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Income Tax Appellate Tribunal, PUNE BENCH, ‘C’ PUNE
Before: SHRI R.S. SYAL & SHRI S.S.VISWANETHRA RAVI
आदेश / ORDER
PER R.S. SYAL, VP : This appeal by the assessee is directed against the final assessment order dated 18-05-2020 passed by the Assessing Officer (AO) u/s.143(3) read with sections 144C(13) of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to the assessment year 2017-18. 2. The appeal is time barred by 166 days. The ld. AR stated that the delay pertains to Covid-19 Pandemic and hence, covered by the judgment of Hon’ble Supreme Court in Cognizance for Extension of Limitation, In re 438 ITR 296 (SC) read with
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judgment in Cognizance for Extension of Limitation, In re 432
ITR 206 (SC) dated 08-03-2021 and 421 ITR 314 where the
Hon’ble Apex Court has taken a suo motu cognizance of the
situation arising out of the challenges faced by the country on
account of COVID-19 Virus and resultant difficulties that could
be faced by the litigants across the country and accordingly
extended the time limit for filing of the appeals. We are satisfied
with the reason so stated and condone the delay in filing the
instant appeal and admit the same for disposal on merits.
The first two grounds are against the taxability of a sum of
Rs.17,43,73,176/-. Succinctly, the facts of the case are that the
assessee is a non-resident company incorporated in Sweden. The
return of income was filed declaring total income at
Rs.22,34,65,240/-, however, offering only two receipts to tax,
namely, interest received on ECB loan amounting to Rs.2.66
crore and receipt of Fees for Technical Services (in short ‘FTS’)
from Walter Tools India Private Limited amounting to Rs.11.46
lakh, both aggregating to Rs.2.77 crore. The assessee received a
sum of Rs.17,43,73,176/- named as Management Support fees
pursuant to an Agreement with SAPL, its Indian entity, for
rendering services in the nature of Commercial, Management,
3 ITA No.18/PUN/2021 Sandvik AB
Marketing and Administrative. It was claimed that this amount
was not chargeable to tax because of the Double Taxation
Avoidance Agreement (DTAA) between India and Sweden read
with the DTAA between India and Portuguese. The AO rejected
the assessee’s contention and held the amount received as fees for
technical services’ (FTS) covered under India-Sweden Treaty. He
also examined India-Portuguese treaty and found that the amount
was also covered within the scope of its Article 12(4). The
Dispute Resolution Panel (DRP) echoed the draft order. This is
how, the AO made an addition of Rs.17.43 crore towards
Management Support fees by taking it as fees for technical
services. Aggrieved thereby, the assessee has come up in appeal
before the Tribunal.
We have heard the rival submissions and perused the
relevant material on record. The assessee rendered Managerial
Support Services to its Indian entity. It claimed the benefit of
Most Favoured Nation (MFN) clause contained in Protocol to
India-Sweden DTAA, in turn, relying on India-Portuguese DTAA
and claimed that the amount was not chargeable to tax. Per
contra, the AO followed the orders passed by the DRP for earlier
years deciding the issue in favour of the Revenue. It is seen that
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the subject matter under consideration came up for consideration
before the Tribunal for the immediately preceding assessment
year 2016-17. Vide order dated 17-06-2021, the Tribunal (in ITA
No.1311/PUN/2019), following its order for earlier years, has
held that the amount received by the assessee towards
Management Service fees is not chargeable to tax. The ld. DR
fairly accepted the position. Respectfully following the
precedent, we overturn the impugned order and direct not to
include Rs.17.43 crore in the assessee’s total income. These
grounds are allowed.
Ground Nos. 3 and 4 are connected with each other. The
assessee has challenged the inclusion of Rs.1,17,61,448/- and
Rs.20,46,592/- in its total income received towards Human
Resources services and Leadership Seminar and Conference
services provided to its Indian entity by treating it as ‘FTS’.
