry ][tlraL.'crll'lallc11[ cstablishrttcrtL]'.c.," ol' goocls [ot' ttrcl'cltatrdisc ][lbr tltc ][ctrtcrprtsc'] (5)Whcrcllrccclrlcctatrro.tttrtg|ipro|itsirttri[rLrl"a[rlctoapo',','tn,'t",'tt cstablishmcnt [is ][inoapablc ][of'clctornritrat'ion ][b1' tltc]iaxation authority [01' ][otlc ][o[ ][thc ][corrtracting statcs ][o| ][thc]ascortairring [thcrcof ][by ][tliat ][authoritl' ][prcscnts ][cx.ccptiotral]clif'licLrlties, [notSirrg ][in tiris ][Artiolc ][s6all ][all'cct lhc ][applicatiort ][ol']nny lo," o{' [fhat ][Slafc ][rclatiirg ][to thc ][clctcrttritratiotr ][of ][tltc ][tax]tiafitity ol.a [pcrson, ][proviclccl ][llrat ][llrc ][larv ][slrall bc allpliccl. ][so]irtlar as thc i'fbrnratiorr [availablc ][to ][t6at ][atrthoritl' ]'cr.tits' accortlatrcc [rvitlr thc prirrcilllcs ][of'this ][Articlc'] ((l)|.or.tlrcpurlloscso|.thcllrcccdingparagraplrsol.l"lrisAr.l.iclc.llic pr.olits [to ][bc attributccl ][to tltc ][pcrttrancnl' ][cstatrlislrtTctrt ][sltall ][']bc clctcrmiuccl [b5' ][tltc ][satrc ][nrcthclcl ][ycar ][[r1' ][ycitr ][ttnlcss ][tltolc ][is]goocl ancl sLrf-l rcicnt [rcasoll ][to thc contrary'] (7) Whcrc llrolits [inc|tlrJc ][itcrls ][<r|- ][inconre ][tl,lriclr ][ar.c ][clca|t ][u,illr ]i"fr-r*i"iV ['i't ][otlrcr- ][Articlcs ][ol' ][this ][Agrccnrcnt' ][thcn ]1ltt:;;l;;l.i",it [o[' ][those ][ArLicles ][shall ][not ][bc ][allbctccl ][[r1' ][tltc]provisitltts oI [this ] [rticlc']i"fr-r*i"iV ['i't ][otlrcr- ][Articlcs ][ol' ][this ][Agrccnrcnt' ][thcn ]1ltt:;;l;;l.i",it [o[' ][those ][ArLicles ][shall ][not ][bc ][allbctccl ][[r1' ][tltc]provisitltts oI [this ] [rticlc'] (ti)Not|ringirr[lrisArticlcslrallaf.fccttlrcopcrationtll.atrl.latl,of a [(lorttracting Statc rciating ][to ][tax ][inrl-''osocl ][orr.prolits ][liont]ittsttt.atrocwlttrrron-resictcntsprcviclcclllraIif'tlrcrclcr,antlztrvittlirlcc in [cithcr ][conrr.u"ti,.,g ][siatc ][at ][Lho ][rlatc ][ol'sigrraturc ][ol'tlris]A1;ra"nl"nt [is ][vat'iccl ][(othcrlvisc ][than ][in-miror ][rcspoctri ][so ][as ][l'lot]to a[{bct [its ][gcnc,ai ][charactcr) ][tlrc ][Corrt|actirrg sl.atcs ][shall]r','ith [-cach ][othcr ][u'ith ][tt ][t'icn' ][ttl ][agt'ccine ][to ][tllly]"o'r.sutt arr]cndurcut [of ][tlris ][paraglaph ][that ][rtray' ][bc approp|ial"c'] (9) wltetc: g statcs is [bcrrcliciaill,]iaj [a ][rcsiclcnt ][of ][onc ][ol- ][Lltc ][(loritractttr]cntirlccl. [ivhcther ][,fit""1fy ][or ][thioLrglr ][on" ][ot ][tt'rorc ][intcrptlsctl]t*rst cstatcs, ,o o tt't"'" cstatcs, ,o o tt't"'" ,o o tt't"'" o tt't"'" tt't"'" [[tlf ][thc ][busincss ][protits ][o[' an ][ctll"ct'llrisc]][[thc ][busincss ][protits ][o[' an ][ctll"ct'llrisc]][[busincss ][protits ][o[' an ][ctll"ct'llrisc]][[protits ][o[' an ][ctll"ct'llrisc]][[o[' an ][ctll"ct'llrisc]][[ctll"ct'llrisc]]carriocl on [in ][tlrc ][othcr ][contracti'g ][slatc by thc ][trLrstcc ][ol-a,trrrsl]cstatc olhcr [than ][a ][trust,cstatc ][luhLh ][is ][t|catcd ][irr tlrtrt ][otltcr ][statc]ils a c()l'l'lpilll)'for [tax;lLrrposcs; ][ancl ]. .,;..,. ..,.-.,1,rf h\ irr Icltttiott to [that ][enLcrpflsc' ][thlt ][' ][trltstcc ][s'or"tlcl' ][ll'l]:'l'",,i:i^j;",-;;; [;;. ][p,:i',"ipi"' ][it-Artictc ][5. ][lravc ][a ][r)c,''ra.c'rr]csittf',lishnrcrrt [in that other Contractirig ][Statc']thc ctttcrprisc [carrictJ ][on ][['ry ][thc ][tl'l'lstec ][shalt ][bc ][clcctrrccl ][lrt ][l-rc ][zt]trusirrcss [[carriccl ][o,, ][i,'r ][that ][tttlrr:r ][coutlacting ]][[o,, ][i,'r ][that ][tttlrr:r ][coutlacting ]][[i,'r ][that ][tttlrr:r ][coutlacting ]][[that ][tttlrr:r ][coutlacting ]][[tttlrr:r ][coutlacting ]][[coutlacting ]][Statc ][by ][tlrat]rcsi4crrt [[tlr'ough ]][[er ][pcflt'lallcllf establishr'ent ]][[pcflt'lallcllf establishr'ent ]][[sit''iatcct ]][[thct'citr ]][atrtl ]sharc [of ][bufirrcss ][prolrts ][shall ][bc ][attlitrutccl ][ttr ][tltal'][hat gtcrtuzrtrcltI [cstabI ][ishmcnt'] ' t*rst cstatcs, ,o o tt't"'" cstatcs, ,o o tt't"'" ,o o tt't"'" o tt't"'" tt't"'" [[tlf ][thc ][busincss ][protits ][o[' an ][ctll"ct'llrisc]][[thc ][busincss ][protits ][o[' an ][ctll"ct'llrisc]][[busincss ][protits ][o[' an ][ctll"ct'llrisc]][[protits ][o[' an ][ctll"ct'llrisc]][[o[' an ][ctll"ct'llrisc]][[ctll"ct'llrisc]] trusirrcss [[carriccl ][o,, ][i,'r ][that ][tttlrr:r ][coutlacting ]][[o,, ][i,'r ][that ][tttlrr:r ][coutlacting ]][[i,'r ][that ][tttlrr:r ][coutlacting ]][[that ][tttlrr:r ][coutlacting ]][[tttlrr:r ][coutlacting ]][[coutlacting ]]rcsi4crrt [[tlr'ough ]][[er ][pcflt'lallcllf establishr'ent ]][[pcflt'lallcllf establishr'ent ]][[sit''iatcct ]][[thct'citr ]][atrtl ] Articlc l2---lloY [A L' ][l'l ][llS] (l) l{oyaltics [arising ][in.oirc ]"l lJt" [Corrtiactirrg Statcs' ][lrcirrgl]royaltics [to ][rvhich ][rircsiclont ][,:f ][thc othcr ][cclrrl.r'actirrg ][statc ][is]fr"it"fi.inf [fy ][cntitlccl' ][nray ][lre ][taxccl ][in that ][otlrcl ][SLatc'] (2) Srrch loyaltics [rnay ][also ][bc ][taxccl ][in thc Contractitig ][Statc ][itt]rvhicrr trrc),arisc. [anJ'u"c,rrcring to ][rhc ][raw ][oIthat ][Statc. ][but ][tlrc]tax stl [chalgccl ][shall ][rrot' ][cxc;cccl:] (a) in thc [case ol':] ili,lntul,rri"t [rclcrrccl ][to ][itr strb-paragraph ][(3Xb);](ii)pal,nrcntsot.creclits|olserviccsrcl-cr.r.cclttlinsulr-paraglraph(:i)Gl). sr-rtrjcct [r',i"1'l'-i'u':nsraphs ][(3)(h) ][to ][(l)' ][thtt ][at'c ][ancillarl']a'ci sutlsicliary [t. ][tlrc ][application ][or.,',iuyn'r"t'rt ][ol'cqLripnrcnI ][lirr]wlriclr [pa)/ulcnts ][o,."r"dit, ][arc ][ntaclc ][unrlcr ][sub-pat'ttgt'aplr ][(3xb):] l'J,,i [,"r"'t"'cs ][rclct'rcd ][to ][in ][strtr-p"tt',i':l]ll-.,(])(l) that ][rclatc ][to]cclr"riptlctrt [tnentionccl ][in ][sLrb-;raraglaph ][(3)(b):]iii fl,-."n, [of ][the g'nss ][un''ou'rt ][ol-thc loyaltics;; ][arrd] (b) in thc [cttsc ][of ][othcr royalties:] l)age 7 [of26] I lA Nos. [4tJ6t?O11, ][49112'011 ][& ][49?'t2011] 'i (i) cluring tlre fir'st fivc years of incclrnc for rvlrich thisz\ grccrlcul has cf'l-cct:(;\) rvhcrc tltc pai,cf is thc [(itx,ct'trtncnt ]or a llolitical strb-clivi:;iorr ol'tlrat Statc ot'a public sector collrpulll\/: l5 1;cl ct:lrt. ol'tltc gr<lss atrroutrt crl- thc ro),altics: and (li) iu all othcr cascs: 20 pcr ccnt. o{'thc [gross ]an'lotint ol'thct't:1,2ltics'2111d (ii) during all sLrbscrlLrcnI ycars of incottrc: l5 pr;r ccrtt. ol'lhcgross eurlolrrrt ol' l.lrc royaltics. (3)'l'lrc [cft.n " r'o)'altic,: " irr this arl.icle n]celus l)ar)/nlcnts or'crcclits. rvlrctlrcr pcriodical or nr.rt. aucl. lr<lrvcvcr clcsclitrccl or'courputccl, to Llrc cxtcut to whiclr thcl,arc mndc as consiclcratiouklr:crcclits. rvlrctlrcr pcriodical or nr.rt. aucl. lr<lrvcvcr clcsclitrccl or'courputccl, to Llrc cxtcut to whiclr thcl,arc mndc as consiclcratiouklr: (a) tlrc usc ol, or thc right to usc. arry copl'right, pntcnt, clcsigrr orrntlclcl, plarr, sccrcl fbrnrula of pfoccss, Lraclc nrat'l<, or othcr lil<cpropcl'L); or riglrt; (b) thc usc o[, or tlrc right to usc. alty inclLrstrial. conlncrcial rlrscicnti llc cquiprncnt; (c) tlrc supply ol'scicntifio, tcchnical. irrdustrial ot' cotlrrtcrciall<rron,lcclgc or i rr lilrmation; (cl) thc rcnclcriug o[' eur1, l.cchuical or corrsultancy scrviccs(inclLrcling thosc ol' tcclrrrical or" otlrcr' 1;crsorrucl) rr'lricli urcitttcillarl, arrcl sLrt:siclizll'y 1.'t thc applicatiorr ot' cttiol,tttcpt