DEPUTY DIRECTOR OF INCOME-TAX vs. SANDVIK A B.,, PUNE

आदेश / ORDER

PER SUSHMA CHOWLA, JM:

Both the appeals filed by the Revenue are against separate orders of DDIT (IT)-II, Pune, both dated 28.01.2014 relating to assessment years 2005-06 and 2006-07 passed under section 144C(13) r.w.s. 143(3) r.w.s. 147 of the Income-tax Act, 1961 (in short ‘the Act’). The assessee also filed Cross Objections against the appeals of Revenue.

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vague and fanciful. The re-opening of the assessment was well within the scope of provisions of Income-tax Act and the reasons recorded by the Assessing Officer before issuing notice u/s. 148 are explicit and good enough to make out a fit case for re-opening of the assessment. 5. On the facts and circumstances of the present case, the learned DRP erred in not following the decision of the Hon'ble jurisdictional ITAT, Pune in the case of Cummins Inc. in ITA Nos.73&74/PN/2011 dtd. 8/08/2013 wherein the assessee's contention that the re-assessment proceedings were based on mere change of opinion was rejected, even though the original assessment was completed u/s.143(3), on the ground that there was no application of mind by the AO while deciding important legal issue involved during the original assessment proceedings for A.Ys 2004-05 and 2006-07.

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Sweden. The Assessing Officer was of the view that the claim of assessee was not correct as the management service fees falls within the ambit of section 9(1)(vii) of the Act as well as India and Sweden Treaty and was taxable as fees for technical services. The Assessing Officer also noted that Management Service Fees received by the assessee in assessment years 2004-05, 2007-08 and 2008-09 have been taxed in the hands of assessee. Consequently, the Assessing Officer was of the view that there was escapement of income under section 147 of the Act and notice under section 148 of the Act was issued to the assessee. The assessee has in turn, filed a letter contending that the original return of income filed by it may be considered as filed in response to notice issued under section 148 of the Act. The assessee also asked for reasons recorded for reopening the assessment, which were provided to the assessee. Thereafter, the assessee filed objections to the reasons recorded contending that re-assessment proceedings initiated were bad in law and should be quashed immediately. The Assessing Officer vide speaking order dated 21.11.2012 disposed of the objections raised by the assessee to the reasons recorded for reopening assessment. The Assessing Officer in the said order disposing of objections raised, pointed out that since no assessment was completed under section 143(3) or 147 of the Act, therefore, the approval of CCIT or Commissioner as per proviso to section 151(1) of the Act was not required. Notice issued under section 148 of the Act was after approval by the JCIT as required under section 151(2) of the Act. The Assessing Officer further contended that there was tangible material before him to entertain a prima facie belief that income chargeable to tax had escaped assessment. The said belief was based on form No.3CEB of Sandvik Asia Pvt. Ltd., the agreement between the assessee and Sandvik Asia Pvt. Ltd. and the assessment orders passed in assessment years 2004-05, 2007-08 and 2008-09. Since the Assessing Officer had reason to believe that Management Service Fees falls within ambit of section 9(1)(vii) of the Act as

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well as India and Sweden Treaty and was taxable as fees for technical services and since income to the tune of ₹ 5.61 crores had escaped assessment within meaning of provisions of section 147 of the Act, reopening was held to be valid. Thereafter, the issue was decided on merits and it was held that Managerial Services Fees received by the assessee during the year under consideration of ₹ 5.61 crores were taxable in the hands of assessee.

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Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 291 ITR 500 (SC) was misplaced. Further support was made from the decision of the Hon’ble High Court of Delhi in the case of Orient Craft Ltd. Vs. CIT in ITA No.555/2012. The DRP thus, held the re-assessment proceedings to be not in accordance with the provisions of law and hence, not valid. The DRP did not decide the issue on merits, in view of holding the re-assessment proceedings to be invalid.

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been subject matter of completed assessment proceedings. He then made reference to the ratio laid down by the Hon’ble High Court of Delhi in Indu Lata Rangwala Vs. DCIT in W.P. (C) 1393/2002, judgment dated 18.05.2016. He took us through the facts of the case and reference to various decisions including the decision of the Hon'ble Supreme Court in ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (supra), DCIT Vs. Zuari Estate Development & Investment Co. Ltd. (2015) 373 ITR 661 (SC) and the Hon’ble Bombay High Court in Khubchandani Healthparks (P.) Ltd. Vs. ITO (supra) and pointed out that the Hon’ble High Court has laid down the requirements in first proviso to section 147 of the Act and it has been held that where initial return was processed under section 143(1) of the Act and an intimation was sent to the assessee, reopening of such assessment no doubt, requires the Assessing Officer to form reason to believe that income had escaped assessment, but such reasons do not require any fresh tangible material. The learned Departmental Representative for the Revenue thus, pointed out that earlier decision of the Tribunal in different entities of Sandvik Group were not to be relied upon.

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out that in Appendix ‘C' while reporting nature of services provided and the receipt of Management Service Fees, the reasons for its not being taxable were clearly spelt out. Our attention was drawn to page 28 of Paper Book. Then, he referred to re-assessment notice issued under section 148 of the Act placed at page 30 of Paper Book, which was issued on 30.03.2012. He then, referred to the reasons recorded for re-opening of assessment which are placed at page 38 of the Paper Book, wherein also reference was made to the amounts received from Sandvik Asia Pvt. Ltd. on account of license fees and Management Service Fees. On page 39 of Paper Book, the Assessing Officer also refers to the Management Service Fees received for assessment years 2004-05, 2007-08 and 2008-09. The learned Authorized Representative for the assessee here pointed out that assessment proceedings for assessment year 2004-05 were completed under section 143(3) of the Act. The learned Authorized Representative for the assessee pointed out that Tribunal in series of cases has held that in the absence of any tangible material even where the assessment was under section 143(1) of the Act, no re-assessment proceedings were possible. He referred to the decisions in Sandvik System Development AB Vs. DDIT (IT) (2017) 88 taxmann.com 55 (Pune – Trib.), M/s. Sandvik Tooling Sverige AB Vs. DDIT(IT) (supra) and M/s. AB Sandvik Materials Technology Vs. DCIT in ITA No.1719/PUN/2011, relating to assessment year 2008- 09, order dated 24.03.2017. The learned Authorized Representative for the assessee then pointed out that first issue which arises is in respect of assessment completed under section 143(1) of the Act. In this regard, he drew our attention to the decision of the Hon'ble Supreme Court in ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (supra), where they had considered the case where assessment was under section 143(1) of the Act and the first aspect which was decided was that it was case of no change of opinion and it was further held that in case of assessment under section 143(1) of the Act, reason to believe can still be

