M/S. QLIKTECH INTERNATIONAL AB,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-2(1), BENGALURU

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “B”, BANGALORE Before Shri George George K, JM & Shri Laxmi Prasad Sahu, AM IT(IT)A No.71/Bang/2023 : Asst.Year 2016-2017 M/s.Qlik Tech International AB The Assistant Commissioner C/o.Qlik Tech India Pvt. Ltd. of Income-tax, International v. No.1 & 2, The Millennia Tower A Taxation, Circle 2(1) 4th Floor, Murphy Road, Ulsoor Bengaluru. Bengaluru – 560 008. PAN : AAACQ2234R. (Appellant) (Respondent) Appellant by : Ms.Sanjana Dawar, CA Respondent by : Sri.G.Manoj Kumar, CIT-DR Date of Pronouncement : 29.03.2023 Date of Hearing : 28.03.2023 O R D E R Per George George K, JM : This appeal at the instance of the assessee is directed against final assessment order dated 12.12.2022 passed u/s 143(3) r.w.s. 147 r.w.s. 144C of the I.T.Act. The relevant assessment year is 2016-2017.

2 IT(IT)A No.71/Bang/2023. M/s.Qlik Tech International AB. back office services. For the assessment year 2016-2017, the assessee received following payments from Qliktech India:-

(i) Rs.21,10,44,306 from sale of software; (ii) Rs.1,35,28,213 from rendering corporate management / finance back office operations.

3 IT(IT)A No.71/Bang/2023. M/s.Qlik Tech International AB. 4. Aggrieved by the final assessment order, the assessee has filed the present appeal before the Tribunal raising following grounds:-

“Based on the facts and circumstances of the case, QlikTech International AB (hereinafter referred as 'Qlik AB' or 'the Company' or 'the Appellant' or 'Assessee'), respectfully submits that- The order passed under section 143(3) r.w.s 147 r.w.s. 144C of the Income-tax Act, 1961 ('the Act') pursuant to DRP directions under section 144C(5) of the Act for the AY 2016-17, is so far as they are prejudicial to the interest ofthe Appellant, are bad in law and in facts, in the circumstances ofthe case. 1. Validity of the re-assessment proceedings a.The learned Assessing Officer ('Learned AO') has erred in law and on facts in invoking re-assessment proceedings under section 147 of the Act for the relevant Assessment Year. b.The Learned AO has erred in not following the proper course of action laid down by the Apex Court in the case of GKN Driveshafts (India) Limited vs ITO (259 ITR 19) for re- assessment proceedings. c.The Learned AO has erred in passing the draft order of assessment ('DAO') without disposing the objections submitted by the Company against the reasons provided by the assessing officer. d.That the Draft Assessment Order ought to be quashed considering the same is bad in law and has been passed without following proper procedure laid down for re- assessment proceedings. e.The Learned Dispute Resolution Panel ('DRP') has erred in upholding the validity of the re-assessment proceedings. f.The Learned DRP ought to have appreciated that proper course of action was not followed by the Learned AO and to that effect the re-assessment proceedings are invalid. 2.Treatment of receipts of the Company from shared services to be in the nature of 'fees for technical services' and therefore liable to tax in India: a.The learned Assessing Officer ('Learned AO') and the Hon'ble

4 IT(IT)A No.71/Bang/2023. M/s.Qlik Tech International AB. Dispute Resolution Panel (`DRP') grossly erred in law and on facts in alleging that the sum of Rs. 1,35,28,213 received by the Company from Qlik India on account of shared service centre cost recharge, to be in the nature of Fees for Technical Services ('FTS') and therefore taxable in India both under the provisions of section 9(i)(vii) of the Act and under the provisions of Article 12(2) of the India Sweden Double Taxation Avoidance Agreement ('DTAA'). The Learned AO/Hon'ble DRP erred in not following the decision of the Hon'ble Income-tax Appellate Tribunal ('ITAT') for AY 2018-19 and AY 2019-20 which held that receipts from shared services in India under the Act and under the India- Sweden DTAA on account of non-satisfaction of the "make available" condition contained in India-Portuguese DTAA that can be relied on by Qlik AB by virtue of the Most Favoured Nation ('MFN') clause contained in the Protocol to the India- Sweden DTAA. The Learned AO/Hon'ble DRP ought to have appreciated that the Hon'ble ITAT has examined satisfaction of conditions listed in circular no. 03/2022 in arriving at its verdict for the afore-mentioned years. c.The Learned AO / Hon'ble DRP erred in not following the decision of the Hon'ble ITAT in the Assessee's own case for the AY 2017-18, wherein the IT AT has decided the issue in favour of the Company and held that the receipts of the Company from shared services would not be taxable as FTS in India under the Act and under the India-Sweden DTAA on account of non-satisfaction of the "make available" condition contained in India-Portuguese DTAA that can be relied on by Qlik AB by virtue of the MFN clause contained in the Protocol to the India-Sweden DTAA. d.The Learned AO / Hon'ble DRP erred in law and on facts, in failing to appreciate that a dictum of jurisdictional appellate' tribunal is binding and has to be necessarily followed by the lower authorities, save change in facts and circumstances. Hence, given that the facts of Qlik AB in the subject year under consideration (i.e., AY 2016-17) was identical to the year covered by the judgments of the Hon'ble ITAT in the Assessee's own case for the AY 2017-18, AY 2018-19 and AY 2019-20 the question of taxability ofthe receipts in respect of shared services in India is settled in favour of Qlik AB and hence, the same ought not to be held as taxable as FTS in India. e.The Learned AO / Hon'ble DRP erred in holding that the services rendered are in the nature of 'consultancy services' which make available technical knowledge, experience and