ol' atty'such propcrl), or righL as is nrcntioncd in srb-palagrallh [(a), ]an1,such cquiprncnt as is nrentionccl in sub-paragraplt (ll) <tr attysuclr l<norvlcdgc or rntilrrnatiorr ils is nrcntiouccl ilr su[r-itttcillarl, arrcl sLrt:siclizll'y 1.'t thc applicatiorr ot' cttiol,tttcpt ol' atty'such propcrl), or righL as is nrcntioncd in srb-palagrallh [(a), ]an1,such cquiprncnt as is nrentionccl in sub-paragraplt (ll) <tr attysuclr l<norvlcdgc or rntilrrnatiorr ils is nrcntiouccl ilr su[r-paragraph (c); (c) thc usc ol or thc righl. [o r,rsc: (i) nrotion picturc filtnsl (ii) lilnrs or viclco tapcs lor usc in conncction rvith tclcvision: or' (c) thc usc ol or thc righl. [o r,rsc: (i) nrotion picturc filtnsl (ii) lilnrs or viclco tapcs lor usc in conncction rvith tclcvision: or' (iii) tapcs lbr usc in conncotion n,ith raclio bloacloasting: (t) Lotal or partial fortrcarancb in lcspcct of'thc usc or suppll, ef'iu'ry pfol)crt), or right rcl-crrecl t0 ilt sulr-paiagraplts (a) to (c); 0r(g) thc rcndcrirrg ol'arry scrviccs,(inclucling thosc of'tcclrfiical orol.hor pcrsonncl) r,l,hiclt trtal<c availablc tcchnical linou,lcclgc,c.tpcricncc, sltill, lcnorv-hou, or proccst;cs or c()r.lsist ol' thcclcvcloprrrcnt and translbr of a tochnical plan or clcsign;trLrt Llrat tcrnr clocs not incluclc [)ayt'l'lcnts or clcclits rclatins Loscrviccs rrrcutiouccl in sutr-trraragraphs (cl) ancl (g)'that alc rraclc:(h) for scrviccs that afc ancillarv arncl sLrbsicliary. arrclirrc.rLricabll, and csscnLizrlll' 1i111,.,1, to a .salc ol'llropc't1':(i) lbr scrviccs that alc zurcillary arrd subsiclior'1, 1., thc rcrrLal ol'sltips. aircrall, coutaincls or othcl cqui;lnrcnt Lrsccl in corrucctiorr u,ith Lhc opcrartion of ships or erircraft in intcrnatitlnal tral'llcl fi) [lbr ][tcaclring in or lry ][an ][cducational ][institution;] (l() [ur scrviccs for the personerl usc ol- thc incliviclual ofinclivicluals rrral<ing thc paynrcnts er crcclits: or . c1.o (l) tt; lrrr cltrploycc of'thc [pcr'soll ][tTal<itrg ][tltc ][pzr-vtucrtts ][or ][crcclits],r,: ,,, u,,1, [inciiviclual ][or ][fi'r ][ol- ][irrclividtrzrls ][(othcr' ][lltan ][at]lor [prot-cssi'ual scrviccs ][as clol-tnccl ][irr ][nrl"iclc ][lzl-]dorn'auyi I (,1) ['l'lrc ]prclvisiotts [ol'paragraphs ][(l) ][ancl ][(2) sltall ][nrrt ][apllly ][il-]it.'. p"rr,in bcnclicially'cnt'rllcd [to ][tlc ][royaltics, ][trcirrg a rcsidcnt]0l'.,uc of'thc [Contraciing ][Statcs, ][carries on ][trttsitrcss ][itr thc othcr](.trntr.acting Statc, iu u,lrich thc [royalties arisc, th|ough ][eI]l.,crnrancnt"ostatrlishl.l1cnt [sitrratcd ][tltereilt. ][or ][pcrfortns ][in ][.l'hat]othcr Statc [ittclcpcnclcut ][pcrsonal scrvices ][ll'onr ][a ][llxcd ][basc]sitLraLccl tlrcrcirt. [alrcl ][tltc propcrty, ][right ][or scrviccs ][itl ][rcspcct ][o{']$,hich tlrc loyaltics [or. ]lrrii.l [or ][cie<Jitccl ][are ][cl'fcctivr:l)' ][cotrtrcctccl]rr,ith such [pcnnanct'll- ][cstablishmcnt ][or ][f ][txccl basc. Itr suclr ][a ][casc']tlrc llrovisio's [o['Ar.ticle ][7 ][or ][Articlc ][14, as ][thc ][cemc ][tlrav ][[rc']slrallapply. (5) ttol'aitics shall bc [clccnrocl ][to ][arisc ][ilr ][a ][(lont|acting ][Stato],,.l,cn tirc paycr [is ][tSat Statc ][itsclf or ][a ][politioal stlb-clivisio' ][or]I.cal ilUthor.ii,v ot'that [SLatc ][oI ][a pc'Sol'l ][u'lro ][is ][a ][rcsicicnt ][o['that]Statc lilr tlrc [pttrposcs ][ol' its ][tax' ][\\r'hcrc, ][hotvcl'of' ][llrc ][pcrson]1'rr,in.u [tlrc xlyaltics. ][*,hctlrcr thc pcrstltt is a ][rcsiclcltt ][ol-otrc ][rll']it.,. [('i.,,.,tro"ting ][Statcs ][or ]'oL, [ltas ][itr ][tllrc ][ol'L6c ][Cont'actirrg]statcs of oLrtsiclc [both ][corrtracting Statcs ][tl ][[)cf ][l'l1ell'lcl'lt]cstablishurcnt or [[lxctl ][basc ][in ][conncctiotr ][rvitlt ][rvhiclr ][thc]liatrilitl' to [pay ][tlrc ][royalties ][wers ][incurrccl, ][aucl ][thc ][ro1'alLics ][arc]6rlr.n,: lry tlrc [pcrura'tnt ][establishmcnt ][or ][llxccl ][lrasc. ][t6cn ][t5c]rtlr,altic"shallbcc{cctrrccltoariscirrtlrcstatcirrrvlriclrt|tcpct'nratttctrl cstatrlisltrlcrrt [or llxcd ][lrasc is ][siltrat'ccl'] (6) Wlrcrc, otving to [a ][spccial rolationship ][trcl'tvcctr ][thc ][paycr]aml thc [pcfsol.l ][tlcrrclicialll, ][curitlccl ][to tlrc ][royalLics. ][or ][bcttvcclt]lttltlr ol'thcru [aucl ][soluc ][otltcr ][pefs0l], thc ][at.lrouttt ][ol-1hc royarltics]llaitlorcrcclitct|.lravirrgr.cgardto'ur4rattlrcyarcllaidorcrcclitcclthc [amoLrrrt ][ivtrich nriglrt havc bccn ][cxpcctcd ][to]li,,:, "^c"ccls Itavc bcctr agrccd [r'tllott ][b1' ][thc paycr ][ancl ][thc ][pcl'sol'l so ][cntitlcd ][in]thc abscncc [rll'such ][rclationship. ][tlrc ][provisiorrs ][ol'tltis ][ar'l.it:lc-]shall a1:ply [orrll' [o ][the ][last ][menrionccl ][atrtottltt' ][ln ][t'hat ][casc' tltc]cxccss lrnit [nt' ][thc ][amount ][of ][thc ][inLcrcst paicl ][or ][crcclitccl's6all]rcurititr taxatrlc [irccording ][to ][[au" ][rclatirrg ][to ][[ttx' ][tll- ]-caclt(.().tracLirlg Statc, trut s,.it1..t to [t6c otlrcr ][provisiorrs ]'l- tlrisAgrccttrcttl". Incourc I'nx Act" [19(11] Scction 9-- lncomc [decntcd ][to ][accruc ][or ][arisc ][in ][India'] (l)'t'trc l<lllorving irrcorncs [shall bc ][dcclrtccl ][to ][accrtlc ][or ][arisc ][irt]InrliaXXX X(vii)ilrcomcb5'rvar'ofltcslortcchrricalscrt'iccspal'.ablc[)) [__] I ln Nos [4t1612O11, ][49ll?.O11 ][& ][49212011] o.F (a) thc [(iovcrurlrcu[ ]; or(b) a pcrson rvlro is er rcsiclcrrt, cxccltt u,lrcr.c tlrc lbcs arcpa1';n[r1" in rcspccl. of'scrviccs utilisccl in er busincss or prnlcssiorrcarriccl on [r1, suclr pcrson outside lnc'lia or lor.thc purposcs ol'rnal<ing or carning urn' iricr)rnc ll'our anv souroc outsiclc Inclia;ol' (c) a lterson rvho is a tron-rcsidcnt. rr,hcrc thc l-ccs ar.cpayat:lc in respcct rJI'scrvises utilisccl irr er busincss or prol'cssiorrcalriccl orr [r1,5ush pcfson irr India or lor the purposcs ol'rral<inr3rlr carning any incorlc fi.olt any sourcc irr lnclia: l'rrrviclccl that nothine containccl in this crausc shall applv inrclaLiou tt) zrrr1, incolrre by vvi11, of I'cc.s lbr tcchlical scrviccsl)ayi1111" [in ][pursuancr: ]r)larr a!]r'eot'l'lcr'rt rnrc.|c bclillc tlrc l:;I cla\,Apiil. 1976, arrcl approvccl b1, 11'" Ccntr.al (jovcr.rrrlcut.rclaLiou tt) zrrr1, incolrre by vvi11, of I'cc.s lbr tcchlical scrviccsl)ayi1111" [in ][pursuancr: ]r)larr a!]r'eot'l'lcr'rt rnrc.|c bclillc tlrc l:;I cla\,Apiil. 1976, arrcl approvccl b1, 11'" Ccntr.al (jovcr.rrrlcut. l:xplarration l.--For thc purposcs ol'thc arrtbrcgoing 1)ro'iso. agfccntcnt lraclc olr rlr aftcr thc lst cial'ol'April, lg76.,shall bctbrcgoing 1)ro'iso. agfccntcnt lraclc olr rlr aftcr thc lst cial'ol'April, lg76.,shall bcclccnrccl t<l havc becn nracle bclbrc that clatc il'thc agr.ccrncrrt isrradc irr nccorcJancc rvilh;lroposals altpr.ovccl [r1, lhc ('cntr.al(iovcninrcnt bcfure that clatc.rradc irr nccorcJancc rvilh;lroposals altpr.ovccl [r1, lhc ('cntr.al(iovcninrcnt bcfure that clatc. l:xpla'ation 2.--l;or r.hc purposcs of this clerusc, "ltcs lirr.tccltnical scrviccs" t'ucAns anlr gOllsidsr.atiotr (ipclLrcling ap;, lulrrp .sun'r considcration) fbr rhc lcuclcring ol' any nrauzr*ecrial.tcch'ical or c<lrrsultancy scrviccs (incrucrirrg tlrc prrviskln of'scrviccs of tcchnical or othcr pcrsonncl) but clocs uot irrcluclccon.sidcratiotr l'br any consl.r-uction, asscnrbll,. rliliilrg or lil<cprojcct urrclcrtal<crr [r1, 1h" rcccpicnt <lr consiclcr-atiorr u,hichtl'oulcl lrc irrcornc of- thc rccipicnt chargcablc Lrrrclcr thc lrcacl"Sa lat'ics". licclion 44D-- spccial provisioris tirr conrputing incomc byrr,:r\' ol' royaltics, ctc., iu thc casc ol' lrlrcign conrpanics.