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challenged. He then, referred to the decision of the Hon'ble Supreme Court in CIT Vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC), wherein also it was held that reason to believe is necessary thing and the same should have like nexus with tangible material. The learned Authorized Representative for the assessee then placed reliance on the Third Member decision in Telco Dadajee Dhackjee Ltd. Vs. DCIT in ITA No.4613/Mum/2005, relating to assessment year 1998-99, order dated 12.05.2010 for the proposition that in the case of assessment under section 143(1) of the Act, reopening is to be on the basis of material available. Our attention was drawn to para 7, page 6 of the said decision.

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not stated why the earlier decisions were not applicable. He further pointed out that the decision in DCIT Vs. Zuari Estate Development & Investment Co. Ltd. (supra) was only a change of opinion but why decisions of Orient Craft Ltd. Vs. CIT (supra) or Khubchandani Healthparks (P.) Ltd. Vs. ITO (supra) were not applicable has not been spelt out by the Hon’ble High Court of Delhi in Indu Lata Rangwala Vs. DCIT (supra). He further stressed that where return of income holds information then, it cannot be said to be a case of tangible material being available with the Assessing Officer in order to justify the reopening of assessment. The learned Authorized Representative for the assessee then pointed out that with due respect to the decision of the Hon’ble High Court of Delhi in Indu Lata Rangwala Vs. DCIT (supra), the same was per incuriam earlier decision of the Hon’ble High Court of Delhi in Orient Craft Ltd. Vs. CIT (supra). He then refers to the decision of the Hon’ble High Court of Madras in TANMAC India Vs. DCIT (2017) 78 taxmann.com 155 (Mad) and pointed out that the said decision was a decision after the decision of the Hon’ble High Court of Delhi in Indu Lata Rangwala Vs. DCIT (supra) and it has reiterated the view that tangible material is the requirement for reopening the assessment even in cases where an intimation under section 143(1) of the Act was issued. He then placed reliance on the decision of the Hon’ble High Court of Gujarat in Krupesh Ghanshyambhai Thakkar Vs. DCIT (2017) 77 taxmann.com 293 (Guj), which had also taken note of the decision in Indu Lata Rangwala Vs. DCIT (supra) and held otherwise. The learned Authorized Representative for the assessee further pointed out that the learned Departmental Representative for the Revenue had relied on the decision in Amin’s Pathology Laboratory Vs. P.N. Prasad, JCIT (supra) which is case of assessment under section 143(3) of the Act and even the decisions of the Hon’ble High Court of Gujarat and the Hon’ble High Court of Madras are similarly placed.

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“5. The learned Authorized Representative for the assessee at the outset pointed out that the assessee has challenged the reopening of assessment proceedings under section 147 of the Act in the absence of any tangible material. He further stated that the Dispute Resolution Panel (DRP) in assessment year 2006-07 in the absence of any tangible material had held that the reopening of assessment was bad in law but because of low tax effect, no appeal has been filed before the Tribunal. He further pointed out that proceedings for assessment year 2008-09 were taken first and hence, the order of authorities below is elaborate. However, he stated that for all the years i.e. starting from assessment years 2006- 07 to 2009-10, reasons were recorded on the same date i.e. 26.07.2013 and the proceedings were initiated under section 147 of the Act. In assessment year 2008- 09, the DRP had relied on the ratio laid down by the Hon'ble Supreme Court in ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500 (SC) to uphold re-assessment proceedings. Similarly, re-assessment proceedings were upheld in assessment years 2007-08 and 2009-10. He further pointed out that identical reasons were recorded for reopening the assessment in the case of Sandvik Systems Development AB, for assessment year 2008-09. He referred to the copy of reasons recorded for reopening of assessment dated 26.07.2013 in the said case, which are placed in Compilation No.II at pages 1 to 3. He also referred to the computation of income where the declaration in respect of receipts from Sandvik Asia Ltd. towards IT Support Services were declared in the Note No.3 and it was reported that the same do not fall within ambit of Royalty / Fees for Technical Services within the meaning of Article 12 of the Tax Treaty read with Protocol thereto. He also referred to Annexure to the audit report in this regard. He further referred to the order of Tribunal in ITA No.464/PUN/2015, relating to assessment year 2008-09, order dated 10.11.2017 and pointed out that the issue was considered at length by the Tribunal and relying on earlier order of Tribunal in the case of DDIT Vs. Sandvik Information Technology AB in ITA No.128/PUN/2014 along with CO No.10/PUN/2015, relating to assessment year 2005-06, order dated 28.12.2016, had held that in the absence of any new information or tangible material to come to the conclusion that there was escapement of income, even in proceedings which were completed under section 143(1) of the Act, held that there was no merit in invoking of re-assessment proceedings under section 147 of the Act. The learned Authorized Representative for the assessee further referred to the reasons recorded for reopening of assessment in the case of Sandvik Information Technology AB, relating to assessment year 2005-06 along with computation of income and the Annexure to Form No.3CEB, placed in Compilation No.II at pages 24 and 25 along with copy of order of Tribunal dated 28.12.2016 in ITA No.128/PUN/2014, placed in Compilation No.II at pages 28 to 45. Further, the learned Authorized Representative for the assessee referred to reasons recorded for reopening of assessment dated 26.07.2013 in the case of Sandvik Australia Pty Ltd., relating to assessment year 2008-09 along with Note filed in the computation of income and relevant Annexure to Form No.3CEB, which are attached at pages 46 to 51 of Compilation No.II and also the order of Tribunal dated 18.08.2017 in ITA Nos.250 & 251/PUN/2015, relating to assessment year 2008-09, placed at pages 52 to 62 of Compilation No.II and pointed out that the issue is squarely covered in favour of assessee. The learned Authorized Representative for the assessee referring the Compilation No.I took us through the reasons recorded for each of the year starting from assessment year 2006-07 in the case of assessee and pointed out that similar reasons were recorded for each of the year except for the amount received as license fees from Sandvik Asia Ltd., which varied in each of the year. The copy of said reasons for assessment year 2006-07 are placed at pages 1 to 3 of the Compilation No.I, thereafter, for each of the years are also placed in the said Compilation No.I. The learned Authorized Representative for the assessee also referred to Note in the computation of total income and the relevant Annexure to Form No.3CEB. The learned Authorized Representative for the assessee pointed out that the ground of appeal No.1 raised by the assessee was against initiation of re-assessment proceedings under section 147 of the Act and grounds of appeal

