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Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
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.
The brief facts of the case as emanating from records are: The assessee
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.
Now, the Revenue is in appeal before the Tribunal assailing the
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.”
Shri Nikhil Pathak appearing on behalf of the assessee submitted at
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.
On the other hand, Shri T. Vijaya B. Reddy representing the
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.
We have heard the submissions made by representatives of rival sides
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.
The CIT(A) after analysing the agreement, nature of services and
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.
5 ITA No. 497/PUN/2016 CO. No.122/PUN/2017 A.Y.2009-10
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.
As regards holding the payments as FTS, the DRP placed reliance on
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.
In the result, appeal of the Revenue is dismissed.
6 ITA No. 497/PUN/2016 CO. No.122/PUN/2017 A.Y.2009-10
CO. No.122/PUN/2017 A.Y.2009-10
The assessee has filed cross objection in support of the assessment order deleting the addition. Assessee has also assailed the findings of Assessing Officer/ DRP in rejecting assessee’s contention with respect to re- opening. Since we have dismissed the appeal of the Revenue, grounds raised by the assessee in cross objection have become academic. Therefore, the same are dismissed.
To sum up, appeal filed by the Revenue and the cross objections filed by assessee, are dismissed.
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.