__lrlotrvil.hstalrdilrg an1,111ing Lo thc cdrrtrarl, contarincd itr scotiolrs2ll to [zlzl(1, ]in tlrc cnsc ol'an asscsscc. lrcirrg a forcigrr cor.ll)ar]),.-- licclion 44D-- spccial provisioris tirr conrputing incomc byrr,:r\' ol' royaltics, ctc., iu thc casc ol' lrlrcign conrpanics.__lrlotrvil.hstalrdilrg an1,111ing Lo thc cdrrtrarl, contarincd itr scotiolrs2ll to [zlzl(1, ]in tlrc cnsc ol'an asscsscc. lrcirrg a forcigrr cor.ll)ar]),.-- (a) l.hc clcclucl.ious aclrnissible uncjcr trrc sairi scctiorrs i'cotnputing thc inconrc by rva1, ol ro1,al1v or l'ccs tbr tcchriicalscrviccs rccciveci fi'onr Govcrnmr:nt or an rncriarr coirccr.rr inpursuancc ol'arr agrccrncnt rnaclc b), 1;.," for.cign corngrarllr 1vi1l1(iovcnr'rcnt or rvitlr lhc Inclian conccrr bcloic thc fst cta1,ot'April. lc)7(r. shallnot cxocccl irr tlrc aggrcqaLc t\\,crlty pcrccrrt. tll'fltc [gross ]ittuourrt o['such royaltl, rlr lbcs as rccluccd [r1,so rtruclr<ll'thc gross amounL of sLrch t'o1,alt1, as consisLs ol'lunrp .sunrcorrsiclcrati<lrr for thc trarrsl'cr outsicic lnclia oI or. thc irrrpar:tirrgol' inlillnration outsicjc India ilr fcspcct ol, ar.l)/ clata.clocurrcntation, clrar,virrg <.li'spccification r:cratirr.g ttl an), patcnt, invcntir)n. moclcl, clcsigri. sccrct Iounuler or lriocc:ss or traclcnrall( ur sinrilar pr0pcrt\/; (b) no dcclucti<ln iu t'cspcot o[- any cxpcttclitLrrc tlt' alltttvttltccslrall bc allorved undcr tury ol'tlrc said scctions [itr ]cottrptttiltg [Lltc]iuctlnrc [r1, rva.v ol'ruyalt-r, or lbcs lbr tcchrrical sc;'viccs rcccivcclfirrnr [(iovcrrrmcul ]or an Itrdian col'lcern itr llursuatrcc ttl' atragrccrncnt madc by tlrc firleig,n con'lpany rvith Govcltrntcul tttr.r,ith thc Incliarr conocnr alicr the 3 Ist clav o1'Marclr. | 97(r. l')xp lanatiorr.--lror tlic Dr I l)o:ics o f tlr is s;cc Iiorr,-- (a) "[-ccs frlr tcclrniczrl scrvicel;" sharll lravc thc saurc rncauius asin l')xlllanation 2 ttl.:lausc (vii) ol'strb.-scc[ir.ltr (l) ol'scctiott [():] '(b) "[urcign ct)ur1)atry" sltall ltitvc tltc sittttc tttcattitr.tl as itt scctitlntiOl] ; c) "rtt1,al1y" shall havc Llrc sanrc rircarrirrg as irr thc l.,r.plarratiurr 2[u clausc (vi) ol'sLrb-scc:ticltr (l) of sccLiorr !); (cl) r'o1,n[11' reccivc.l llonr Govct'nnrcttt or att lttclian cllncct'tt ittpursuancc <ll au agrccnrcnt nraclc [r), a ,Or"'*u cornparny n,itlr(]ovcrumcul ol l,ith thc Incliau concunr aftcr thc 3lst clal'ol'IVIarch. 1q76. shall lrc c{cenrcd to havc bcctr [rcccivctl ][irt]IVIarch. 1q76. shall lrc c{cenrcd to havc bcctr [rcccivctl ][irt]pufsuanoc of an agrcctrrent tttadc bcfbrc thc lst clatv ol'A1lrii.W76. if such agrccrncut is dccmcd, Ibr thc put'poso.s o[-LhcW76. if such agrccrncut is dccmcd, Ibr thc put'poso.s o[-Lhcproviso to clar.rso (vi) of'sub-scction (l) ol- scctitlu 9. to ltavclrccrr rnerdc bclorc t.hc lst clay of'Arrril. l97ti.lrccrr rnerdc bclorc t.hc lst clay of'Arrril. l97ti. Iicction 90. Agrccnrcnt 'n'ilh torcign coun{rics.