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Hindalco Industries Ltd. Vs. Assistant Commissioner of Income - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(2005)94ITD242(Mum.)
AppellantHindalco Industries Ltd.
RespondentAssistant Commissioner of Income
Excerpt:
1. the main issue requiring our adjudication in these appeals is as to whether or not the training fees paid to a us based company, which is said to be integral to the purchase of know-how from that company, is taxable in india. the assessee's core contention is that in view of the scope of article 12(5)(a) of the india usa double taxation avoidance agreement, the same is not taxable in india.2. let us first set out, very briefly, the material facts giving rise to this dispute before us. the assessee had entered into a technical assistance agreement with one m/s reyonlds (europe) limited, usa. under this arrangement, the assessee had to pay us $ 50,000 (net of taxes), each calendar quarter year, as 'fees for technical services' and another us $ 12,500 each calendar quarter year, as basic.....
Judgment:
1. The main issue requiring our adjudication in these appeals is as to whether or not the training fees paid to a US based company, which is said to be integral to the purchase of know-how from that company, is taxable in India. The assessee's core contention is that in view of the scope of Article 12(5)(a) of the India USA Double Taxation Avoidance Agreement, the same is not taxable in India.

2. Let us first set out, very briefly, the material facts giving rise to this dispute before us. The assessee had entered into a technical assistance agreement with one M/s Reyonlds (Europe) Limited, USA. Under this arrangement, the assessee had to pay US $ 50,000 (net of taxes), each calendar quarter year, as 'fees for technical services' and another US $ 12,500 each calendar quarter year, as basic 'fees for training of Hindalco's (assessee's) personnel at the works of Reynolds and/or its affiliated companies out of India'. For training at Hindalco in excess of 120 man-days, the training fees was payable @ US $ 850 per person per day, while for training at Reynolds' subsidiaries outside India, the training fees was payable @ US $ 200 per person per day.

While the assessee has fairly conceded taxability of REL, in respect of the component of US $ 50,000 per quarter in respect of 'fees for included services' (or what is popularly known as 'fees for technical services'), the assessee contends that the fees payable by the assessee, on account of training of its employees at works of REL, is not exigible to tax in India in terms of the provisions of Article 12(5)(a) of the India US DTAA.3. The assessee's contention is that since Article 12(5)(a) of the India US DTAA specifically excludes, from payment of fees for included services, the payments for "services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in para (3)(a)", and since the payment for training fees is 'inextricably and essentially' linked to the sale of know-how, which is covered by the connotations of the expression 'property', the payments made for training of its personnel by REL is not exigible to tax in India. In support of this plea, the assessee has also relied upon order dt. 20th Jan., 2004, passed by a co-ordinate Bench, in assessee's own case for earlier years. Learned counsel for the assessee fairly states that although there is no specific finding in the said order that the payments for training of personnel, as inextricable and essential part of purchase of know-how, are not exigible to tax in India, the very fact that the Tribunal has restored the matter to the file of the CIT(A) for examining "whether the training could be considered to be the service that is ancillary and subsidiary, as well as inextricably and essentially linked to the sale of know-how" would indicate that in case the training of personnel, is held to be inextricable and essential part of purchase of know-how, the related fees will be covered by the exclusion clause set out in Article 12(5)(a) and, accordingly, not exigible to tax in India.

4. Learned counsel addressed us at length on the scope of expression 'property' and urged us to give a categorical finding that 'property' includes 'know-how' for the purposes of the India US tax treaty as well. Learned counsel contends that the scope of expression 'property' covers the 'know-how' as well, and that since the training is an extricable part of sale of that property, i.e., 'know-how', exclusion clause in Article 12(5)(a) is squarely applicable. Learned counsel for the assessee has laid good deal of emphasis on his arguments on the scope of expression 'property' appearing in Article 12(5)(a). His line of reasoning is like this. The expression 'property' is admittedly not defined in the India US tax treaty, and, on that basis, reliance is placed on Article 3(2) which lays down that any term, when not defined in the treaty shall have, unless the context otherwise requires or the competent authorities agree to a common meaning pursuant to the mutual agreement procedure laid down under Article 27, the same meaning which it has under the laws of the State concerning the taxes to which convention applies. It is thus contended that the expression 'property' shall have the same meaning as it has in the context of Indian laws.

Reliance is then placed on the definition given in the Law Lexicon which defines 'property' as 'generic term for all that a person has dominion over'. It is indeed most comprehensive of all terms which can be used, inasmuch as it is indicative and descriptive of every possible interest which the party can have (Stroud). It is more than the mere thing which a person owns. It is elementary that includes the right to acquire, use and dispose of it. Property consists of the free use, enjoyment and disposal of a person's acquisitions without control or diminution by the law of the land. It is contended that Biswas in Encyclopedic Law Dictionary has defined the term 'property' as including goodwill, trademarks, licence to use a patent, book debts, options to purchase, life policies and other rights under a contract. A reference is made to the Hon'ble Supreme Court's judgment in the case of Scientific Engineering House (P) Ltd. v. CIT (1985) 157 ITR 86 (SC) in support of the proposition that drawings, plans, etc., constituted tools 'with durability' and hence plant as defined by Section 43(3) of the Act, and therefore, it constitutes property as well. Learned counsel further contends that the India US tax treaty uses the expression 'physical property' at several plages, such as in Article 5(3) dealing with stock of goods or stock of merchandise, in Article 6(1) dealing with immovable property (real property), in Article 7(3) dealing with containers, in Articles 7 and 12 as dealing with ships and aircrafts, and in Article 12 dealing with equipments. Learned counsel contends that since in Article 12, the expression used is 'property' and not 'physical property', it cannot be open to us to confine meaning of 'property' to that of the physical property. It is argued that the use of an expression of Wider import is conscious choice made in drafting the tax treaty and assigning it narrower meaning will frustrate and negate the intent of treaty. A reference- is also made to use of the expression 'property' in India UK, India Canada and India Australia tax treaties. It is contended that in this view of the matter even 'know-how', which the assessee has undisputedly acquired from REL, constitutes 'property' for the purpose of Article 12(5)(a) of the India US tax treaty. On this basis, and in view of the contention that services for training the staff of the assessee-company in using the 'know-how' so purchased is ancillary and subsidiary, as well as inextricably and essentially linked to the sale of property in know-how, it is argued that the payment for training fees is covered by the exclusion clause in Article 12(5)(a) of the India US tax treaty. On this basis, learned counsel canvasses the non-taxability of training fees paid to REL in India. We are urged to hold so, and to thereby vacate the orders of the CIT(A) upholding appellant's withholding tax liability from payments on account of payments for training services which are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property, i.e., know-how.