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No.2 ad 3 were on merits of the issue which would become academic in case the ground of appeal No.1 is decided in favour of assessee. He further pointed out that the issues raised in assessment years 2007-08 and 2009-10 were similar and identical to the issues in assessment year 2008-09.”

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Sr. Name and address of Description of Amount paid/received or Method used No. the associated such mutual payable / receivable in the for determining enterprise with whom agreement or transaction - the arm's the international arrangement length price as per as computed transaction has been (See section books of by the entered into 92C(1) account assessee having regard to the arm's length price (Rs) (Rs) Clause 12(a) Clause 12(b) Clause 12(c) Clause 12(d) 1 Sandvik Asia Limited Receipt for IT 8,072,286 8,072,286 Refer Note 6 Mumbai – Pune support to Appendix D Road, Dapodi, services Pune - 411012 10. The Notes to this effect was also given in Form No.3CEB. The original assessment in the case was completed by issue of intimation under section 143(1) of the Act. The grievance of the Department in this regard is that in the absence of any assessment being completed under section 143(3) of the Act, since no enquiry was made by the Assessing Officer and the income had escaped assessment, hence re-assessment proceedings were correctly initiated in the hands of assessee. However, on the other hand, the case of assessee before us is that in the absence of any tangible material which had come to the knowledge of the Assessing Officer for recording reasons for reopening assessment of escapement of income, then in such circumstances, re-assessment proceedings were not appropriate. 11. We find that similar issue of reopening of assessment under section 147 of the Act on the basis of similar reasons recorded for reopening assessment all dated 26.07.2013 for different years arose before the Tribunal in the case of Sandvik Systems Development AB for assessment year 2008-09 and also in the case of Sandvik Information Technology AB, relating to assessment year 2005-06 and further in the case of Sandvik Australia Pty Ltd., relating to assessment year 2008- 09. The Tribunal in the case of Sandvik System Development AB, in ITA No.464/PUN/2015, relating to assessment year 2008-09, vide order dated 10.11.2017 had held as under:- “9. We have heard the rival contentions and perused the record. The issue raised in the present appeal is applicability of provisions of section 147 of the Act. The said section provides that in cases where there is any escapement of income, which comes to the knowledge of the Assessing Officer, on the basis of some tangible material, then the said proceedings can be reopened in order to assess the escapement of income in the hands of assessee. The assessee had furnished the return of income in time declaring total income at Nil. The Assessing Officer recorded his reasons for reopening the assessment on the ground that it was noticed from the submissions made during the assessment for assessment year 2005-06 that the assessee had received IT support fees of Rs.1.94 crores and licence fees of Rs.3,10,396/- from Sandvik Asia Pvt. Ltd. in assessment year 2008- 09, but the same were not offered for tax. The reasons mentioned that for assessment year 2005-06, the Assessing Officer had concluded that receipts under the head „IT Support Fees‟ received by the assessee from Sandvik Asia Pvt. Ltd., were in the nature of royalty and fees for technical services and taxable as per Article 12 of DTAA of India and Sweden as well as section 9(1)(vi) & 9(1)(vii) of the Act. The Assessing Officer further holds that on examination of nature of payments made to the assessee as per agreement dated 01.04.2002, it could be concluded that the payments received by the assessee constitute royalty and fees for technical services,