--i l) ['l'ltc]Ocntral Covcrnmcnt lnav cn(cr in{o iln nllrccrncnl n'ith thc(Jovcrnmcnt of au5, courttr'5' outsidc hrtlil-- (a,1 lol tlrc glanting oI r'clicl'in icspcct ol' (i) inconrc orr rr,liiclt ltavc hccn paici both ittctltttc-l.atx utttlct'this Act and irrccurrc-l"ax in tltaL countt'y ; or 1ii) [incornc-l.ax r,hargcilblc ][unciel ][tlris ][Act ][aucl urrclcl ][tltc]corrcspondirrg letu, irr lbrcc in Lhat cout'lir')/ to prontoLc rrrulualcctlncltrtic rclations, traclc and irrvcs{-urcrrt, or (b) lol thc avoiclarrcc ol'cloublc taxatiott ol'ittcotttc ttnclct' tltisAct arrcl uuclcl thc corrcsltoncling !aw.in lrlrcc in thal" c()unU')/. or (c) fitr cxolretngc of inlornratiou for tlrc prcrrcrrl.iorr ol'cvasiorr or'avcliclauoc ol- irrcotlc-tax clratrgcablc urrclcr this Act trr urrclcr tlrccolrcsponcling larv in lorcc irr thait cotll'ltr)/, ot' [ittr'cstigittiolr ][crl']ctrscs <ll'such cvztsiott ot' at,oidnrtcc, <lt' I l"A Nos 4BOl2-011. 49112011 & 49?i2011 (d) for recovery of income-tax under this t\ct and under 1hecorresponding law in I'orce in that country, and rnay, by notification in the Official .Gazette, nral<e suchprovisiorts as may be uecessary for implementing the agreernent.provisiorts as may be uecessary for implementing the agreernent. (b) lol thc avoiclarrcc ol'cloublc taxatiott ol'ittcotttc ttnclct' tltisAct arrcl uuclcl thc corrcsltoncling !aw.in lrlrcc in thal" c()unU')/. or (c) fitr cxolretngc of inlornratiou for tlrc prcrrcrrl.iorr ol'cvasiorr or'avcliclauoc ol- irrcotlc-tax clratrgcablc urrclcr this Act trr urrclcr tlrccolrcsponcling larv in lorcc irr thait cotll'ltr)/, ot' [ittr'cstigittiolr ][crl']ctrscs <ll'such cvztsiott ot' at,oidnrtcc, <lt' I l"A Nos 4BOl2-011. 49112011 & 49?i2011 (d) for recovery of income-tax under this t\ct and under 1hecorresponding law in I'orce in that country, and rnay, by notification in the Official .Gazette, nral<e suchprovisiorts as may be uecessary for implementing the agreernent.provisiorts as may be uecessary for implementing the agreernent. (2) Where the Cerrtral Government has entered into alragreenrent with the Govelnment of any country.oLrtside Indiaunclcr sub-section (l) for grarrting relief of tax, or as tlre casemay be, avoidarrce of double taxation, then, in relation to theassessee to wlrom such agreeurent applies, tlte provisions of thisAct shall apply to the extent they are tuore beneficial to tlratassessce. Explanation.-For the lcmoval of doubts, it is [rereby declaredl.hat the charge of tax in respecJ of a foreigrl cornpany at a ratehigher tlrari the rate at which a domestic company is [clrargeable,]slrall rrot be regarded as less favoLrrable [charge ][or ][levy ][ol'tax ][in]respect of sucli foreigrr company, where sttch foleign colttpallyIras not made the prescribed afl'angement for cleclaration andpayment within India, of the dividends (inclLrding dividencls orrpreference shares) payable out ol'its income in India." 7. Section 90(2) mandates that rvhele [the ][Central ][Govet'nment ][has] ontcrcd into a D'[AA under sub-section I for granting relief of tax or,ab the case lnay be, avoidance of double,taxation, [then ][in relatiou ][to ][the]assessee to whom the agreelnent applies, the provisions of the Actapply to the extent they [are filot'e ][beneficial ][to ][the ][assessee. ][In ][othcr]wol'ds, \,vhere an Afticle in a DTAA [and ][a ][provision ][of ][the ][Act ][apply ][to ].the assessee, then the Article of [the ]DTAA or [the ][provisioll ][the Act']will apply dependilg upoll whic'h one [of ][the ][two ][is ][lnore]bencficial/aclvantageous to the assessee. The first reqllirement,thercfore, is see whether [provisions ][of ][the ][Act ][apply ][to ][a ][particular].to transaction undeftaken/income earned by an [aSSeSSee, ]which [is taxable]irr Inclia under the Act. [In ][case ][the transaction/income ][is ][not taxable ][r-rrrder ][tlte]ITA Nos. 4861201 1.,191 l2O1 1 & 4921201 [1]Page 12 of 26 At:t- tlrc