M/S. SANDVIK IT SERVICES AB,,PUNE vs. DEPUTY COMMISSIONER OF INCOME TAX,, PUNE

The assessee has raised the following grounds of appeal:-

The assessee is aggrieved by the orders of authorities below in holding that receipts of ₹ 72,95,001/- received for providing IT support services are to be taxed in the hands of assessee as Fees for Technical Services and / or Royalty within meaning of section 9(1)(vi) of the Act and Article 12 of India- Sweden DTAA.

Briefly, in the facts of the case, the assessee was resident of Sweden and had filed the return of income declaring income at Nil. The case of assessee was taken up for scrutiny. During the year, the assessee had received ₹ 18.60 crores from Sandvik Asia Pvt. Ltd. on account of IT support service fees, ₹ 71,92,192/- from Walter Tools India Pvt. Ltd. and ₹ 1,02,809/- from Dormer Tools India Pvt. Ltd., totaling ₹ 19.33 crores (approx.). The assessee in the Notes appended to computation of income had declared that certain management services were provided to the above said concern, which were in the nature of IT support services and the assessee was of the view that these were not liable to deduct tax as FTS in India under the Tax Treaty between India and Portugal as referred to via Protocol attached to DTAA between India and Sweden, as the services did not make available any technical knowledge, experience, skill, know-how or process. The assessee was show caused as to why the payments received by it should not be treated as royalty and taxed accordingly. In response thereto, the assessee pointed out that IT support service fees paid were not taxable in India as the ‘make believe’ condition was not satisfied. Such a condition is provided in the Tax Treaty between India and Portugal referred to in Protocol attached to Tax Treaty between India and Sweden. The assessee also explained that Dispute Resolution Panel (DRP) in assessment year 2010-11 had held that IT support service fees received by assessee were not taxable in India as the ‘make believe’ condition was not satisfied. The assessee also explained the services provided to recipients. However, the Assessing Officer was of the view that payments received by assessee constitute ‘royalty’ and ‘Fees for Technical Services’ as per section 9(1)(vi) and 9(1)(vii) of the Act as well as Article 12 of DTAA between Indian and Sweden. The license fees received for use of

The assessee is in appeal against the same and has challenged the taxability of receipts of totaling ₹ 72,95,001/- in its hands.

The learned Authorized Representative for the assessee pointed out that the DRP had not accepted the plea of assessee on the ground that no invoices of Walter Tools India Pvt. Ltd. and Dormer Tools India Pvt. Ltd. were filed. However, the assessee points out that additional evidence is being filed along with application for admission of additional evidence. He then referred to para 2 of assessment order, where the Assessing Officer has accepted the nature of services provided by Sandvik Asia Pvt. Ltd. and other two concerns i.e. Walter Tools India Pvt. Ltd. and Dormer Tools India Pvt. Ltd. were the same. The learned Authorized Representative for the assessee further stated that though DRP gives his finding but no details were ever asked for. The learned Authorized Representative for the assessee fairly pointed out that matter may be verified by the Assessing Officer in line with findings with respect to other concern i.e. Sandvik Asia Pvt. Ltd.

The learned Departmental Representative for the Revenue strongly objected and pointing to the finding of DRP at page 16 pointed out that no second innings is to be allowed to the assessee.

The learned Authorized Representative for the assessee in rejoinder referred to page 1 of assessment order and pointed out that in the chart itself, the nature of services are mentioned to be IT support services and the Assessing Officer was not disputing the nature of services provided.

We have heard the rival contentions and perused the record. The assessee admittedly, was providing IT support services to the entities in India. In respect of first entity, to which major services have been provided by assessee the transaction has been accepted not to be in the nature of royalty or FTS and also not taxable as business receipts under Article 7 of DTAA between India and Sweden. There is no appeal by the Revenue against the findings of DRP in this regard and the final assessment order passed by the Assessing Officer, following the directions of DRP. In respect of other two concerns i.e. Walter Tools India Pvt. Ltd. and Dormer Tools India Pvt. Ltd., objection of DRP in not accepting the plea of assessee was in the absence of invoices being filed by assessee, the learned Authorized Representative for the assessee has strongly stressed that the nature of services are identical as is clear first from the perusal of invoices which are being filed and also from the fact that the Assessing Officer had acknowledged them to be IT support services along with receipts from Sandvik Asia Pvt. Ltd. The assessee before us has furnished additional evidence in this regard and perusal of aforesaid additional evidence reflects the assessee to have filed invoices which are raised against dues from Walter Tools India Pvt. Ltd. and Dormer Tools India Pvt. Ltd. The assessee has also filed invoices raised on Sandvik Asia Pvt. Ltd. and has drawn our attention to the nature of services being provided to all the concerns which are same. Since the invoices were not before the lower authorities, we are of the view that it would be appropriate for the Assessing Officer to verify the claim of assessee. In case the nature of services provided by assessee to Sandvik Asia Pvt. Ltd. on one hand and to Walter Tools India Pvt. Ltd. and Dormer Tools India Pvt. Ltd., on the other hand, are of same nature, then the said receipts from Walter Tools India Pvt. Ltd. and Dormer

In the result, the appeal of assessee is allowed for statistical purposes.