5 IT(IT)A No.71/Bang/2023. M/s.Qlik Tech International AB. skill to the Indian entity without appreciating the clarifications provided by the Assessee that as per the Service Agreement, only corporate back office services were being rendered to Qlik India and such services are not consultancy services and the same do not involve transfer of any technical knowledge or skill or experience to the recipient. f.The Learned AO / Hon'ble DRP erred in following the decision of the AAR in the case of Areva T&D India Limited [2012]18 Taxmann.com 171 (AAR - New Delhi) and in the case of SAB Millers in AAR No.1l99 of 2011, to hold that the services rendered by Qlik AB amounts to FTS under the provisions of the Act as well as the DTAA. g.The Learned AO / Hon'ble DRP erred in law and on facts in stating that, since the business model and the accounting and financial policies of the business remains the same, the consultancy services could be utilised by the Indian entity in its business year after year, thereby satisfying the 'make available' condition without appreciating fact that the year on year rendition of services by Qlik AB to the Indian entity (until termination of the agreement) proves that no technical knowledge, skills, experience etc. is transferred or made available to the Indian entity for independently functioning without the aid of Qlik AB. h.On facts and circumstances of the case, the Learned AO / Hon'ble DRP has erred in following the decision of the AAR in the case of Areva T&D India Limited [2012] 18 Taxmann.com 171 (AAR- New Delhi) and in the case of SAB Millers in AAR NO.1l99 of 2011, to hold that the services rendered by Qlik AB amounts to FTS under the provisions of the Act as well as the DTAA. Without prejudice to the above, the Learned AO / Hon'ble DRP erred in alleging that the Appellant does not satisfy all the conditions mentioned in para 5 of the Circular No. 3/2022 dated 03/02/2022 without appreciating the detailed submissions made by the Appellant clarifying that the Company has satisfied all the conditions prescribed under para 5 of the said Circular to avail the benefit of MFN clause. j.Without prejudice to the above, the Learned AO / Hon'ble DRP erred to appreciate the fact that the requirement contained in the Circular could not primarily be applied to the period before the date of its issuance as it was an additional detrimental stipulation mandated for taking benefit conferred by the tax treaty. Further, the Learned AO / Hon'ble DRP failed to consider that it is a settled legal position that a piece of legislation that imposes a new obligation or

6 IT(IT)A No.71/Bang/2023. M/s.Qlik Tech International AB. requirement is considered prospective, unless the legislative intent was clearly to give it a retrospective effect. The Hon'ble Bangalore ITAT in assessee's own case for AY 2018-19 and AY 2019-20 had established that the assessee fulfills all the conditions laid out in the circular. k.The Learned AO and the Hon'ble DRP erred in law and on facts in holding that the MFN clause covered in Protocol to the India-Sweden DTAA would not apply in the instant case as treaty between India-Portuguese was entered prior to that of India-Sweden, without appreciating the submissions of the Assessee clarifying that the India-Portuguese treaty came into effect subsequent to that of India-Sweden DTAA. I.The Hon'ble DRP has erred on facts in holding that the assessee does not satisfy the conditions as mentioned in Para 5(iv) mentioned in Para 5 of the circular no. 03/2022 which provides for a separate notification has been issued in India, importing the benefits of the second treaty into the treaty with the first state, without appreciating the submission of the Assessee clarifying the satisfaction of all the conditions laid out in the circular. m.The Learned AO / Hon'ble DRP erred in law and on facts by not following the principle laid out by various judicial precedents relied upon by the Assessee. Consequential grounds: d.The learned AO has erred, in law and on facts, in levying interest of INR 7,41,323 under section 234D of the Act. e.The learned AO has erred, in law and on facts, in not considering the interest under section 244A from April 2016 to February 2021 (date of refund) of INR 62,25,806 of the Act while passing the final assessment order. f.The learned AO has erred, in laws and on facts, in levying cess at the rate of 3% on the tax liability of INR 13,52,821(tax liability as per the rates of DTAA) resulting in additional liability of INR 40,585. g. The Learned AO has erred in issuing a demand notice under section 156 of the Act. The abovementioned grounds are without prejudice to one another.