5. Learned Departmental Representative, on the other hand, relies upon the orders of the authorities below and contends that the payment for training of personnel is taxable as 'fees for included services' and the same is not covered by the exclusion clause set out in Article 12(5)(a). He, however, fairly accepted that on identical facts the matter has been restored to the file of the CIT(A) for examining whether the training could be considered to be the service that is ancillary and subsidiary, as well as inextricably and essentially linked to the sale of know-how, but, then, it is also pointed out that there is no finding in the said Tribunal's order to the effect that sale of 'know-how' constitutes 'sale of property' for the purpose of Article 12(5)(a) of the DTAA. It is contended that restoration for the purposes of examining whether or not the training is ancillary and subsidiary, as well as inextricably and essentially linked to the sale of know-how, is meaningless unless there is a categorical finding that the sale of know-how constitutes sale of property. It is thus submitted that even if we accept the proposition canvassed by the assessee for restoration of matter to the file of the CIT(A) for fresh examination on the same lines, such an examination can only be relevant when a specific finding is given on the question of applicability of the exclusionary provisions of Article 12(5)(a). Learned Departmental Representative emphasized the fact that there is no finding in the order of the co-ordinate Bench that the expression 'property', for the purposes of the Indo US DTAA will include 'know-how' in its ambit. It is thus argued that the reliance on the order of the co-ordinate Bench is misplaced for the purpose of suggesting that the Tribunal has come to the conclusion that the expression 'property' includes technical know-how'. It is also contended that in the given context, the connotations of 'sale of a property' cannot be extended to a transaction which is covered by the scope of Article 12 and is thus taxable in the source country. Learned Departmental Representative vehemently submitted that it will be nothing less than an absurdity that while the sale of know-how itself is taxable in India, training fees is held to be not taxable on the ground that the training fees constitutes payment for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property.

It is submitted that training being an integral part of the sale of know-how, taxability of training fees cannot be on any different basis than the taxability of sale of know-how itself. We are urged to assign meaning to. the expression 'property' in harmony with the context in which it is used. The interpretation canvassed by the assessee, according to the Revenue, will lead to unintended results. We are urged to hold that in the context in which the expression 'property' is used in Article 12(5)(a), the connotations of the expression 'property' do not extend to sale of such a property, sale proceeds of which are taxable in the source country. The orders of the authorities below are also supported and relied upon. We are thus urged to confirm the orders of the authorities below and decline to interfere in the matter.

6. We have given our thoughtful consideration to the rival contentions and the provisions of the India US DTAA [(1991) 187 ITR (St) 102] as also to the principles governing interpretation of these provisions. It is useful to reproduce the relevant extracts from the India United States Double Taxation Avoidance Agreement which, in Article 12(4) and (5), provides as follows : For the purposes of this article, "fees for included services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services ; (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in para (3) is received; or (b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design.

Notwithstanding para (4), "fees for included services" does not include amounts paid : (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in para (3)(a);* (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic; (d) for services for the personal use of the individual or individuals making the payment; or (e) to an employee of the person making the payments or to any individual or firm of individuals (other than a company) (f) for professional services as defined in Article 15 (Independent Personal Services) [*Article 12(3)(a) refers to payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or "scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof).

In the case before us, it is not in dispute that the fees for training of assessee's personnel is covered by Article 12(4)(b) of the India US DTAA but for being covered by the exclusion clause in Article 12(5)(a), the only thing to be adjudicated by us, therefore, is whether or not the assessee's case succeeds on Article 12(5)(a).

7. There is no dispute that on identical set of facts, a co-ordinate Bench of this Tribunal has restored the matter to the file of the AO to ascertain whether or not training is ancillary and subsidiary, as well as inextricably and essentially linked to the sale of know-how. The Tribunal did not, however, have any occasion to deal with the question as to whether the sale of know-how constitutes sale of property.

Learned representatives have also fairly agreed about this position. In the light of this admitted factual position, we consider it appropriate to address ourselves to the fundamental question as to whether the sale of know-how in fact constitutes sale of property within meanings of that expression under Article 12(5)(a) of the India US tax treaty.

8. There is no dispute about the fact that Article 12(5)(a) can only be pressed in service only when the payment is made for "services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property, other than a sale described in para 3(a)", but the key question then is what is the connotation of the expression 'property' in the present context. Does the context in which this expression is used in the tax treaty require a rather legalistic and somewhat liberal view of this expression Will the expression 'sale of property' in this context mean and include sale of a property, which may constitute 'property' in utterly legalistic connotation of that expression, but where the sale consideration itself is taxable in the source country as a revenue item Are we to do read the words used in a tax treaty in a mechanical manner or we are to give effect to the same in the light of the underlying, but clearly discernible, scheme of tax treaty These are the key issues which will eventually, in our view, decide the taxability of impugned training fees in the hands of the REL and which, in turn, will decide whether or not the assessee before us should have deducted tax at source from the related foreign remittances. The appellants before us contend that since REL was not exigible to tax in India in respect of the training fees in question, the assessee was not under any obligation to deduct tax at source from the related remittances. In order to properly adjudicate on the controversy arising in this appeal, it is equally important to neatly delineate the scope and limitation of Article 12(5)(a) of the India US tax treaty.

9. Before we address ourselves to the aforesaid questions, it is necessary to bear in mind the principles governing the interpretation of tax treaties. It will be useful to briefly touch upon the principles governing interpretation of treaties. Are these principles any different from the principles of interpretation of statutes, and, if so, to what extent and in what manner 10. Double Taxation Avoidance Agreements are international agreements entered into between States. The conclusion and interpretation of such conventions is governed by public international law, and particularly, by the Vienna Convention on the Law of Treaties of 23rd May, 1969. The rules of interpretation contained in the Vienna Convention, being customary international law, also apply to the interpretation of tax treaties. This view also finds mention in the Tribunal's order in the case of Modern Threads India Ltd. v. Dy. CIT (1999) 63 TTJ (Jp)(TM) 601 : (1999) 69 ITD 115 (Jp)(TM). Article 31(1) of the Vienna Convention states that "A treaty shall be interpreted in good faith in accordance with the ordinary meaning given to the terms of the treaty in their context and in the light of its object and purpose".