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as per sections of the Act as well as Article 12 of the DTAA between India and Sweden. Reference was made to several decisions in this regard and also to the order under section 201(1) and 201(1A) of the Act in the case of Sandvik Asia Pvt. Ltd. for assessment year 2008-09, wherein the Assessing Officer held that the payments received constitute royalty and fees for technical services. After recording aforesaid reasons for reopening the assessment, the Assessing Officer issued notice under section 148 of the Act. The assessee filed letter stating that earlier return of income may be treated as filed in response to the notice under section 148 of the Act. Thereafter, the assessee sought reasons for reopening the assessment and filed objections. The objections filed by the assessee were rejected by the Assessing Officer as there was no assessment under section 143(3)/147 of the Act and the Assessing Officer was satisfied that there was escapement of income on the basis of tangible material before him, then it was fit case for reopening the assessment. The DRP also upheld the action of Assessing Officer, in view of the ratio laid down by the Hon‟ble Supreme Court in ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra). 10. The assessee is in appeal against the said exercise of jurisdiction by the Assessing Officer under section 147 of the Act. The first plea which has been raised by the assessee is that in the absence of any tangible material for reason to believe that there is escapement of income, the action adopted by the Assessing Officer was without any basis. The learned Authorized Representative for the assessee pointed out that in assessment year 2005- 06 same tangible material was available with the Assessing Officer and the re-assessment proceedings were reopened. However, the DRP held that there was no material brought in the reasons recorded on the basis of which valid reasons to believe could be formed. The DRP held that it was case of re-appraisal of existing facts. It was further held by the DRP that reopening of assessment without new material was not permissible even if the original assessment was processed under section 143(1) of the Act and order was not passed under section 143(3) of the Act. Reliance of the Assessing Officer on ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra) was found to be misplaced, where the case of the Assessing Officer was that the Hon‟ble Supreme Court had decided that in case the return was processed under section 143(1) of the Act, the Assessing Officer is empowered to issue notice under section 148 of the Act. Reliance in this regard was placed on the ratio laid down by the Hon‟ble High Court of Delhi in Orient Craft Ltd. Vs. CIT (supra), hence reopening in the case of three sister concerns was held to be invalid. The Revenue did file an appeal before the Tribunal in this regard and the appeal was dismissed for low tax effect. Similarly, in assessment year 2006-07, same issue was raised and the DRP decided the issue in favour of assessee in the absence of any fresh material and the appeal of Revenue was dismissed for low tax effect. In assessment year 2007-08, though the issue of reopening under section 148 of the Act was decided against the assessee, but since the issue on merits was decided in favour of assessee, no appeal was filed by the assessee or the Revenue. 11. Now, coming to the appeal in assessment year 2008-09. The Assessing Officer recorded reasons for reopening assessment on the basis of reasons recorded in assessment year 2005-06. The Assessing Officer very categorically states that information came to his knowledge during proceedings in assessment year 2005-06 that the assessee had received IT Support fees and Licence fees, which has not been offered to tax. The question which arises before us is whether any tangible material is available with the Assessing Officer to come to finding of escapement of income. The second aspect of the issue is in case no assessment has been completed

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under section 143(3) of the Act, where there is escapement of income, proceedings can be reopened under section 147/148 of the Act keeping the spirit of provisions which are applied in the present case. The first and foremost for invoking the said provisions is the „reason to believe‟ of escapement of income and such reason to believe has to be based on tangible material or otherwise there has to be live link between the reason to believe and escapement of income‟ then only the proceedings under section 147 of the Act can be initiated. The proviso under section 147 of the Act provides that where assessment under section 143(3) of the Act has been made, then no action under the main section would be taken after expiry of four years from the end of relevant assessment year, unless escapement of income is by reason of failure on the part of assessee to make return under section 139 of the Act or in response to notice under section 142(1) of the Act or 148 of the Act to disclose fully and truly all material facts necessary for assessment for that assessment year. Undoubtedly, proviso is applicable in case of non-fulfilment of certain conditions laid down but before applying the provisions provided in the proviso to the section, the provisions of main section have to be seen, which clearly provides that there has to be reason to believe of escapement of income and then only provisions of section 147 of the Act can be triggered. There is no merit in the reasoning of the Revenue that where no assessment under section 143(3) of the Act has been completed and the assessment is only completed under section 143(1) of the Act and since the assessee has failed to disclose fully and truly all material facts necessary for assessment, then action under section 147 of the Act can be taken. We find no merit in the plea of the Revenue. 12. Now, coming to the facts of the present case, wherein there is finding in the case of assessee itself though by the DRP that no tangible material was brought in the reasons recorded on the basis of which valid reason to believe could be formed. It may be reiterated herein itself that reasons recorded for assessment years 2005-06 and 2008-09 are same. Though the appeal of assessee before the Tribunal in assessment year 2005-06 was dismissed for low tax effect along with appeal of another sister concern, which was also reopened by the Assessing Officer on identical reasons to believe‟ however, in the case of third entity against which proceedings under section 147 of the Act were recorded, the matter travelled to the Tribunal and the Tribunal in DDIT (IT) Vs. Sandvik Information Technology AB, in ITA No.128/PUN/2014 along with CO No.10/PUN/2015, relating to assessment year 2005-06, order dated 28.12.2016 had considered the re-assessment proceedings on the basis of details furnished by Sandvik Asia Pvt. Ltd., one of the group concerns. As per information, payments were made on account of IT Support services which information was treated as tangible material by the Assessing Officer and proceedings were initiated under section 147/148 of the Act. The case of Revenue before the Tribunal was that the Assessing Officer had reason to believe that income of assessee had escaped assessment. The case of assessee was that the said information derived from alleged tangible material for re-assessment proceedings were already furnished by the assessee in form No.3CEB filed along with return of income. The said information is reproduced at page 9 of the order of Tribunal dated 28.12.2016. The Tribunal held that the Assessing Officer can have belief for reopening assessment if there is any tangible material in his possession. The Tribunal further held that in the said case, the Assessing Officer had no new information or tangible material to come to the conclusion that there was escapement of income. The relevant findings of the Tribunal are as under:- “16. In so far contentions of the department that the Assessing Officer did not get opportunity to apply his mind on the documents