The facts anent to this issue are that the assessee received
the above two sums totalling to Rs.1.38 crore for providing HR
and Leadership seminar and Conference services it to its Indian
entity. The AO discussed both the transactions in a common way
in his order by holding them taxable as ‘FTS’. In reaching this
conclusion, he relied on the directions given by the DRP for
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earlier years. The DRP decided this issue against the assessee for
the immediately preceding assessment year by taking departure
from the Tribunal orders for the earlier years on the ground that
the facts were not similar inasmuch as the Revenue has been
debarred from this year onwards from contesting the favourable
directions before the Tribunal given by the DRP as incorporated
in the final assessment order. Aggrieved thereby, the assessee has
come up in appeal before the Tribunal.
After considering the rival submissions and perusing the
relevant material on record, it is seen that two receipts, viz.,
Leadership seminars and Human Resource Services are involved.
The assessee claimed the amounts as not chargeable because of
India-Portuguese DTAA. In principle, there can be no
controversy about the applicability of the India-Portuguese DTAA
to the assessee from Sweden because of the MFN clause
contained in the Protocol to the India Sweden DTAA, as this issue
has been decided in favour of the assessee by the Tribunal in
earlier years. The concern is only to examine if the amounts
received by the assessee fall within the relevant clause of the
India-Portuguese DTAA. Article 12 of the India-Portuguese
treaty deals with “Royalties and Fees for Included Services. Para
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1 of the Article states that “Royalties and Fees for Included
Services” arising in India and paid to a resident of Sweden may
be taxed in Sweden. Para 4 of the Article 12 defines “Fees for
Included Services” as under:
“4. For the purposes of this Article, "fees for included services" means payments of any kind, other than those mentioned in Articles 14 and 15 of this Convention, to any person in consideration of the rendering of any technical or consultancy services (including through the provisions 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 paragraph 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 which enables the person acquiring the services to apply the technology contained therein.
On going through the command of para 4 of Article 12, it
can be seen that the term “Fees for Included Services” has been
defined to mean any consideration for rendering technical or
consultancy services, if such services, insofar as it is relevant for
our purpose, make available technical knowledge, experience,
skill, know-how or processes or consist of the development and
transfer of a technical plan or technical design which enables the
person acquiring the services to apply the technology contained
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therein. This issue came up for consideration before the Tribunal
for the immediately preceding assessment year in which the
receipt from HR services was Rs.4.72 lakh and Leadership
training fees Rs.40.41 lakh. For smallness of the amount, the ld.
AR did not press the issue of receipt from HR services and the
second component of Leadership training fee, was at the request
of the assessee, restored to the AO for considering it afresh in the
light of factual verification. The Tribunal in its order for the
immediately preceding assessment year took note of its order
passed for the A.Y. 2014-15 in which the issue of Leadership
training fees was decided in favour of the assessee by holding it to
be not chargeable to tax within the meaning of Article 12(4)(b) of
the DTAA between India and Portuguese.
The ld. AR brought on record certain additional evidence in
the shape of decoding of a Power Point Presentation, copy placed
at page 289 onwards of the paper book, to contend that the HR
services were not chargeable to tax as per the India Portuguese
treaty. This additional evidence has admittedly been not
considered by the authorities below. The ld. AR emphasized that
receipt on account of HR services, when examined in the light of
the additional evidence, ceases to be chargeable to tax.
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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
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say, the assessee will be allowed reasonable hearing opportunity
in such fresh proceedings.
In the result, the appeal is partly allowed. Order pronounced in the Open Court on 12th September,
2022.
Sd/- Sd/- (S.S.VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; िदनांक Dated : 12th September, 2022 सतीश
आदेश की �ितिलिप अ�ेिषत/Copy of the Order is forwarded to: अपीलाथ� / The Appellant; 1. ��थ� / The respondent 2. 3. The CIT(A)-13, Pune 4. The PCIT-5, Pune 5. DR, ITAT, ‘C’ Bench, Pune गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune
ITA No.18/PUN/2021 Sandvik AB
Date 1. Draft dictated on 12-09-2022 Sr.PS 2. Draft placed before author 12-09-2022 Sr.PS 3. Draft proposed & placed before JM the second member 4. Draft discussed/approved by JM Second Member. 5. Approved Draft comes to the Sr.PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *