Netafim Ltd. v. DCIT - Taxpublishers.in

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REFERRED Steria (India) Ltd. v. CIT 2016 TaxPub(DT) 3521 (Del-HC)

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The Tax Publishers2023 TaxPub(DT) 1160 (Del-Trib) IN THE ITAT, DELHI BENCH: D NEW DELHI SAKTIJIT DEY, J.M. B.R.R. KUMAR, A.M. Netafim Ltd., C/o- Netafim Irrigation India Pvt. Ltd., v. DCIT, ITA No.1427/Del/2015 & 975/Del/2016 A.Y. 2010-11 20 February 2023 Appellant by: Salil Kapoor, Advocate Ananya Kapoor, Advocate Respondent by: Abhishek Kumar, Sr. DR ORDER *Saktijit Dey, J.M.* Captioned appeals at the instance of the assessee have challenged the final assessment orders passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (for short the Act) for the assessment years 2010-11 and 2011-12 in pursuance to directions of learned Dispute Resolution Panel (DRP). 2. The core common issue arising for consideration in both the appeals is, whether the amounts received by the assessee from its Indian subsidiary for providing Information Technology (IT) and SAP support services is in the nature of Fees for Technical Services (FTS), hence, taxable in terms of Article 13 of Indian Israel Double Taxation Avoidance Agreement (DTAA). 3. Briefly the facts are, the assessee is a non-resident corporate entity incorporated in Israel and a tax resident of Israel. In the previous year relevant to assessment years under dispute, the assessee had entered into various international transactions with its Indian subsidiary, Netafim Irrigation India Pvt. Ltd. (NIIPL), such as, sale of raw materials, sale of stores, consumables and packing materials, sale of traded goods, sale of equipment and provision of IT and SAP services. However, in the present appeals, we are concerned only with the taxability of the amounts received towards provision of IT and SAP services. In course of assessment proceeding, the assessee submitted that as per Article 13 of India Israel DTAA, FTS means payments of any kind received as a consideration for services of a managerial, technical or consultancy nature, including the provision of services by technical or other personal. However, he submitted, as per the protocol to India Israel Treaty, if India enters into a DTAA with any other country after 01-1-1995 and in the said treaty the scope of FTS is more restricted, then the restricted terms of that treaty will apply to India Israel DTAA. In this regard, the assessee submitted that as per India Portugal and India Canada DTAAs the definition of FTS is more restricted as it imposes make available condition. He submitted, only when technical knowledge, skill, knowhow, etc. is made available to the recipient of service, the payments received will fall within the definition of FTS. The Assessing Officer, however, did not accept assessees contention. He observed, since, Article 13 of India Israel DTAA does not speak of any make available condition, it cannot be imported to the treaty. Accordingly, he proceeded to treat the amounts received towards provision of IT and SAP support services as FTS under Article 13 of the India Israel DTAA. Accordingly, he added back the amounts of Rs.1,07,03,993 and Rs.1,06,93,808 in assessment years 2010-11 and 2011-12 respectively. Against the additions so made, the assessee raised objections before learned DRP. Though, learned DRP accepted assessees claim that as per protocol to India Israel DTAA more restrictive definition of other DTAAs would apply and accordingly accepted that the make available condition provided in India Portugal and India Canada DTAAs would be applicable. However, learned DRP held that make available condition stands satisfied in case of the assessee. Accordingly, they upheld the additions. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2023 TaxPub(DT) 1160 (Del-Trib)

IN THE ITAT, DELHI BENCH: D NEW DELHI

SAKTIJIT DEY, J.M. B.R.R. KUMAR, A.M.

Netafim Ltd., C/o- Netafim Irrigation India Pvt. Ltd., v. DCIT,

ITA No.1427/Del/2015 & 975/Del/2016

A.Y. 2010-11

20 February 2023

Appellant by: Salil Kapoor, Advocate Ananya Kapoor, Advocate

Respondent by: Abhishek Kumar, Sr. DR

ORDER

Saktijit Dey, J.M.

Captioned appeals at the instance of the assessee have challenged the final assessment orders passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (for short the Act) for the assessment years 2010-11 and 2011-12 in pursuance to directions of learned Dispute Resolution Panel (DRP).

2. The core common issue arising for consideration in both the appeals is, whether the amounts received by the assessee from its Indian subsidiary for providing Information Technology (IT) and SAP support services is in the nature of Fees for Technical Services (FTS), hence, taxable in terms of Article 13 of Indian Israel Double Taxation Avoidance Agreement (DTAA).

3. Briefly the facts are, the assessee is a non-resident corporate entity incorporated in Israel and a tax resident of Israel. In the previous year relevant to assessment years under dispute, the assessee had entered into various international transactions with its Indian subsidiary, Netafim Irrigation India Pvt. Ltd. (NIIPL), such as, sale of raw materials, sale of stores, consumables and packing materials, sale of traded goods, sale of equipment and provision of IT and SAP services. However, in the present appeals, we are concerned only with the taxability of the amounts received towards provision of IT and SAP services. In course of assessment proceeding, the assessee submitted that as per Article 13 of India Israel DTAA, FTS means payments of any kind received as a consideration for services of a managerial, technical or consultancy nature, including the provision of services by technical or other personal. However, he submitted, as per the protocol to India Israel Treaty, if India enters into a DTAA with any other country after 01-1-1995 and in the said treaty the scope of FTS is more restricted, then the restricted terms of that treaty will apply to India Israel DTAA. In this regard, the assessee submitted that as per India Portugal and India Canada DTAAs the definition of FTS is more restricted as it imposes make available condition. He submitted, only when technical knowledge, skill, knowhow, etc. is made available to the recipient of service, the payments received will fall within the definition of FTS. The Assessing Officer, however, did not accept assessees contention. He observed, since, Article 13 of India Israel DTAA does not speak of any make available condition, it cannot be imported to the treaty. Accordingly, he proceeded to treat the amounts received towards provision of IT and SAP support services as FTS under Article 13 of the India Israel DTAA. Accordingly, he added back the amounts of Rs.1,07,03,993 and Rs.1,06,93,808 in assessment years 2010-11 and 2011-12 respectively. Against the additions so made, the assessee raised objections before learned DRP. Though, learned DRP accepted assessees claim that as per protocol to India Israel DTAA more restrictive definition of other DTAAs would apply and accordingly accepted that the make available condition provided in India Portugal and India Canada DTAAs would be applicable. However, learned DRP held that make available condition stands satisfied in case of the assessee. Accordingly, they upheld the additions.