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furnished by assessee as the original assessment was completed u/s.143(1), we do not find any force in the said contentions. The Hon‟ble Delhi High Court in the case of CIT Vs. Orient Craft Ltd. (supra) has held that expression, „reason to believe‟ does not have different meaning, where assessments are framed u/s.143(1) and where assessment is completed u/s.143(3) of the Act. The relevant extract of the findings of the Hon‟ble High court are as under : “13. Having regard to the judicial interpretation placed upon the expression “reason to believe”, and the continued use of that expression right from 1948 till date, we have to understand the meaning of the expression in exactly the same manner in which it has been understood by the courts. The assumption of the Revenue that somehow the words “reason to believe” have to be understood in a liberal manner where the finality of an intimation under Section 143(1) is sought to be disturbed is erroneous and misconceived. As pointed out earlier, there is no warrant for such an assumption because of the language employed in Section 147; it makes no distinction between an order passed under section 143(3) and the intimation issued under section 143(1). Therefore it is not permissible to adopt different standards while interpreting the words “reason to believe” vis- à-vis Section 143(1) and Section 143(3). We are unable to appreciate what permits the Revenue to assume that somehow the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of an assessment earlier made under Section 143(3) cannot apply where only an intimation was issued earlier under Section 143(1). It would in effect place an assessee in whose case the return was processed under Section 143(1) in a more vulnerable position than an assessee in whose case there was a full-fledged scrutiny assessment made under Section 143(3). Whether the return is put to scrutiny or is accepted without demur is not a matter which is within the control of assessee; he has no choice in the matter. The other consequence, which is somewhat graver, would be that the entire rigorous procedure involved in reopening an assessment and the burden of proving valid reasons to believe could be circumvented by first accepting the return under Section 143(1) and thereafter issue notices to reopen the assessment. An interpretation which makes a distinction between the meaning and content of the expression “reason to believe” in cases where assessments were framed earlier under Section 143(3) and cases where mere intimations were issued earlier under Section 143(1) may well lead to such an unintended mischief. It would be discriminatory too. An interpretation that leads to absurd results or mischief is to be eschewed.” 13. The Tribunal also took note of the contention of the Department that where the original assessment was completed under section 143(1) of the Act, then the Assessing Officer does not get opportunity to apply the mind and relied upon the Hon‟ble Bombay High Court in Khubchandani Healthparks (P.) Ltd. Vs. ITO reported in 68 taxmann.com 91 (Bom.), which was also in relation to assessment being completed by issue of intimation under section 143(1) of the Act and thereafter, issue of notice under section 148 of the Act. The Hon‟ble Bombay High Court also considered the ratio

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laid down by the Apex Court in ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra). The relevant observations of the Tribunal in this regard are as under:- “16. In so far contentions of the department that the Assessing Officer did not get opportunity to apply his mind on the documents furnished by assessee as the original assessment was completed u/s.143(1), we do not find any force in the said contentions. The Hon‟ble Delhi High Court in the case of CIT Vs. Orient Craft Ltd. (supra) has held that expression, „reason to believe‟ does not have different meaning, where assessments are framed u/s.143(1) andwhere assessment is completed u/s.143(3) of the Act. The relevant extract of the findings of the Hon‟ble High court are as under: “13. Having regard to the judicial interpretation placed upon the expression “reason to believe”, and the continued use of that expression right from 1948 till date, we have to understand the meaning of the expression in exactly the same manner in which it has been understood by the courts. The assumption of the Revenue that somehow the words “reason to believe” have to be understood in a liberal manner where the finality of an intimation under Section 143(1) is sought to be disturbed is erroneous and misconceived. As pointed out earlier, there is no warrant for such an assumption because of the language employed in Section 147; it makes no distinction between an order passed under section 143(3) and the intimation issued under section 143(1). Therefore it is not permissible to adopt different standards while interpreting the words “reason to believe” vis- à-vis Section 143(1) and Section 143(3). We are unable to appreciate what permits the Revenue to assume that somehow the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of an assessment earlier made under Section 143(3) cannot apply where only an intimation was issued earlier under Section 143(1). It would in effect place an assessee in whose case the return was processed under Section 143(1) in a more vulnerable position than an assessee in whose case there was a full-fledged scrutiny assessment made under Section 143(3). Whether the return is put to scrutiny or is accepted without demur is not a matter which is within the control of assessee; he has no choice in the matter. The other consequence, which is somewhat graver, would be that the entire rigorous procedure involved in reopening an assessment and the burden of proving valid reasons to believe could be circumvented by first accepting the return under Section 143(1) and thereafter issue notices to reopen the assessment. An interpretation which makes a distinction between the meaning and content of the expression “reason to believe” in cases where assessments were framed earlier under Section 143(3) and cases where mere intimations were issued earlier under Section 143(1) may well lead to such an unintended mischief. It would be discriminatory too. An interpretation that leads to absurd results or mischief is to be eschewed.”

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sustainable. Accordingly ground No.1 to 3 raised by Department in appeal are dismissed.” 14. In the facts of the present case also the assessee in the computation of total income, copy of which is placed at page 2 of the Paper Book, had in the Note given a declaration in respect of such receipts and had pointed out that the same do not fall within ambit of royalty or fees for technical services. The relevant Note reads as under:- “Note: 1. Sandvik Systems Development AB („SSDAD‟) is a non-resident company incorporated in Sweden. SSDAB does not have any office (or any other establishment) in India. It is a tax resident of Sweden under the Double Taxation Avoidance Agreement between India and Sweden („Tax treaty‟). 2. SSDAB provides IT support services to Sandvik AB Group companies all over the world, including Sandvik Asia Limited („SAL‟) and Walter Tools India Private Limited („Walter India‟) in India. 3. During the year ended 31 March 2008, SSDAB has charged Rs.19,414,642 to SAL and Rs 310,396 to Walter India towards the aforesaid IT support services. The receipts towards such IT support services rendered by SSDAB do not fall within the ambit of Royalties or Fees for technical services within the meaning of Article 12 of the Tax treaty read with the Protocol thereto.” 15. Further in Form No.3CEB, audited report, the assessee in clause 12 Appendix B has given declaration in respect of international transactions with associated enterprises, which is as under:- Particulars in respect of mutual agreement or arrangement: International transactions with an associated enterprise or enterprises by way of mutual agreement or arrangement for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit. Sr.No. Name and Description of Amount paid/received or Method used address of the such mutual payable/receivable in the for associated agreement or transaction determining enterprise with arrangement the arm's whom the length price international (See section transaction has 92C(1) been entered as per books as computed into of account by the assessee having regard to the arm's length price (Rs) (Rs) Clause 12(a) Clause 12(b) Clause 12(c) Clause 12(d) 1 Sandvik Asia Receipt for IT 19,414,642 19,414,642 Refer Note 7 Limited, support to Appendix Mumbai-Pune services C Road, Dapodi, Pune-411012

