SANDVIK AB,,PUNE vs. ASSISTANT COMMISSIONER OF INCOME-TAX, (IT),CIRCLE -2, , PUNE

This appeal by the assessee against the final assessment order dated 12-04-2022 passed by the ACIT (IT), Circle-2, Pune u/s. 143(3) r.w.s. 144C(13) of the Act for assessment year 2018-19.

Ground No. 1 raised by the assessee challenging the action of AO in treating receipts under Management Support Fees as taxable in India.

Heard both the parties and perused the material available on record. We note that the assessee is incorporated in Sweden and for taxable purpose in India, is a Non Resident (Foreign) company. The assessee rendered certain management service to Sandvik Asia Pvt. Ltd. in terms of a Service Agreement entered therein. The assessee received an amount of Rs. 18,80,17,634/- on account of Management support fees from Sandvik Asia Pvt. Ltd. The assessee contended that the said amount is not chargeable to tax in India, taking support that the said services do not make available any technical knowledge, experience, skill, know-how, processes to Sandvik Asia Pvt. Ltd. and do not fall within the ambit for fees for technical services. Further, the assessee placed reliance on the order of this Tribunal in assessee’s own case for A.Ys. 2004-05, 2007-08 and 2008- 09, wherein, we note that this Tribunal held that the Management Service Fees is not taxable in India as do not make available any technical knowledge, experience, skill, know-how to said Sandvik Asia Pvt. Ltd. In spite of which, the TPO issued show cause notice seeking explanation from the assessee as to why payment received under Management Service Fees should not be taxed in India. The assessee made its submissions which are reproduced by the TPO in his order dated 03-08-2021. According to the TPO, the services provided by the assessee are managerial in nature, clearly falling within the ambit of definition of fees for technical services. Further, the assessee also provided consultancy services in terms of nature of services. While holding so, the TPO treated an amount of Rs.18,80,17,634/- as taxable income of the assessee and proposed upward adjustment. The DRP acknowledged that the facts and circumstances of the year under consideration are identical to A.Y. 2017-18, wherein, it was held by the DRP that the receipts on account of Management Service Fees is not chargeable to tax in India, but however, realizing that no remedy is available to the respondent-revenue in challenging the order of DRP in higher forums, deviated from its earlier orders passed by it in assessee’s own case and held an amount of Rs.18,80,17,634/- as taxable in India, taking support from CBDT Circular No. 3/2022 dated 03-02-2022 which is evident from para 3.3.3 of its order.

Before us, the ld. AR, Shri Nikhil Pathak submits that the facts and circumstances of the present case are identical to earlier years in A.Y. 2017-18. The ld. DR, Shri Kailash Mangal did not dispute the same. The ld. AR drew our attention to the order dated 12-09-2022 passed by this Tribunal in assessee’s own case in for A.Y. 2017-18 at page 4 of the paper book and argued that this Tribunal by following the orders in immediately preceding assessment years i.e. A.Y. 2016-17 held that the amount received by the assessee towards Management Service Fees is not chargeable to tax. On perusal of the said order, we note that this Tribunal discussed the facts of the case relating to A.Y. 2017-18 in para 3 and by following the order dated 17-06-2021 passed by this Tribunal in assessee’s own case for A.Y. 2016-17 held that the amount received therein by the assessee towards Management Service Fees is not chargeable to tax vide para 4 of the said order dated 12-09-2022. The DR did not bring on record any contrary view to the finding rendered by this Tribunal.

Further, the ld. AR drew our attention to order dated 15-02-2022 passed by this Tribunal in the case of GRI Renewable Industries S.L. in for A.Y. 2016-17 at page 324 of the paper book and argued that this Tribunal discussed the nature and scope of said Circular No. 3/2022 at paras 10 to 13 of the said order and held the said circular issued by the CBDT is cannot operate retrospectively to the transactions taking place in any period anterior to its issuance. On an examination of said order particularly at page 13 of the said order, we note that admittedly, the said circular was issued in the year 2022 and the year under consideration before us is A.Y. 2018-19. Therefore, the said circular is not applicable to the transactions taken place prior to its issuance. The ld. DR did not bring on record any view contrary to the finding of this Tribunal in holding the said circular cannot operate retrospectively. Therefore, the order of AO is not justified in holding the amount received by the assessee under Management Service Fees is taxable in India. Thus, ground No. 1 raised by the assessee is allowed.

Ground Nos. 2 and 3 raised by the assessee questioning the receipts under Leadership Seminar and Conference Fees and HRS services are taxable in India.

At the outset, we note that the assessee filed certain additional evidences in the form of decoding of a Power Point Presentation. The ld. AR fairly conceded that the said additional evidences concerning the issues raised in ground Nos. 2 and 3 were not before the TPO for its verification and submitted that the issues raised in ground Nos. 2 and 3 may be remanded to the file of TPO for its fresh adjudication. Further, he drew our attention to the order dated 12-09-2011 passed by this Tribunal in assessee’s own case for A.Y. 2017-18 at page 7 of the paper book and argued that this Tribunal on the same issues, considering the additional evidences remanded to the file of TPO. The ld. DR opined the same. On perusal of the paras 5 to 10, we note that this Tribunal remanded the similar issue on same identical facts to the file of TPO for an examination for determining their taxability or otherwise. For better understanding the relevant para 10 is reproduced hereunder : “10. On going through the orders passed by the Tribunal for the earlier years, it turns out that the Leadership training receipt has been specifically held to be not chargeable to tax in the light of Article 12(4)(b) of the DTAA between India and Portuguese. However, we find that for the year under consideration there is some overlapping in the receipts from HR services and Leadership Training. In view of the fact that the assessee has placed on record certain additional evidence which, inter alia, is required to be examined afresh to precisely determine the nature of HR services, we consider it expedient to set aside the impugned order on the issue of Leadership training and HR services. We order accordingly and remit the matter to the file of the AO for examining if both the receipts are covered under Article 12(4)(b) of the DTAA between India and Portuguese. The AO will examine the details of the receipts under both the heads for evaluating if such receipts, other than Leadership training, are covered under Article 12(4)(b) of the DTAA between India and Portuguese for determining their taxability or otherwise. The receipt on account of Leadership training cannot be charged to tax in the light of the decision of the Tribunal as reproduced in the order for the immediately preceding assessment year. Needless to say, the assessee will be allowed reasonable hearing opportunity in such fresh proceedings.”

In the light of the above discussion made by this Tribunal in assessee’s own case for A.Y. 2017-18, we deem it proper to remand the issues raised in ground Nos. 2 and 3 regarding the Leadership Seminar and Conference Fees and HRS services to the file of TPO for its fresh adjudication. The assessee is liberty to file evidences, if any, in support of its claim. Thus, ground Nos. 2 and 3 raised by the assessee are allowed for statistical purpose.

The ld. AR submits that ground Nos. 4 and 5 are academic in nature and prayed to dismiss the same. Accordingly, the same are dismissed as not pressed.

In the result, the appeal of assessee is partly allowed in the terms aforesaid.