11. Elaborating upon the principles governing interpretation of tax treaties, Lord Denning in Bulmer Limited v. S.A. Bollinger (1972) 2 All ER 1226, said : "...........The treaty ........is quite unlike any of the enactments we have been accustomed................ It lays down general principles. It expresses aims and purposes.....what are English Courts to do when they are faced with a problem of interpretation They must follow the European pattern. No longer must they examine the words in meticulous detail. No longer must they argue about the precise grammatical sense. They must look to the purpose or intent..............." 12. Echoing these views and justifying his departure from the plain meaning of the words used in the treaty, Goulding J., in IRC v. Exxon Corporation (1982) STC 356 at p. 359, observed : "In coming to the conclusion, I bear in mind that the words of the convention are not those of a regular Parliamentary draughtsman but a text agreed on by negotiations between the two Contracting Governments. Although I am thus constrained to do violence to the language of the Convention, I see no reasons to inflict a deeper wound than necessary, In other words, I prefer to depart from the plain meaning of language only in the second sentence of Article XV and I accept the consequence (strange though it is) that similar words mean different things in the two sentences." 13. In a later judgment, Harman, J. in Union Texas Petroleum Corporation v. Critchley (1988) STC 69, affirmed the above observations of Goulding, J. and added : "I consider that I should bear in mind that this double tax agreement is an agreement. It is not a taxing statute, although it is an agreement about how taxes should be imposed. On that basis, in my judgment, this agreement should be construed as ut res magis valeat quam pereat, as should all agreements. The fact that the parties are 'high contracting parties', to use an old description, does not change the way in which the Courts should also approach the construction of any agreement." We are in considered agreement with this school of thought which lays down the proposition that, strictly speaking the principles of literal interpretation do not apply to the interpretation of tax treaties. To find the meaning of words employed in the tax treaties, we have to primarily look at the ordinary meanings given to those words in that context and in the light of its objects and purpose. Literal meanings of these terms are not really conclusive factors in the context of interpretating a tax treaty which ought to be interpretated in good faith and ut res magis valeat quam pereat, i.e., to make it workable rather than redundant.Union of India and Anr. v.Azadi Bachao Andolan and Anr. (2003) 263 ITR 706 (SC), had an occasion to deal with the principles governing the interpretation of tax treaties. In this regard, Hon'ble Supreme Court held that the principles adopted in the interpretation of treaties are not the same as those adopted in the interpretation of statutory legislation. Their Lordships quoted, with approval, following passage from the judgment of the Federal Court of Canada in the case of N. Gladden v. Her Majesty the Queen 85 DTC 5188, at p. 5190, wherein the emphasis is on the 'true intentions' rather than 'literal meaning of the words employed' : "Contrary to an ordinary taxing statute, a tax treaty or convention must be given a liberal interpretation with a view to implementing the true intentions of the parties. A literal or legalistic interpretation must be avoided when the basic object of the treaty might be defeated or frustrated insofar as the particular items under consideration are concerned." In the said judgment, as noted by Their Lordships at p. 743, the Federal Court of Canada recognized that "we cannot expect to find the same nicety or strict definition as in modern documents, such as deeds, or Acts of Parliament, it has never been habit of those engaged in diplomacy to use legal accuracy but rather to adopt more liberal terms".

15. In Azadi Bacahao Andolan's case (supra), Their Lordships also quoted with approval, Fancis Bennion's certain observations in his work Statutory Interpretation (Butterworths, 1992 Edn. at p. 461). Extracts from the said observations are as follows : "With indirect enactment, instead of the substantive legislation taking a well known form of an Act of Parliament, it has the form of a treaty. In other words, form and language found suitable for embodying an international agreement, at the stroke of a pen, also the form and language of a municipal legislative instrument. It is rather like saying that, by Act of Parliament, a woman shall be a man. Inconveniences may ensue. One inconvenience is that the interpreter is likely to be required to cope with disorganised composition instead of precision drafting........

..........The interpretation of a treaty imported into municipal law by indirect enactment was described by Lord Wilberforce as being 'unconstrained by technical rules of English law, or by English legal precedent, but conducted on the broad principles of general acceptation'. This echoes optimistic dictum of Lord Widgery, C.J. that the words 'are to be given their general meaning, general to lawyer and laymen alike...... the meaning of diplomat rather than the lawyer'."K.P. Varghese v. ITO and Anr.

(1981) 131 ITR 597 (SC) and even in this context of interpretation of taxing statutes, have held that the task of interpretation is not a mechanical task and, quoted with approval Justice Hand's observation that "it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning". Their Lordships observed as follows : "....................The task of interpretation of a statutory enactment is not a mechanical task. It is more than a mere reading of mathematical formulae because few words possess the precision of mathematical symbols. It is an attempt to discover the intent of the legislature from the language used by it and it must always be remembered that language is at best an imperfect instrument for the expression of human thought and, as pointed out by Lord Denning, it would be idle to expect every statutory provision to be 'drafted with divine prescience and perfect clarity'. We can do no better than repeat the famous words of Judge learned Hand when he said : '... it is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable source of interpreting the meaning of any writing : be it a statute, a contract or anything else. But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning.' We must not adopt a strictly literal interpretation of ...........

but we must construe its language having regard to the object and purpose which the legislature had in view in enacting that provision and in the context of the setting in which it occurs. We cannot ignore the context and the collocation of the provisions in which .............. appears, because, as pointed out by Judge Learned Hand in the most felicitous language : 'interpret .... the meaning of a sentence may be more than that of the separate words, as a melody is more than the notes, and no degree of particularity can ever obviate recourse to the setting in which all appear, and which all collectively create...............'." When such are the views of the Hon'ble Supreme Court on the interpretation of taxing statutes, essentially the tax treaties, which are to be subject to less rigid rules of interpretation, cannot be subjected to literal interpretation in isolation with the context in which the words have been employed.