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2 Walter Tools Receipt for IT 310,396 310,396 Refer Note 7 India Private support to Appendix Limited, services C Mumbai-Pune Road, Dapodi, Pune-411012 16. In view of the above said declarations made by the assessee which has also been considered by the Pune Bench of Tribunal in sister concern of the assessee i.e. Sandvik Information Technology AB, though for assessment year 2005-06, we hold that in the absence of any tangible material establishing escapement of income in the hands of assessee, there is no merit in the exercise of invoking of re-assessment proceedings under section 147 of the Act. The reason to believe escapement of income should have a live link. There is no merit in the stand of authorities below that in the present case, where the assessment order was passed under section 143(1) of the Act, then the Assessing Officer had no action to look at or to consider the same. Under the provisions of the Act, it is incumbent upon the Assessing Officer to come to finding on the basis of tangible material to establish his case of reason to believe of escapement of income; in the absence of which, re-assessment proceedings are invalid and bad in law. Accordingly, we hold so and cancel the same. The consequent order passed under section 143(3) r.w.s. 147 of the Act also does not stand. Thus, the ground of appeal No.1 raised by the assessee is allowed and the balance grounds of appeal become academic in nature.” 12. We find that issue raised in the present appeal is identical to the issue before the Tribunal and following the same parity of reasoning as in the case of sister concern of the assessee, we hold that in the absence of any tangible material establishing escapement of income in the hands of assessee, the Assessing Officer has erred in exercise of jurisdiction under section 147 of the Act by reopening assessment after recording reasons. The reasons to believe of escapement of income should have a live link with the tangible material and even if the assessment order was passed under section 143(1) of the Act, the requirement is for the Assessing Officer to come to a finding on the basis of tangible material to establish his case of reason to believe of escapement of income; in the absence of which, re- assessment proceedings are both invalid and bad in law. Accordingly, we hold so and cancel the re-assessment proceedings initiated in the case of assessee, the consequent order passed under section 143(3) r.w.s. 147 of the Act does not stand. Thus, the ground of appeal No.1 raised by the assessee is allowed and balance grounds of appeal become academic in nature.”

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Brokers (P) Ltd. (supra) and also on Orient Craft Ltd. Vs. CIT (supra), wherein the Hon’ble High Court of Delhi had held the expression ‘reason to believe’ does not have different meaning, where the assessments are framed under section 143(1) of the Act and where assessment was completed under section 143(3) of the Act. The findings of the Hon’ble Bombay High Court in Khubchandani Healthparks (P.) Ltd. Vs. ITO (supra) were reproduced, wherein the Hon’ble High Court had referred to the ratio laid down in ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) and also the decision of the Hon’ble Apex Court in DCIT Vs. Zuari Estate Development & Investment Co. Ltd. (supra) and Zuari Estate Development Co. Ltd. & Investment Co. (P.) Ltd. Vs. JR. Kanekar, DCIT (2004) 271 ITR 269 (Bom). In both the cases, assessment was completed by way of intimation under section 143(1) of the Act and it was observed that in both the cases, the Hon'ble Apex Court reiterated that where the assessment has been completed by intimation under section 143(1) of the Act, there can be no question of change of opinion. This is the first finding of the Hon’ble Apex Court in both the decisions which has been referred by the Hon’ble Bombay High Court in Khubchandani Healthparks (P.) Ltd. Vs. ITO (supra). Then, the Hon’ble High Court goes on to observe that the Hon’ble Apex Court in DCIT Vs. Zuari Estate Development & Investment Co. Ltd. (supra) has not dealt with the issue whether before invoking provisions of section 148 of the Act, the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment, where the original assessment was completed by intimation under section 143(1) of the Act. The Hon’ble High Court further observed that the Revenue was trying to infer that because Hon’ble Apex Court in DCIT Vs. Zuari Estate Development & Investment Co. Ltd. (supra) had set aside the order on this count and restored the issue to be decided on merits by the Tribunal, it must be inferred that the Hon’ble Apex Court had come to the conclusion that reason to believe was not necessary for issuing re-assessment notices where regular

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assessment was completed under section 143(1) of the Act. Vide para 5, the Hon’ble High Court in Khubchandani Healthparks (P.) Ltd. Vs. ITO (supra) reiterates that the decision of the Court had to be read in the context of the facts involved therein and not on the basis of what logically flows therefrom. The Hon’ble High Court further holds that the Hon’ble Apex Court in DCIT Vs. Zuari Estate Development & Investment Co. Ltd. (supra) not having dealt with the issue of reason to believe that income chargeable to tax has escaped assessment on the part of Assessing Officer in cases where regular assessment was completed by intimation under section 143(1) of the Act, in categorical terms held it would not be wise for us to infer that the Supreme Court in Zuari Estate Development & Investment Co. Ltd. (supra) has held that the condition precedent for the issue of reopening notice namely, reason to believe that income chargeable to tax has escaped assessment, has no application where the assessment has been completed by Intimation under section 143(1) of the Act. The Hon‟ble High Court further held that the law on this point has been expressly laid down by the Apex Court in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd. (supra) and the same would continue to apply and be binding upon us. The Hon’ble Bombay High Court further held that Thus, even in cases where no assessment order is passed and assessment is completed by Intimation under section 143(1) of the Act, the sine qua non to issue a reopening notice is reason to believe that income chargeable to tax has escaped assessment. For the sake of clarity, relevant extract of the judgment referred in Khubchandani Healthparks (P.) Ltd. Vs. ITO (supra) is again reproduced hereunder:- “3. On hearing the parties, we find that the Apex Court in Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers P. Ltd. 291 ITR 500, had an occasion to deal with identical facts, namely reopening Notices issued under Section 148 of the Act where assessment is completed earlier by Intimation under Section 143(1) of the Act. In the above case, the Apex Court held that a Notice for reopening an assessment under Section 148 of the Act could only be justified if the Assessing Officer has reason to believe that income chargeable to tax has escaped