irrr:onrc carnccl r,voulcl llot bc laxocl. llr casc Lhc saicl [lO]Lrarrsactiorr or inconrc oi.'ellt asscslsce is Laxal'rlc utrclc.r tlrc Act. tltcn tlrcprt:visions oJ'l)'l'AA. il'applicablc, t:ray bc t'csorlccl l.o il'thc1, n1".' rttor.'cbcrrcfir:ial ancl erclvauLagcous to tlic asiicsscc i.c. iJ'thc1,' Lrc,qatc orrcdrrcctlrc lzrx liabiliti,. InAz.utli. Ilucltuo tirrtlolutt vs. UOI (2003) 263 l'l'lt706 (S(l) allcr rcfcrring to {.hc saicl scctiorr it ]ras lrccn hclcl:- "21.'l'lrc provisions of Scc.tions 4ancl 5 of'thc Act arc cxprcssl5'rnaclc "sub.iccL to thc plovisions cl[' tltis u\ct". rt,lticlt rvtltlclirrclLrdc Sccticln 90 ol'tho Act. As'to u,hat rvoulcl happcu iu tlrccrrcrrt of'er couflict bctnccn thc provi.sion ol'l"hc lncorrrc'l'ax Actarrcl a uotification issuccl urrclcr Scction 90, is rro longlcr rcsitttcgt'it. XXXXX "21.'l'lrc provisions of Scc.tions 4ancl 5 of'thc Act arc cxprcssl5'rnaclc "sub.iccL to thc plovisions cl[' tltis u\ct". rt,lticlt rvtltlclirrclLrdc Sccticln 90 ol'tho Act. As'to u,hat rvoulcl happcu iu tlrccrrcrrt of'er couflict bctnccn thc provi.sion ol'l"hc lncorrrc'l'ax Actarrcl a uotification issuccl urrclcr Scction 90, is rro longlcr rcsitttcgt'it. XXXXX Ztl" t\ sr,rt'vc)/ tll' thc afilrcsaicl cascs rrralics it clcar that tlrc.luclicial [consor.rsus ][in ][lnciia has bccu ][tha[ ][Scctiou ][90 ][is]s;pccilicalll, intcrtclccl to etltblc attcl curpor.r'cr" thc [('ctrtrai](iovcrnurcnt Lo issr-r,; a rrotillcartion lbr ittrplcttrctttatiori ol'litctcrrls <ll'a Doutrlc ['l'a.\atir)lr ].Avoidancc Agrccrncut. Whcrr tlratlralipcns. tlte llrovisious ol- suclt an agfccn'rcnt. tt,ith t'csltcct ttlcascs to rn,hiclr {.lrcy appl1," rvoLrld opcratc ctctt i['iltcottsistctttrviLli tlrc provisions ol- tl-rc lucomc ['fax ]Ac{.. Wc ap1:r'tlvc oi'thcrcasoniug irr thc dccisions rvhich rvc htvr: uclticccl. ll'it war.; urrtthc irrLcrrtion of tlrc lcgislaturc to uralic a dcltarl.urc liorrr thcgcrrcral principlc o1'chargcatrilit,v to tax unclcr Scctiorr 'l arttl tltc:plcucral prirrciplc of asccrtaiunrcrrt oFtotal irtoontc Ltnclcr Scctiolt-5 ol'thc Act, tlren llrcrcrvas llo purposc in rnalcitrg tlto:ic scctiotts"sLrbjcct to thc provisions of thc AcL". ['l'hc ]vcri' otr.icct ol-grafiin-u thc said tu,tr scctiotts rvitlr Lhc saicl clattsc i:; to ctratrlcthr: [(-'ontral ][(iovcrnnrcrtt ]to issLtc a Irotilication ttitclct' [SccLiorr 90]lirrvtrrcls iurpleurcrrlattion ol'tltc tcittts ol- l)'l'A(ls rvltich [rr'(lttltl]autornar{.icall), ovclricic thc lriovisiorrs ol'[hc lnc:on'rc ['l'a.r ]Act irrihc nratt.cr of asccr'LzrirrrlcrrI o('chargcatrility to inct:rrrc tnx aurlasccrtairrrnont of'total ittcotlc. to thc cxtcnt ol' ittcoltsistcttcl'rvi[lr lhc tcrrrrs ol'l)'l'4C." ti.At thc ou[sct, wc 11]ily noticc onc Iulct ihart tht:r'cthcasscsscc ltacl a P.li in Inclia [as ][defirrccJ ]in [Articlc] ISrro dispLrl.c tlritl-)of thc l)'l'nn.-)of thc l)'l'nn. I l'l\ Nos 48G12011. 49112011 & 49212011 'i his.iLrclg.nrcnt procccds or.r thc saicl aclnrittcd lirct, r,r,hich is cxl-rcnrcllirclcrrarrI arrci nraLcrial. 9. Articics 7 and i2 ol D'fz\r\,n1afc a clistinction lrctrvccrr irrcorrrccarnccl by \very of "royaltics" and'"busincss prolits". ['J'hc ]tcrrrr"r'<11ri1f11i" has lrccn dclirrccl in ArLiclc 12 paragraph 3. u,hich c;onsists ol'srtb-paragraph a to l. As noticcci abovc. thc triburral has lrclcl tlratArl.iclc 12 ttl'l)'iAn is not applicablc as l"hc pzl)/nrcn[s rcccivcci n,crc ol'cotrp<x;ilc cliaracLcr lol divcrsc u,<)rk eurci u,crc not corrcrccl by Lhc tcl'rl"rirvalt\," as clcfinccl in paragraph 3 of Articlc 12. ['l'lris ]is clcur frcrrthc obscrvatior-rs