17. It is also important to bear in mind that the provisions of tax treaties are required to be read as a whole and not in isolation with each other. The Court's duty is to give effect to the provisions of the treaty in its natural meaning, and not to interpret them in isolation.

It is done in their context and in the light of the object and purpose of the treaty. The context in which the words are used is, therefore, of the paramount importance. General words and phrases, therefore, however wide and comprehensive in their literal sense, must be construed as being limited to the actual objects of the enactment.

Therefore, what is really needed in the context of interpretation of treaties is that a holistic view of the matter is taken. This exercise essentially requires that the provisions of the treaty are required to be treated in a harmonious manner. The same principle applies to the interpretation of the taxing statutes as well. It is fundamental principle of interpretation that a statute must be read as a whole, notwithstanding that every section of the statute is a substantive enactment in itself. A co-ordinate Bench of this Tribunal, in the case of Ensco Maritime Ltd. v. Dy. CIT (2004) 91 TTJ (Del) 1 : (2004) 91 ITD 459 (Del), at pp. 476-477 and while dealing with the principles of interpretation of treaties, has, inter alia, observed as follows : ".......it would be necessary to bear in mind that the tax treaties should be interpreted unconstrained by the technical rules of law or precedents on, on the broad principles of general expectation. The process of interpretation should take into account the fact that the language of the treaty has not been chosen by Parliamentary draftsman Treaties have been drafted by the diplomats who do not use the language in a precise legislative manner as the legal draftsman do while drafting the statutes. The treaty results from negotiations and compromise with the two conflicting interests, Interpretation of such treaties must depend upon the text and the context. If text is the texture, context is what gives the colour. That interpretation is best which makes the textual interpretation match contextual one.

Where an expression has not been defined in a tax treaty, the same would have to be interpreted in harmony with the treaty read as a whole.........." We are in respectful agreement with the views so expressed by the co-ordinate Bench, and these views are in concurrence with our understanding, as explained above, on the issue.

18. We may also briefly touch, at this stage itself, upon the Article 3(2) of the India US tax treaty which states that a term not defined in the treaty shall, 'unless the context otherwise requires or the competent authorities agree to a common meaning pursuant to the provisions of Article 27 (mutual agreement procedure) have the same meaning which it has under the laws of the State concerning the taxes to which the Convention applies'. Dealing with art, 3(2) of the OECD and UN Model, which is more or less the same (barring the reference to the meaning arrived at by the mutual settlement procedure) as Article 3(2) of Indo US tax treaty, some interesting observations have been made in 'International Tax Primer' (2002 Edition; published by Kluwer Law International) authored by Brian J, Arnold and Michael J. McIntyre, of University of Western Ontario and of Wayne State University Law School, respectively. According to the learned authors (p. 114 onwards), the application of Article 3(2) involves a three stage process : (b) If the treaty does not provide a definition, what is the domestic meaning of the term (c) Does the context of the treaty require a meaning different from the domestic meaning Learned authors have then discussed the complexity, which is not apparent from the description of the said process, in the above three stage process. Coming to the issue of 'context of the treaty requiring a different meaning from the meaning under the domestic law', learned authors state that, for this purpose, it is necessary to consider what are the alternative meanings for the term for purposes of treaty and whether one of these meanings is more appropriate in the context of the treaty than the domestic law meanings. Matters that should be considered in this analysis include............... the purpose of the relevant provisions of the treaty' (emphasis, italicised in print, supplied by us). The observations which follow, in our considered view, are even more important. The same are reproduced below : "Some international tax scholars argue that in applying Article 3(2), undefined terms should be given, if all possible, a meaning that is independent of domestic law and a domestic law meaning should be used only as a last resort. Other scholars argue that Article 3(2) contain a preference for domestic law meanings because such meanings are only displaced by a treaty meaning if "the context otherwise requires". The use of word "requires", they argue, places a substantial onus on those seeking to justify a treaty meaning.

In our view, the words of Article 3(2) do not establish any clear preference for domestic law meaning or treaty meaning for undefined terms. In addition, we no strong policy reason for establishing any residual presumption in favour of a domestic meaning. The meaning of the undefined terms in a tax treaty should be determined by reference to all of the relevant information and all of the relevant context." We would like to take note of two very important principles emerging from these discussions. First, the purpose of the relevant provision in the tax treaty is indeed one of the relevant considerations in deciding the contextual meaning. Second, even if it is debatable as to whether contextual meaning of a term has precedence over the domestic tax law meaning of that term, it is also certainly not anybody's case that domestic law meaning of a term will have precedence over the contextual meaning of that term; the dispute is only with regard to whether an interpretation seeking adoption of contextual meaning, or treaty meaning as learned authors put it, has to onus to demonstrate that such a meaning must be adopted in the present context. In other words, the debate is only whether or not the interpretation in favour of the contextual or treaty meaning can be resorted to without discharging the onus to justify the same.

19. The school of thought emerging from the above discussions leads us to conclude that the principles governing interpretation of tax treaties can be broadly summed up as follows : --A tax treaty is an agreement and not taxing statute, even though it is an agreement about how taxes are to be imposed. The principles adopted in the interpretation of statutory legislation are not applicable in interpretation of treaties.

--A tax treaty is to be interpreted in good faith in accordance with the ordinary meaning given to the treaty in the context and in the light of its objects and purpose.

--A tax treaty is to required to be interpreted as a whole, which essentially implies that the provisions of the treaty are required to be construed in harmony with each other.

--The words employed in the tax treaties not being those of a regular Parliamentary draughtsman, the words need not examined in precise grammatical sense or in literal sense. Even departure from plain meaning of the language is permissible whenever context so requires, to avoid the absurdities and to interpret the treaty ut res magis valeat quam pereat i.e., in such a manner as to make it workable rather than redundant.

--A literal or legalistic meaning must be avoided when the basic object of the treaty might be defeated or frustrated insofar as particular items under consideration are concerned. Words are to be understood with reference to the subject-matter, i.e., verba accopoenda sunt secundum subjectum materiam.

--It is inevitable that interpreter of a tax treaty is likely to be required to cope with disorganised composition instead of precision drafting. Therefore, the words employed in the treaty are to be given a general meaning--general to lawyers and general to layman alike.

--When a tax treaty does not define a term employed in it, and the context of the treaty so requires, it can be given a meaning different from domestic law meaning thereof. The meaning of the undefined terms in a tax treaty should be determined by reference to all of the relevant information and all on the relevant context.