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assessment. This decision of the Supreme Court in Rajesh Jhaveri Stock Brokers P. Ltd. (Supra) has not been disturbed by the Apex Court in Zuari Estate Development and Investment Co. Ltd. (Supra). In fact, the Supreme Court in Zuari Estate Development and Investment Co. Ltd. (Supra) makes a specific reference to its decision in Rajesh Jhaveri Stock Brokers P. Ltd. (Supra) to hold that where the assessment has been completed by Intimation under Section 143(1) of the Act, there can be no question of change of opinion. 4. We further find that the Apex Court in Zuari Estate Development and Investment Co. Ltd. (Supra) has not dealt with the issue whether before invoking Section 148 of the Act, the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment, where the original assessment has been completed by Intimation under Section 143(1) of the Act. The Revenue is trying to infer that because the Apex Court in Zuari Estate Development and Investment Co. Ltd. (Supra) has set aside the order of this Court and restored the issue to be decided on merits by the Tribunal, it must be inferred that the Apex Court had come to the conclusion that reason to believe was not necessary for issuing reassessment Notices where the regular assessment was completed under Section 143(1) of the Act. As rightly pointed out by Mr. Pardiwalla, it can equally be inferred that the Apex Court in the above case had come to the conclusion that there is reason to believe that income had escaped assessment and consequently restored the issue to the Tribunal to decide the reassessment proceedings on merits. 5. It is settled position in law that the decision of the Court has to be read in the context of the facts involved therein and not on the basis of what logically flows therefrom as held by the Supreme Court in Ambica Quarry Works Vs. State of Gujarat, 1987(1) SCC 213. The Apex Court in Zuari Estate Development and Investment Co. Ltd. (Supra)not having dealt with the issue of reason to believe that income chargeable to tax has escaped assessment on the part of the Assessing Officer in cases where regular assessment was completed by Intimation under Section 143(1) of the Act, it would not be wise for us to infer that the Supreme Court in Zuari Estate Development and Investment Co. Ltd. (Supra) has held that the condition precedent for the issue of reopening notice namely, reason to believe that income chargeable to tax has escaped assessment, has no application where the assessment has been completed by Intimation under Section 143(1) of the Act. The law on this point has been expressly laid down by the Apex Court in the case of Rajesh Jhaveri Stock Brokers P. Ltd. (Supra) and the same would continue to apply and be binding upon us. Thus, even in cases where no assessment order is passed and assessment is completed by Intimation under Section 143(1) of the Act, the sine qua non to issue a reopening notice is reason to believe that income chargeable to tax has escaped assessment. In the above view, it is open for the petitioner to challenge a notice issued under Section 148 of the Act as being without jurisdiction for absence of reason to believe even in case where the Assessment has been completed earlier by Intimation under Section 143(1) of the Act.”

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Hon’ble High Court that the Hon’ble Apex Court in ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) had laid down the law on the point that even in cases where intimation under section 143(1) of the Act was issued sine qua non to issue reopening notice is reason to believe that income chargeable to tax has escaped assessment. In case of absence of reason to believe even where assessment was earlier completed by issue of intimation under section 143(1) of the Act, it was open to the petitioner to challenge notice issued under section 148 of the Act. Such proposition has been laid down by the Hon’ble High Court vide its judgment dated 10.02.2016.

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the absence of tangible material before the Assessing Officer from which he could entertain the belief of escapement of income chargeable to tax, re-assessment proceedings initiated were held to be bad in law.

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the issue before us is not case of change of opinion but case of reason to believe for escapement of income and the absence of tangible material.

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delivered on 19.12.2016 i.e. after the decision of Indu Lata Rangwala Vs. DCIT (supra) has held otherwise. It has been held that in the case of an assessee where intimation under section 143(1) of the Act has been issued, then re-assessment cannot be initiated on the basis of return of income and enquiries thereof which were already part of record, the reopening of assessment was held to be not justified. The Hon’ble High Court has elaborated on the expression ‘reason to believe’ and has held as under:-

“11. The phrase „reason to believe‟ in section 147 relates to such other new or tangible material as may have come to the knowledge of the assessing officer pursuant to the original proceedings for assessment. The Supreme Court in CIT Vs. Kelvinator of India (320 ITR 561) states thus in the context of the „belief‟ that should form the basis for a re-assessment; „We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review, he has the power to reassess. But reassessment has to be based on fulfillment of certain pre-conditions and if the concept of „change of opinion‟ is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of „change of opinion‟ as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is „tangible material‟ to come to the conclusion that there is escapement of income from assessment. Reasons must have a link with the formation of the belief.‟ 12. If the assessing officer, after issuing intimation u/s section 143(1) does not to issue a notice u/s 143(2) of the Act to initiate proceedings for scrutiny of the return of income, the obvious conclusion is that he does not consider it necessary or expedient to do so, the inference being that the Return of Income filed in order. It is this opinion that cannot be arbitrarily changed by the assessing officer, to re-assess income on the basis of stale material, already on record. If we thus keep in the mind the above fundamental requirement of section 147, it would be apparent that the exercise undertaken by the Revenue in this case is not one of re-assessment, but of review. The reasons make it abundantly clear that the re-assessment is sought to be initiated on the basis of the return of income and the enclosures which were available with the assessing officer since 2.11.1998 and which ought to have prompted him to issue a notice under section 143(2) of the Act to conduct the proceedings under scrutiny. What is sought to be done by the re-assessment ought to have been achieved by scrutiny assessment proceedings. Having missed the bus earlier, the Department cannot be permitted to avail of the extended time limit in the absence of any new or tangible material, when the time for scrutiny assessment has elapsed on 31.3.2001, prior to issue of notice u/s 148. The notice under section 148dated 9.12.2002 is thus an arbitrary exercise of power and a review of proceedings impermissible in law. 13. The Division Bench of the Delhi High Court in the case of Commissioner of Income Tax Vs. Orient Craft Ltd (354 ITR 546) deals specifically with this aspect of

