Sanjiv Khanna, J.

Revenue has preferred these appeals under Section 260-A of the Income Tax Act, 1961 (Act, for short) and vide order dated 8th August, 2011 the following substantial questions of law were framed:-

(1) Whether learned ITAT erred in holding that the assessee's activities are not FTS within the definition of FTS stated in Articles 12 of the Double Definition of FTS stated in Articles 12 of the Double Taxation Avoidance Agreement?

(2) Whether learned ITAT erred in holding that Articles 7 of the Indo-Australia DTAA will be applicable and hence such income has to be construed as business income?

(3) Whether provisions of Section 115-A read with Section 44-D of the Income Tax Act, 1961 are not applicable in the facts present case?

2. The respondent assessee-Rio Tinto Technological Resources TY Limited, during the years in question i.e. the Assessment Years 1999-2000, 2000-01 and 2001-02 had operated in India through its division Rio Tinto Technical Services. The respondent-assessee had filed returns on 2nd February, 1999, 17th November, 2000 and 22nd October, 2001 declaring loss of Rs.2,00,970/-, positive income of Rs.23,88,700/- and Rs.12,50,930/- in respect of the three assessment years mentioned above. The three returns were taken up for regular assessment under Section 143(3) of the Act and the Assessing Officer vide assessment orders dated 25th February, 2002, 21st March, 2003 and 27th January, 2004 held that the payments received by the assessee from Rio Tinto India Private Limited and Rio Tinto Orissa Mining Limited (RTIPL and RTOML respectively, for short) were taxable as fee for technical services under Section 9(1)(vii) read with Section 115A of the Act and the gross receipts without any deduction were taxable at the rate of 20% in view of Section 44D of the Act. It was held that Articles 7 and 12 of the Double Taxation Avoidance Agreement between India and Australia (DTAA, for short) were not applicable. The income of the assessee for the three years was enhanced to Rs. 30,05,20,535/-, Rs. 1,41,46,440/- and Rs.36,53,188/- for the Assessment Years 1999-2000, 2000-01 and 2001-02, respectively. This income or the gross receipts were held as taxable at the flat rate of 20% without deduction of expenses.

3. The assessee was unsuccessful in the first appeal.

4. However, the Income Tax Appellate Tribunal (the tribunal, for short), by their common order for the three assessment years dated 19th March, 2010 has accepted the stand and stance of the assessee. Paragraph 4.3 of the said order, which is the operative portion and gives the ratio of the findings recorded by the tribunal, for the sake of convenience is reproduced below:-

4.3 Thus, applying these provisions to the facts to the present case, it is noticed that the assessee having admitted that it has PE in India and the income of the assessee is taxable in India and the assessee having opted to be taxed as per the provisions of the DTAA it is Article 7 of the DTAA which applies to the assessee's case in so far as the assessee has a PE in India. Thus, as per Article 7(2) of the DTAA, the PE of the assessee would have to be treated as a wholly independent enterprise, which is liable to be taxed in India. Once it is held that the assessee is liable to be taxed as per Article 7 of the DTAA, sub-clause (3) of Article 7 of the DTAA would come into play and deduction in accordance with the subject to the law relating to the tax in India would apply. Since it is held that Article 7 of the Act would no more be applicable as Article 7(2) of the DTAA specifies that the PE of the assesse is to be treated as a wholly independent enterprise and it is the profits of such PE in India which are to be taxed. Since Article 7 of the DTAA is applied, Section 44-D and Section 115A of the Act also will not apply in so far as they relate to foreign companies, whereas clause (2) of Article 7 of the DTAA specifies that the PE in India is to be treated as a wholly independent enterp