There cannot, however, be any residual presumption in favour of a domestic law meaning of a treaty term.

20. Having taken note of the relevant provisions of the tax treaty and the principles governing the interpretation thereof, let us turn to the fact situation before us.

21. There is no dispute that Article 12(5) is an exclusion clause which restricts the scope of applicability of Article 12(4) regarding taxability of certain receipts in the nature of 'fees for included services' in the source country. As we have noted earlier as well, it is not even assessee's case that the receipts in the nature of training fees are not covered by the normal scope of Article 12(4). In any event, 'Memorandum of understanding concerning fees for included services in Article 12' dt. 12th Sept., 1989 [Notification No. 8786 (F.No. 501/2/74 -FTD)], attached to and forming part of the India US tax treaty, specifically mentions that scope of Article 12(4)(b) may extend to, inter alia, 'technical training'. Example (6) given in the MoU states that the fees for training the employees of the Indian company constitutes 'fees for included services' and is, therefore, taxable in the source country as well. The reasoning for this conclusion, as given in the said MoU, is that 'the services are technical, and the technical knowledge is made available to the Indian company'. The assessee's defence against taxability of these receipts in the source country primarily consists of reliance on the scope of exclusion clause set out in Article 12(5)(a) of the Indo US tax treaty. The exclusion clause, relied upon by the assessee, provides that the services which are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of a property, are not to be treated as 'fees for included services' exigible to tax in the source country. The only rider is that the exclusion clause will not extend to the sale of property referred to in Article 12(3)(a) of the treaty.

22. Article 12(3)(a) refers to payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof. When sale is of a property set out in Article 12(3)(a), the services which are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of such a property, continue to be regarded as 'fees for included services' exigible to tax in the source country.

23. The easily discernible common thread in all the transactions visualized in Article 12(3)(a) is that all these transactions are such that when sale takes place by the resident of one Contracting State to the resident of the other Contracting State, consideration of sale is taxable under Article 12 in the source country as well. Article 12(3)(a) and (b) only define as to what constitutes 'royalties' and Article 12(2) provides that 'royalties' and 'fees for included services' arising in a Contracting State and paid to the resident of the other Contracting State may also be taxed in the Contracting State in which they arise, i.e., in the source country, though subject to certain restriction on the rate of tax. It is thus clear that when the principal sale itself is subjected to tax in the source country, the services which are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of a property, are also subjected to tax in the source country. The said principle is also implicit in Article 12(4)(a) which provides that consideration for rendering any technical or consultancy services, where such services are ancillary and subsidiary to the application or enjoyment of the right, property or information which is covered by the definition of 'royalty' in Article 12(3), is also includible in the 'fees for technical services' and accordingly liable to be taxed in the source country.

24. The scheme of the tax treaty, so far as royalties and fees for technical services (termed as 'fees for included services' in the India US tax treaty) is clearly like this. When principal transaction itself is such that it involves taxability in the source country, the transactions subsidiary and integral to such a transaction also give rise to the taxability of subsidiary transactions in the source country. On the other hand, when principal transaction is such that it does not generally give rise to taxability in the source country, the transaction subsidiary and integral to such a transaction also does not give rise to taxability in the source country. In other words, the subsidiary and integral transactions have to take colours from the principal transaction itself and are not to be viewed in isolation.

That is the intent and purpose, in our understanding, of the provisions of Article 12(5)(a) and it is in this background that we have to interpret the contextual meaning of the expression 'property' in the exclusion clause set out in Article 12(5)(a).

25. A careful reading of Article 12(5)(b) also shows the underlying scheme of the Indo US tax treaty to the effect that when the principal transaction itself is not leading to taxability in the source country, a transaction subsidiary and integral thereto is also not taxable in the source country. Article 12(5)(b) provides for exclusion of 'services which are ancillary and subsidiary to the rental of ships, aircraft, containers and other equipment used in connection with operation of ships or aircraft in international traffic. The principal transaction in this case is the operation of ships and aircraft in international traffic, but, under Article 8 of the Indo US tax treaty, the profits derived from operations of ships and aircraft are only taxable in the country of fiscal domicile, and 'source rule' has no application on such profits. Since main activity itself does not lead to taxability in the source country, but is taxable only in the country of domicile, the same principle also applies on the services subsidiary and integral to the main activity. The principle thus is that the subsidiary and integral transactions have to take colours from principal transaction itself and are not to be viewed in isolation, so far as taxability in the source country is concerned.

26. There are only two clauses, so far as exclusion ancillary services from the scope of the fees for included services exigible to tax in the source country, in the treaty. In both these cases, the principle clearly is that when the main transaction is not exigible to tax in the source country, the subsidiary and ancillary transaction is also not exigible to tax in the source country.

27. It is also relevant to note that normally sale of goods does not lead to taxability in the other Contracting State, unless the resident of the Contracting State has substantial and somewhat permanent presence in that country. This principle is clearly discernible from the scheme of taxability of business profits in almost all the treaties and from the fact that normally business profits are not taxed in the other Contracting State unless that enterprise (in) the Contracting State has a permanent establishment in the other Contracting State. It is a logical corollary to this well established principle that the payments for such services as are 'ancillary and subsidiary, as well as inextricably and essentially linked to such a sale are to be treated as an integral part of the sale and, accordingly, to be given the same status of taxability as the sale itself. The taxability, therefore, is not on the source rule which applies to the 'royalties and fees for technical services' but on the basis of substantial and permanent presence on the touchstone of principles for existence of the permanent establishment.

28. During the course of hearing before us, we put it to the assessee that the principle elaborated above could, in our understanding, perhaps be the only explanation for the exclusion clauses in Articles 12(5)(a) and 12(5)(b). We also requested the assessee to let us know in case there could be any other intent and scheme of things underlying these clauses. However, learned counsel for the assessee could not enlighten us on this issue. The issue regarding connotations of expression 'property' was heard at considerable length for over two sessions but yet the learned counsel could not come up with any arguments in assessee's defence on the question of intent and scheme of treaty as put to him by the Bench.