7 IT(IT)A No.71/Bang/2023. M/s.Qlik Tech International AB. The Appellant craves leave to add, alter, rescind, and modify the grounds herein above or produce further documents, facts, and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided.” 5. The assessee has filed a paper book comprising of 666 pages enclosing therein the return of income filed for the relevant assessment year, the financial statements, the submissions made before the A.O. and the DRP, the tax residency certificate for the relevant assessment year, the reasons recorded for reopening the assessment, copy of the agreement entered between the assessee and Qliktech India for rendering of services, the case laws relied on, etc. The learned AR submitted that the issue on merits is squarely covered in favour of the assessee by the orders of the Tribunal in assessee’s own case for assessment years 2018-2019 and 2019-2020 in IT(IT)A Nos.896 and 897/Bang/2022 (order dated 28.11.2022) and for assessment year 2017-2018 in IT(IT)A No.173/Bang/2021 (order dated 06.07.2021).

8 IT(IT)A No.71/Bang/2023. M/s.Qlik Tech International AB. services rendered as per the agreement entered into between the assessee and the Indian entity are as follows:-

(i) General ledger related services. (ii) Closing of local books and group reporting activities on a monthly basis. (iii) Statutory filing of local tax and local financial statements. (iv) Assistance with audit related work. (v) Reviewing closed orders and preparing and issuing of invoices. (vi) Supports to sales related technical administration in ERP. (vii) Handling of all accounts payables, invoices including reminders. (viii) Handling cash disbursements and receipts. (ix) Reviewing and payment of all travel expense claims. (x) Payroll related expenses. etc.

9 IT(IT)A No.71/Bang/2023. M/s.Qlik Tech International AB. “25. Going by the nature of services enumerated in the present case, we are of the view that the services were purely in the nature of back office services and nothing can be regarded as having been made available to the recipient of services. As per the terms of the Service Agreement, it is clear that the assessee only provides corporate back office services to QlikTech India and such services are not consultancy services and the same do not involve transfer of any technical knowledge or skill or experience to the recipient. The CIT(A) has erred in law and on facts in stating that, since the business model and the accounting and financial policies of the business remains the same, the consultancy services could be utilised by the Indian entity in its business year after year, thereby satisfying the 'make available' condition. On the contrary, the CIT(A) has failed to appreciate that the year on year rendition of services by the assessee to the Indian entity proves that technical knowledge is not transferred or made available to the Indian entity for independently function without the aid of the assessee. We therefore agree with the plea of the assessee and hold that the sum received towards shares services were not in the nature of FTS and cannot be brought to tax in India as “FTS”. The sum in question cannot be taxed as business profits also, as under Article 7(1) of DTAA, as the receipts in question cannot be attributed to the permanent establishment. Ground No.3 is accordingly allowed.” 9. For the relevant assessment year, we find that the services rendered by the assessee are not in the nature of advisory services, rather, are in the nature of routine back office support services. From the nature of services rendered by the assessee, it is apparent that the assessee has not made available any technical knowledge, experience and skill to the Indian entity. The services are routine support services in nature, i.e., general accounting / business support services rendered by the assessee to the Indian entity without transfer of any technical know-how. Therefore, for the relevant assessment year following the above order of the Tribunal in assessee’s own case, we hold that the amount received by the assessee-company is not taxable as FTS.