rccorclccl b), th" tribLinal on thc rraLurc ol'activitl,LrttclcrLalicn by thc I'1.'l o1'thc asscsscc in lrrdizr rrrcntiorrccl irr palagraph4.3. On tlris aspect rvc harvc ach,ersclv cclnllrrcntcd erncl rcvcn;ccl lirclindirrgs ol'thc tlibunal, in a subsccltrcnt portion ol'this ciccisiorr.10. l)itritgraph 4 o1'Arliclc 111 statcs that paragraphs I arrcl 2 <ll'Articlc l2 rvill not apply i.l"'royalty" ariscs through a I)l.l situratccl in l.hccotrLrztcting Statc rvhcrc Lrusincss is carriccl on, cll r,r,hich thc amscsscc isrrol- ir rcsiclcrrl.. Paragraph 4 stalcs tiral. in such czrscs Articlc J or ltltt'(lulcl a1r1)11,. ['Jl'ibulal ]is, thcrct6ro. rigftt ip holcling.t6al Articlc l2 tll'l)'l'An is not .rpplicablc buL.thc l'ctrsoll is paragraplr 4 ol' Articlc 12.Orrcc an asscsscc has a Pli in thc contrercting statc ot'r,r'hich lrc is rrotrcsidcrrt, thcn paragrnphs 1 alrcl2 of the saici ArLiclc ckl not- appl),. l)agc 14 of 26 l)agc 14 of 26 Il. 'l'lLrs, tbr thc rcasorls clif'fci'cni tharr thosc. nrctrtiorrcd [r1' tltclribrrnal n'c Lrolcl lhat Articlc 12 o.f- tirc l)'l'nn is; not applic:ablc.!lcrlLriLor is Articlc 7 oI thc l)1'nA is apillicatrlc. [inLcrprctatiotr ][ztrrtl]llrovisions [oJ- ][Articlc ][7 ][havc becn cxdminccl ][rvhilc ][ansu,critrg ][cluostiotr]No.3. Qucstion Nos. I and 2 arc accorclingll' [n11s1v.,-"c1.]1?. ArLiclc 7 dcals u,ith bursincss prol.its an<J rvill appl1," otrcc il ishcld tliat Articlc l2 is not applicable. l)aragraph 3 o1' Ar'liclc 7 is thccclillcc u'hich is to bc cxarninctj to ansu/cr tl-rc substarrtial ctr"icstiorrl.itl.3 rlcnLioircc! abuvc. A carc.[r-rl criulirtztlion oJ'thc saicl par-agr-zt|lrshorr,s Lliat Lo. clctcnrrinc thc pro.lits oJ- a l)ll. thc asscsscc i:; to [bc]alkx,r,cd clccluctions "in accbrclance rvitlr [rurt.l ]strbiccl- t<l lirrritali<lns ol'thc [au," r:clatin_q to tax in thc contracting Statc. i.c.. in [lrc prcscnI czrscIncorrrc'l'erx Act [jrr ]Jndia. It lirrLhcr stipulatcs l.hat cxpcnscs incuri'ccl[<lr thc plrrposc ol'thc bursincss oJ- a Plj rvoulcl irrcluclc cxccutivc artrlgcncral aclministrativc cxpcnscs so incurrccl rcgalcllcss u'hcthcr Lhcl'havc inclrrrccl in ally conl"racting Statc. i.c.. lrrclia/A'-rstrrlia orclscn,hcrc. Uorrycvcr, lhc nratcrial r\'orcis in paragmp.h .) ol'ArLiclc ['7]arc [-'thc ]zlsscsscc sliall bc allovvcci as clccir.rclion, in accordallcc t,t'itlt [and]sub.icct to linrilalion oJ'{"hc lar,r, rclating to tetx (i.c., thc lncorrrc'l'ax Act.l9(rl) in tlrc contracLing Statc ii.e., lnAia) irr rvhich thc.pcrtiratrctrlcstablish'ncnL is situatcd". What is stipLrlatccl ancl siatcd irr palagralth.io['/rrticlc T is that lhc cx.pcnslrs il'lcLtrrcd bi, [tltc ][asscsscc ][ctll'] ][br:]liA ltlos 4t]6/?011,,19112011 & 49212.011i)agc 1li of 26 clainrccl ers a clccluctiorr but only in accrlrderncc r,r,iLh aricl sLrlr.icct. tolinritatiorr stipLrlatcd in t.irc Act. ['l'ire ][prorrisiotrs ]ol'tlic Act. [l"lrcrclirrc.]rclating ttl clccluction o.l'cxllcncliture, bccomc applicablc litr compLrtilrg[rr-rsincss prolits r-Lndcr Articlc 7(3). .l'hc linritati<lrrs [turcl ][conclitions]stalcd ancl stipulatccl in thc Act vvith regarc] to clcclr-rctiorrs accorclirrg[1,gct at"tractccl ancl rcl.ain thcir suprcmacy eurd arc noL obliLcratccl/clilLrtcclin vicu'ol. paragrzrph 3 of Articlc 7. Irr othcr u'orcls. paragraph 3 ol'Articlc 7 paramounc'y [ancl ]acccpls [l-l'rat ][Lhc ][clccllrcLiorrs ][clrrr ]bc-eivcs only clirimcd in accorrlatrcc u'ith ancl subicct to litrrilations of'Lhc [Act]anrl not othcrn,isc. 13. ['.I'hc ]rrct cllcc.t of thc albresaid conclllsion is thal. to [courlrutc]irLrsincss pr<llits uudcl Articic