29. As we have already taken note of, while dealing with the principles of interpretation of tax treaties, the words employed in the tax treaties are not the words of regular Parliamentary draughtsman, and, therefore, the words need not be examined in precise grammatical sense or in literal sense. In our considered view, therefore, even departure from plain meaning of the language is permissible whenever context so requires, to avoid the absurdities and to interpret the treaty in its proper perspective. Some violence with the language of the treaty may also be unavoidable as was found permissible in Exxon Corporation's case (supra). Hon'ble Supreme Court's observations in Azadi Bachao Andolan's case (supra) recognize the fact that one inconvenience is that the interpreter is likely to be required to cope with is 'disorganised composition instead of precision drafting'.

29.1 Viewed in this perspective, in our considered view, prima facie the context and the setting in which 'sale of property' is used in Article 12(5)(a) requires this expression to have limited meaning in the sense sale of such property is covered by this clause which does not lead to taxability of the sale proceeds on source rule basis. Any other view of the matter may perhaps lead to incongruous result that while the principal transaction of sale of the know-how will be taxable in the source country, a subsidiary transaction of imparting the training to use the know-how will not be taxable in the source country on the ground that it is inextricably and essentially linked to the sale of know-how. Accepting and admitting that the two transactions are inextricably linked to each other, different tax treatment may have to be given to these interdependent transactions in the source country.

There is no explanation for this incongruity. An interpretation leading to such an incongruity is to be avoided even if some violence is required to be done to the words of the treaty. However, to use the famous expressions of Gouilding, J. In Exxon Corporation's case (supra), there may be "no reasons to inflict a deeper wound than necessary" and "accept the consequence (strange though it is) that similar words mean different things in the two sentence". Therefore, the restrictive meaning that appears proper to the expression 'sale of property' should be confined to Article 12(5)(a), and it should not extend to the connotation of 'sale of property' in Article 12(3)(a) which visualizes the sale of a property of the nature that results in taxability in the source country as well.

30. We may now refer to Article 3(2) on which heavy reliance is place by the assessee. Article 3(2) of the India US tax treaty states that a terra not defined in the treaty shall, 'unless the context otherwise (emphasis, italicised in print, supplied by us) requires or the competent authorities agree to a common meaning pursuant to the provisions of Article 27 (mutual agreement procedure) have the same meaning which it has under the laws of the State concerning the taxes to which the Convention applies'. This article is materially the same Article 3(2) of pre- 1995 OECO Model Convention (reproduced at p. E20 of Phillip Baker's Double Taxation Conventions; June, 2001 Edition).

Summarizing the connotations of Article 3(2), Dr. Klaus Vogel, at p.

215 of his oft referred book 'Double Taxation Conventions' (Third Edition 1997, published by Kluwer Law International Ltd.), listed following order of preference for interpreting the terms used in tax treaties : (1) First, special treaty definitions, if any, or treaty rules of interpretation will be applied.

(2) If no such special rules are applicable, the question to be asked is whether the law of the State applying the treaty (lex fori) attaches a special meaning to the term to the extent it relates to the taxes covered by the treaty.

(3) If the law of State applying the treaty uses the term, the term's meaning needs to be ascertained in order to ask whether context suggests a differential interpretation and, in the light of the weight given to the alternative interpretation, whether the context requires a different interpretation.

(4) If question (2) is answered in the negative, but the term is applied in domestic law outside the scope of tax laws envisaged by the treaty, the general rules of interpretation should apply.

Therefore, even when connotations of a treaty term are to be adopted as per the domestic law in the country of taxability, it cannot be done so as a thoughtless and mechanical process. Such meaning needs to be ascertained in order to ask whether context suggests a differential interpretation and, in the light of the weight given to the alternative interpretation, whether the context requires a different interpretation of the said term. Therefore, it is not merely the task if lifting the meaning of that term as per the domestic law in the country of application and applying the same without having regard to the totality of circumstances and scheme of things in the tax treaty. That would be, in fact, truly a case of making a fortress out of the dictionary -although a legal dictionary in this case, Considering the fact that in K.P. Varghese's case (supra) Hon'ble Supreme Court deprecated such a practice in the context of interpretation of taxing statutes, it would be futile to even suggest that such an exercise can be permitted in interpretation of tax treaties. Dr. Vogel, in this book, has also recognized, the fact that the undesirable legal consequences which may result from treaty interpretation according to domestic law, have induced commentators to attempt to limit reference to domestic law by emphasizing that "treaty should be, to the greatest possible extent, interpretated according to its context". The Federal Fiscal Court in Germany (Bundesfinanzhof, also referred to as BFH in short) has even expressed the view that recourse to domestic law was not permissible unless and until an interpretation from treaty's context has proved impossible (BFH BStB1.II 379 (1971); 114 1986) (Double Taxation Conventions by Dr Klaus Vogel; relevant discussion at p. 215), Whatever be an academician's reservations on this principle, the existence of this valid school of thought cannot be denied. In the case of N.Gladden v. Her Majesty the Queen (supra), at p. 5190, which has been referred to, with approval, by Hon'ble Supreme Court of India in the case of Azadi Bachao Andolan (supra), Federal Court of Canada has held that 'A literal or legalistic interpretation must be avoided when the basic object of the treaty might be defeated or frustrated insofar as the particular items under consideration are concerned'. It would thus follow that literal or legalistic meaning of a treaty term is relevant only as long as the same is supported by the context in which the treaty term is used. The importance of contextual meaning and non-applicability of 'technical rules of law or precedents' in interpretation of tax treaties is also supported by Tribunal's decision in Ensco Maritime Ltd.'s case (supra). In our considered view, this school of thought which in fact places 'contextual meaning' of a tax treaty term on a higher pedestal than a purely 'legal meaning' is correct in its approach and deserves unqualified acceptance. We may also refer to our observations in para 17 above and in the context of general discussion about the scope of Article 3(2). As we have noted therein, the purpose of the relevant provision in the tax treaty is indeed one of the relevant considerations in deciding the contextual meaning. It is also important, as we have noted in the same context and in the same paragraph, that even the school of thought advocating supremacy of domestic law meaning only argues that the interpretation in favour of the contextual or treaty meaning cannot be restored to without discharging the onus to justify the same. It is nobody's case, not even the staunch supporters of the domestic law meaning's supremacy, that the contextual meaning can be ignored altogether in favour of the domestic law meaning. In the case before, we have already set out the reasons as to why, in our considered view, the interpretation of the treaty by adopting the domestic law meaning of the term 'property' will result in an absurdity as to how the same can be avoided by giving the expression 'property' a meaning which the present context, in our considered view, the said expression warrants and justifies. In the context of the interpretation of Article 12(5)(a) of the India US tax treaty, the meaning of the expression 'sale of property should be confined to only such a sale which does not lead to taxability of sale proceeds on source rule basis as in Article 12. The arguments of the learned counsel, relying upon the legal connotation of the expression 'property' under the Indian laws, therefore, must fail.

This is of course besides the point that even under Indian laws liberal connotations of the expression 'property' are not universal or unqualified, and must depend upon the contextual limitations. The limitation to be placed on the connotations of 'property' by the context in which this expression is used has also been recognized by the Hon'ble jurisdictional High Court in dealing with wealth-tax provisions. In the case of CWT v. Vidur V. Patel (1995) 215 ITR 30 (Bom), Their Lordships of Hon'ble Bombay High Court have observed that, "So far as meaning of 'property' is concerned, it is well settled that it is a word of widest import, and subject to any limitation which the context may requite, it signifies every possible interest which a person can hold or enjoy (emphasis, italicised in print, supplied by us). In any event, learned counsel's arguments proceed on untested hypothesis that the context, in which the expression 'property' is used in Article 12(5)(a), does not require a limited meaning being given to the said expression. That is an important aspect of the matter which has not been examined by the authorities below.

31. Another plea, in support of assessee's contention about non-taxability of the training fees as a second tier of defence, is that even under the provisions of the IT Act, 1961, the same is not liable to be taxed in India, and, therefore, its taxability under the provisions of the India US tax treaty is immaterial. Learned counsel, in all fairness, accepts that this plea is decided against the assessee by a co-ordinate Bench of this Tribunal in assessee's own case, i.e., Hindalco Industries Ltd. v. ITO ITA No 3773/Mum/96 [now reported as (2004) 91 ITD 64 (Mumbai)), but then his contention is that the co-ordinate Bench, in so deciding the issue, did not appropriately deal with certain contentions of the assessee. To that extent, according to the learned counsel, order of the co-ordinate Bench is per incuram. In any event, learned counsel's objection that this decision has not considered certain vital aspects of the matter does not impress us, particularly as there is no dispute that the relevant facts are in pan matena. We may refer to the observations of the apex Court in the case of Ambika Prasad Mishra v. State of UP AIR 1980 SC 1762 : (1980) 3 SCC 719 (p. 1764 of AIR 1980 SC), that "Every new discovery nor argumentative novelty cannot undo or compel reconsideration of a binding precedent.... A decision does not loose its authority 'merely because it was badly argued, inadequately considered or fallaciously reasoned...." Similarly, in the case of Kesho Ram & Co. v. Union of India (1989) 3 SCC 151, it was stated by the Supreme Court thus (p.

160) that "The binding effect of a decision of this Court does not depend upon whether a particular argument was considered or not, provided the point with reference to which the argument is advanced subsequently was actually decided in the earlier decision..." In such a situation, we are of the view that the objections raised by the assessee are devoid of any sustainable merits. In any event, having carefully gone through the said order passed by the co-ordinate Bench, we are in most respectful agreement with the views so expressed by our esteemed colleagues and we endorse and adopt the same. The arguments of the learned counsel on this issue do not meet our approval.

32. A lot of emphasis has been laid by the assessee on the order passed by another co-ordinate Bench, in assessee's own case, restoring the matter to the file of the CIT(A) for examining the matter on the trting (sic) of training is ancillary and subsidiary, as well as inextricably and essentially linked to the sale of know-how. It is contended that the Tribunal has implicitly accepted the assessee's contention regarding applicability of Article 12(5)(a) on the facts of this case, because the exercise directed above could only be relevant when Article 12(5)(a) is held to be applicable.

33. Vide order dt. 20th Jan., 2004, Mumbai D Bench has, in the case of this very assessee and on identical facts, concluded as follows : "10. We find that the CIT(A) did not make adequate discussion on this aspect. The provisions of DTAA are not considered in order. It is important to see that whether the training could be considered service that in ancillary and subsidiary, as well as inextricably and essentially linked to the sale of the property. This aspect needs to be examined with reference to the agreement and details on the touchstone of the provisions laid down in the convention. That was not done. We, therefore, in the interest of justice, set aside the impugned order and restore it to the file of the CIT(A) with direction to decide it afresh in accordance with the law and after providing adequate opportunity to the assessee of being heard." 34. We see no substance in this plea about 'implicit findings' in the Tribunal order. We have all the respect for the order passed by the co-ordinate Bench and we respectfully follow the same. However, we can follow the order on whatever has been decided in the Tribunal's order and not on what impliedly follows from it. The fact that Tribunal made observations to the effect that 'It is important to see that whether the training could be considered service that in ancilliary and subsidiary, as well as inextricably and essentially linked to the sale of the property cannot preclude CIT(A)'s enquiry on whether or not the 'sale of know-how' constitutes, for the purposes of Article 12(5)(a), 'sale of property'. That issue is still open for the CIT(A). The Tribunal decided that the matter should be restored to the file of the CIT(A) for examination de novo and after considering whether the training fees is ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of know-how. To that extent, we are bound by the co-ordinate Bench's decision.

35. It is also important to appreciate that the above observations were made in the context of the following observations in the preceding paragraphs : 8. Reference was also made to the decision of the Tribunal in assessee's own case being ITA Nos. 5019 and 5020/B/95, dt. 18th Oct., 2002. In this case, Tribunal held that training was not only the ancillary and subsidiary services, but was also inextricably and essentially linked to the sale of plant. In such a case, the payment for consideration for the services stand excluded from the definition of 'fees for technical services' as per the DTAA for United Kingdom.