10 IT(IT)A No.71/Bang/2023. M/s.Qlik Tech International AB. 10. Further, the Tribunal in assessee’s own case for assessment years 2018-2019 and 2019-2020 (supra), had held that the assessee was entitled to the claim of benefit of MFN clause. Accordingly, the receipts from shared services were not in the nature of FTS and cannot be brought to tax in India as FTS and cannot be taxed as business profits as well. The relevant findings of the Tribunal read as follows:-

“16. It is the contention of the DRP that the assessee does not satisfy the conditions of circular no 3/2022, we will first look at the relevant clause in the circular - 5. In view of the above, it is hereby clarified that the applicability of the MFN clause and benefit of the lower rate or restricted scope of source taxation rights in relation to certain items of income (such as dividends, interest income, royalties, Fees for Technical Services, etc.) provided in India's DTAAs with the third States will be available to the first (OECD) State only when all the following conditions are met: (i) The second treaty (with the third State) is entered into after the signature/ Entry into Force (depending upon the language of the MFN clause) of the treaty between India and the first State; (ii) The second treaty is entered into between India and a State which is a member of the OECD at the time of signing the treaty with it; (iii) India limits its taxing rights in the second treaty in relation to rate or scope of taxation in respect of the relevant items of income; and (iv) A separate notification has been issued by India, importing the benefits of the second treaty into the treaty with the first State, as required by the provisions of sub-section (1) of Section 90 of the Income Tax Act, 1961. If all the conditions enumerated in Paragraph 5(i) to (iv) are satisfied, then the lower rate or restricted scope in the treaty with the third State is imported into the treaty with an OECD State having MFN clause from the date as per the provisions of

11 IT(IT)A No.71/Bang/2023. M/s.Qlik Tech International AB. the MFN clause in the DTAA, after following the due procedure under the Indian tax law. 17. With regard to the first condition, the second treaty between India and Portuguese is entered into on 30.4.2000 (refer page no 762 of paper book) and the treaty between India and Sweden was entered into on 25.12.1997 (refer page 777 of paper book). Accordingly in our view the first condition is satisfied. Portuguese is a member of the OECD as per the list of OECD member countries furnished in page 785/786 of paper book accordingly the second condition is also satisfied. With regard to the third condition the relevant extract of the protocol reads as under - “In respect of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties and fees for technical services) if under any Convention. Agreement or Protocol between India and a third State which is a member of the OECD, India limits its taxation at source on dividends, interest, royalties, or fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in t is Convention on the said items of income, the same rate or scope as provided for in that Convention, Agreement or Protocol on the said items of income shall also apply under this Convention.” 18. From the above protocol, it is clear that the condition in clause 5(iii) of the circular above stands satisfied. Further with regard to the condition in 5(iv) we see merit in the argument of the learned AR that the language of the protocol clearly states that the protocol shall be for an integral part of the convention and accordingly Notification no.705€ dated 17.12.1997 duly notifies the protocol as mentioned in clause 5(iv). We notice that the Pune Bench of the Tribunal in the case of GRI Renewable Industries vs ACIT (ITA No.202/PUN/2021 dated 15.02.2022) has considered a similar issue and held that - “14. To summarize, the DTAA between India and Spain, having the Protocol containing the MFN clause as its integral part, was duly notified on 21-04-1995, after having entered into force on 12-011995. On such notification of the DTAA, the Protocol containing the MFN clause triggering the importing of any other DTAA fulfilling the requisite requirements, including the Portuguese DTAA, got automatically notified pro tanto, in terms of section 90(1) of the Act leaving no room for any separate notification for the importation. The sequitur is that that the authorities below were not justified in denying the benefit of the straight rate of tax at 10% as per the DTAA read with Portuguese DTAA and also additionally charging Surcharge and Education cess.”

12 IT(IT)A No.71/Bang/2023. M/s.Qlik Tech International AB. 19. Considering the facts of the case for the years under consideration and respectfully following the decision of the coordinate bench in assessee's own case and the decision of the Pune Bench in the case of GRI Renewable Industries (supra) we hold that the sum received towards shares services were not in the nature of FTS and cannot be brought to tax in India as "FTS". The sum in question cannot be taxed as business profits also, as under Article 7(1) of DTAA, as the receipts in question cannot be attributed to the permanent establishment. Accordingly the additions made in both assessment years towards this is deleted.” 11. In view of the aforesaid orders of the Tribunal in assessee’s own case, we hold that the receipts of Rs.1,35,28,213 from Indian entity on account of shared service centre cost recharge is not liable to be taxed in India under the Act as well as under the DTAA.

Order pronounced on this 29th day of March, 2023.

Sd/- Sd/- (Laxmi Prasad Sahu) (George George K) ACCOUNTANT MEMBER JUDICIAL MEMBER Bangalore; Dated : 29th March, 2023. Devadas G*

13 IT(IT)A No.71/Bang/2023. M/s.Qlik Tech International AB.

Copy to : 1. The Appellant. 2. The Respondent. 3. The DRP-2, Bengaluru. 4. The DCIT, Assessment Circle 2(1), Bengaluru. 5. The DR, ITAT, Bengaluru. 6. Guard File. Asst.Registrar/ITAT, Bangalore