DEPUTY COMMISSIONER OF INCOME-TAX vs. M/S. SANDVIK SYSTEM DEVELOPMENT AB., PUNE

आदेश / ORDER

PER VIKAS AWASTHY, JM

This appeal has been filed by the Department against assessment

order dated 18.02.2016 passed u/s.144C(13) r.w.s.143(3) r.w.s.147 of the

Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the assessment year 2009-10. The assessee has filed cross objection against the appeal filed

by the Department.

is a foreign company incorporated in Sweden. The assessee does not have any office or place of business in India. No return of income was filed by the

assessee/ appellant for the impugned assessment year. Notice, u/s. 148 of

the Act was served on the assessee/appellant for the reason that the

assessee has received fee for providing IT support services from Sandvik Asia Pvt. Ltd. (SAPL) in assessment year 2009-10 and the same was not offered to

tax. The nature of payment received by the assessee is in the form of Royalty

and Fees For Technical Services (FTS) as per provisions of section 9(1)(vi) &

9(1)(vii) of the Act as well as Article 12 of the DTAA between India and Sweden. In response to the aforesaid notice, the assessee filed return of

income on 06.05.2014 declaring total income as ‘Nil’. Addition of

Rs.2,55,61,940/- was made by the Assessing Officer on account of FTS vide

draft assessment order dated 24.03.2015. The assessee filed objections before the Dispute Resolution Panel (DRP) against the addition made in the

draft assessment order, as well as on re-opening of assessment. The DRP

3 ITA No. 497/PUN/2016 CO. No.122/PUN/2017 A.Y.2009-10

vide directions dated 23.12.2015 upheld the validity of re-opening of

assessment. However, on merits of the addition, the DRP held that the

payment received by the assessee is neither Royalty nor Fees For Technical

Services. Hence, the same is not liable for tax. Accordingly, the Assessing

Officer passed final assessment order on 18.02.2016 deleting the addition.

assessment order by raising following grounds:

“1. Whether on the facts and in the circumstances of the case, the DRP, Mumbai erred in concluding that the services provided by the assessee do not qualify as Fees for Technical Service under clause (b) of para 4 of Article 12 of Double Taxation Avoidance Agreement between India and Portuguese Republic by referring to the Protocol of India –Sweden DTAA. 2. Whether on the facts and in the circumstances of the case, the DRP, Mumbai erred in concluding that the term “make available” means supplying or transferring of technical knowledge or technology to another. 3. Whether on the facts and in the circumstances of the case, the DRP, Mumbai erred in allowing assessee’s appeal without giving categorical findings as to how the services are not taxable in India as per India – Portuguese DTAA. 4. The appellant craves to leave to add to modify any of the grounds of appeal.”

the outset that the issue raised by Revenue in appeal is identical to the one

adjudicated by the Co-ordinate Bench of Tribunal in the case of assessee’s

holding company, M/s. Sandvik AB Vs. DDIT in ITA No.1720/PN/2011 for

the assessment year 2007-08 decided on 28th November, 2014. The DRP

granted relief to the assessee by placing reliance on the decision of the

Tribunal in the afore-mentioned case.

Department vehemently supported the findings of Assessing Officer in draft

4 ITA No. 497/PUN/2016 CO. No.122/PUN/2017 A.Y.2009-10

assessment order in making the addition. The ld. DR submitted that the DRP

while granting relief to the assessee has failed to examine the nature of

services rendered by the assessee to Sandvik Asia Pvt. Ltd. In fact,

documents on record, no where suggests the nature of services rendered by

assessee to the Indian entity.

and have perused the orders of Authorities below. The solitary issue

emanating from the grounds raised in appeal by the Revenue is; Whether

the payment made to assessee by SAPL for up-gradation of software is in the

nature of Royalty or/and FTS. A perusal of the documents available on

record indicate that the assessee had entered into an agreement dated

01.04.2002 with SAPL for providing maintenance services in respect of

application internally developed namely SOPIC by assessee for Sandvik

Group of Companies. During the period relevant to the assessment year

under appeal, the assessee provides application development and

maintenance services in respect of SOPIC. The cost of all development/up-

dating application was recovered by the assessee from its user company

along with maintenance service charges. In the present case, the amount of

Rs.2,55,61,940/- was received by assessee from SAPL towards IT support

services viz. software maintenance, system development, help-desk services,

enterprise computing etc. The payments for the aforesaid services were held

to be in the nature of Royalty/FTS.

invoices raised by assessee on SAPL, came to the conclusion that the

payments were received towards system development and software

maintenance services rendered to SAPL. No payment was received by

assessee for granting license to use any software application to SAPL.

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Therefore, the payments do not fall within the ambit of definition of

“Royalty” as defined in the DTAA or within the meaning of Explanation (2)

under section 9(1)(vi) of the Act.

the decision of Pune Bench of the Tribunal in the case of M/s. Sandvik AB

Vs. DDIT (supra.). The DRP has discussed this issue in Para 4.20 & 4.21 of

the direction. For the sake of completeness the same are extracted herein

under:

“4.20. It is therefore seen from the decisions mentioned above that in order to be considered as FTS, the services rendered by the assessee, apart from being technical or consultancy services, should also satisfy the condition that such services make available technical knowledge, experience, skill, know how or processes. The term “make available” has been interpreted to mean that the recipient of this service should be enabled to apply such technical knowledge, experience etc. by itself without recourse to the service provider in future. 4.21 In the present case, the IT support services rendered by the assessee to SAPL are in the nature of system development services and maintenance of internally developed applications. It is seen that the assessee merely provides development/updation and maintenance of the internally developed software applications owned by the assessee and this service in no way equips the recipient of the service i.e. SAPL to carry out such development/updation and maintenance activity by itself in future without recourse to the assessee. Hence, the receipt arising out of IT support services provided by the assessee does not fall under the ambit of “Fees for included services” as defined in the treaty.”

The ld. DR has not been able to controvert the findings of DRP in

deleting the addition. The Revenue has failed to show that the payments

received by assessee from SAPL are either in the nature of Royalty or FTS.

We do not find any infirmity in the impugned assessment order/directions of

the DRP. Hence, the grounds raised by the Revenue in appeal are dismissed

being devoid of any merit.

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CO. No.122/PUN/2017 A.Y.2009-10

Order pronounced on Friday, the 12th day of October, 2018.

Sd/- Sd/- (डी. क�णाकरा राव/D. KARUNAKARA RAO) (�वकास अव�थी /VIKAS AWASTHY) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER

पुणे / Pune; �दनांक / Dated : 12th October, 2018 SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to :

अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT( International Taxation), Circle-2, Pune. 4. The Pr. CIT-5, Pune. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” ब�च, 5. पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

// True Copy // आदेशानुसार / BY ORDER,

�नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.