9. As per the prescription of Section 9(1), income arising directly or indirectly through or from any business connection in India is deemed to accrue or arise in India. The charging Section 4 as well as Section 5 defining the total income are expressly made subject to the provisions of the Act, which means they are subject to the provisions of Section 90. By necessary implication, it is subject to the terms of the DTAA,' if any, entered into by the Government of India with foreign countries. Even assuming that all the profits of foreign company are to be deemed to accrue or arise in India under Section 9 of the Act, the provisions of the articles of the agreement will prevail over Section 9. In effect, such profits of a foreign company will not be liable to tax under Section 9 except to the extent allowed by the agreement with the foreign country." The above observations clearly show that the reliance before the Tribunal was placed on an earlier decision of the Tribunal on the issue of taxability of training fees which was not only the ancillary and subsidiary services, but was also inextricably and essentially linked to the 'sale of plant'. The assessee's prayer was that the same decision should also be applied to the case of the sale of know-how, but then 'plant' and 'know-how' belong to different genus. However, the distinction between the nature of sale of a 'plant and machinery' and nature of sale of 'know-how' was neither highlighted before the Tribunal nor the Tribunal addressed the same. The co-ordinate Bench, therefore, did not decide whether or not the sale of know-how is required to be treated as 'sale of property' for the purpose of Article 12(5)(a) in the first place. This aspect of the matter was not argued before the Tribunal and the Tribunal had no occasion to deal with the same. That is very different from the situation before us in which not only that aspect of the matter was argued but it was argued at considerable length spread over more than two sessions of hearing 36. Learned counsel argued before us, at considerable length, on this issue and urging us to give finding to that effect in favour of the assessee. Even written submissions on that aspect of the matter were filed before us. We are not impressed with these arguments, and, for the detailed reasons set out above, we have rejected the contentions argued before us and on which the coordinate Bench had no occasion to comment upon. The issue which has received our consideration in this appeal has not been dealt with by the coordinate Bench, and the order of the co-ordinate Bench can only be authority for what it actually decides and not what impliedly follows from it. But then, this is not end of the matter. We are only restoring the matter to the file of the CIT(A) not only because we have to follow the co-ordinate Bench's order but also because we do appreciate that this aspect of the matter has not been considered in sufficient details by the authorities below. We also make it clear that our observations above do not denude the CIT(A) of his powers to objectively consider any such pleas as may be taken by the assessee during the course of hearing before him. Therefore, having given our findings on what is argued before us and in deference to the decision of the co-ordinate Bench, we see no harm in restoring this matter to the file of the CIT(A) for adjudication de novo. While examining the issue de novo, the CIT(A) shall consider whether or not the training is ancillary and subsidiary, as well as inextricably and essentially linked to the sale of know-how. The CIT(A) shall also examine whether or not the sale of know-how constitutes sale of property, in the light of our observations hereinabove and also in the light of the whatever submissions the assessee may wish to make, and deal with the same by way of a speaking order after giving adequate opportunity to the assessee to present its case.

37. In due deference to the order passed by the co-ordinate Bench, we restore the matter to the file of the CIT(A) for examination de novo.

While doing so, the CIT(A) shall examine (i) whether or not the training is ancillary and subsidiary, as well as inextricably and essentially linked to the sale of know-how; and (ii) whether or not the sale of know-how constitutes sale of property. The CIT(A) shall give due and fair opportunity of hearing to the assessee, bear in mind our findings above and shall objectively deal with, by way of a speaking and reasoned order, whatever submissions the assessee prefers to make.

38. In ITA Nos. 409, 410 and 411/Mum/1999, the only issue raised is regarding non-taxability of training fees in India. In view of the above discussions, these appeals are allowed for statistical purposes in the terms indicated above.

39. In the result, ITA Nos. 409, 410 and 411 are hereby allowed for statistical purposes.

41. In these cases, the assessee is aggrieved of CIT(A)-ought to have held that the payments of US $ 10,00,000, US $ 2,00,000 and yet another US$ 2,00,000 plus reimbursement of incidental expenses made by the assessee to Reynolds International Inc., USA, were not liable to be taxed in India under Article 12 of the India US tax treaty, and that the assessee was, accordingly, not liable to deduct the tax at source from the same. The assessee is also aggrieved that the CIT(A) should have further held that consideration for sale of know-how is not royalty, that there is no nexus between the person being taxed and something done in India, and that, in the absence of such a nexus, income-tax law cannot have any extra-territorial jurisdiction.

42. As far as the taxability of the payments under the IT Act is concerned, the same are admittedly covered against the assessee by the order passed in assessee's own case in ITA No. 3773/Mum/1996 [now reported at (2004) 85 TTJ (Mumbai) 71 : (2005) 91 ITD 64 (Mumbai)]. As we have already stated earlier in this order, we see no good reasons to take any other view of the matter. Coming to the argument against the applicability of Article 12, even a plain reading of the agreement, however, will show that the arguments raised by the assessee are devoid of any substance. This agreement provides that 'whereas Hindalco desires to acquire the know-how process technology and the technical assistance from RII, to enable Hindalco and its consultants to design, construct and operate a plant to manufacture plain and converted aluminum foil of international quality' and 'whereas RII is agreeable to disclose and provide to Hindalco the know-how, process technology and providing technical assistance as above', the said agreement is entered into. The very purpose of the agreement is thus to make available the "technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design" which is clearly covered by the scope of Article 12(4). It is clearly covered by the definition of the expression 'fees for technical services'. The taxability of amounts of US $ 14,00,000 is thus confirmed and approved.

43. The only other issue that we are left with now is the question of taxability of reimbursement of incidental expenses. Following the view taken by the Hon'ble Kerala High Court in the case of Cochin Refineries Ltd. v. CIT (1996) 222 ITR 354 (Ker), and in assessee's own case, a coordinate Bench of this Tribunal, to which one of us was a party, has approved the Revenue's stand that even reimbursement of incidental expenses is required to be treated as a part of the fees for technical services for the purpose of the India US tax treaty. We see no reasons to take any other view of the matter than the view taken by the co-ordinate Bench to which one of us was a party. Accordingly, we reject this contention also. No other arguments were raised before us.

44. In view of the above discussions, we are not inclined to uphold the grievances raised in ITA Nos. 3772-3774/Mum/1996 and 1588/Mum/1997 either. In our considered view, the appeals are devoid of any legally sustainable merits. Accordingly, we reject the appeals.

45. In the result, ITA Nos. 3772-3774/Mum/1996 and 1588/Mum/1997 are dismissed.

46. To sum up, while ITA Nos. 409, 410 and 411 are allowed for statistical purposes, ITA Nos. 3772-3774/Mum/1996 and 1588/Mum/1997 are dismissed.


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