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the matter. The substantial question of law that was dealt with by the High Court is as follows; „Was the Tribunal right in law in holding that in the absence of any tangible material available with the Assessing Officer to form the requisite belief regarding escapement of income, the reopening of the assessment made under section 143(10 is bad in law?‟ 14. The Division Bench notes that the Supreme Court in the case of Asst. CIT V. Rajesh Jhaveri stock Brokers P. Ltd, (supra) only deals with the formation of an opinion at the time of issuance of prima facie intimation and does not indicate anywhere that a re-assessment can be initiated in the absence of a reason to believe. To conclude, the Division Bench holds thus: „This judgment, contrary to what the Revenue would have us believe, does not give a carte blanche to the Assessing Officer to disturb the finality of the intimation under section 143(1) at his whims and caprice; he must have reason to believe within the meaning of the section.‟ 15.…. 16….. 17. A decision of the Delhi High Court in the case of CIT Vs Orient Craft Limited (354 ITR 536) had occasion to consider a similar question and the Division Bench, at Page 546, holds as follows; „Having regard to the judicial interpretation placed upon the expression reason to believe‟, and the continued use of that expression right from 1948 till date, we have to understand the meaning of the expression in exactly the same manner in which it has been understood by the courts. The assumption of the Revenue that somehow the words „reason to believe‟ have to be understood in a liberal manner where the finality of an intimation under section 143(1) is sought to be disturbed is erroneous and misconceived. As pointed out earlier, there is no warrant for such an assumption because of the language employed in section 147; it makes no distinction between an order passed under section 143(3) and the intimation issued under section 143(1). Therefore, it is not permissible to adopt different standards while interpreting the words „reason to believe‟ vis-à-vis section 143(1) and section 143(3). We are unable to appreciate what permits the Revenue to assume that somehow the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of an assessment earlier made under section 143(3) cannot apply where only an intimation was issued earlier under section 143(1). It would in effect place an assessee in whose case the return was processed under section 143(1) in a more vulnerable position than an assessee in whose case there was a full-fledged scrutiny or is accepted without demur is not a matter which is within the control of the assessee; he has no choice in the matter. The other consequence, which is somewhat graver, would be that the entire rigorous procedure involved in reopening an assessment and the burden or proving valid reasons to believe could be circumvented by first accepting the return under section 143(1) and, thereafter, issue notices to reopen the assessment. An interpretation which makes a distinction between the meaning and content of the expression �reason to believe� in cases where assessments were framed earlier under section 143(3) and cases where mere intimations were issued earlier under section 143(1) may well lead to such an unintended

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mischief. It would be discriminatory too. An interpretation that leads to absurd results or mischief is to be eschewed.‟ …….... The reasons recorded by the Assessing Officer reached the belief that there was escapement of income „on going through the return of income‟ filed by the assessee after he accepted the return under section 143(1) without scrutiny, and nothing more. This is nothing but a review of the earlier proceedings and an abuse of power by the Assessing Officer, both strongly deprecated by the Supreme Court in CIT v. Kelvinator (supra).‟ 18. The above extracts are applicable on all fours to the present case in the facts and circumstances pointed out earlier. In the light of the aforesaid discussion, we answer question of Law No.2 in favour of the assessee. In view of our conclusion on the aspect of assumption of jurisdiction, we do not see any need to go into the merits of the case and refrain from answering the substantial question of law relating to the same. No costs.”

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account, needs to be verified and for that purpose, the assessment for A.Y 2009- 2010 is sought to be reopened. 12. In case of Inductotherm (India) (P.) Ltd. v. M. Gopalan, Dy. CIT (2013) 356 ITR 481 (Guj) Division Bench of this Court has observed that for a mere verification of the claim, the power of reopening of assessment could not be exercised. It is further observed that the Assessing Officer under the guise of power to reopen an assessment, cannot seek to undertake a fishing or roving inquiry and seek to verify the claims, as if it were a scrutiny assessment. 12.1 Similar view has been expressed by the Division Bench in case of Deep Recycling Industries v. Dy.CIT (Special Civil Application No.3611 of 2013, dated 2- 8-2016) wherein it has been held and observed that for mere scrutiny, reopening of the assessment would not be permissible. It is further observed that the reopening of the assessment could be made if the Assessing Officer had formed a belief that income chargeable to tax had escaped assessment. The Court has further observed that in order to do so, the Assessing Officer must have some tangible material having live link with the escapement of the income on the basis of which he can form a bona fide belief of escapement of income chargeable to tax. It has also been observed that reopening cannot be resorted to for fishing or roving inquiry on mere suspicion that income chargeable to tax may have escaped assessment. 13. Applying the aforesaid two decisions to the facts of the present two cases on hand and the reasons recorded to reopen the assessment, we are of the opinion that under the guise of reopening of the assessment, the Assessing Officer wants to have a roving inquiry; as observed hereinabove. Even as per the Assessing Officer in the reasons recorded has specifically mentioned that for the purpose of verification/deep verification of the claim, it is necessary to reopen the assessment. Under the circumstances, it cannot be said that the Assessing Officer had any tangible material to form an opinion that the income chargeable to tax has escaped the assessment. Under the circumstances, the impugned action of reopening of the assessment in exercise of power under Section 148 of the I.T Act for the reasons recorded hereinabove cannot be sustained. 14. Resultantly, both these writ petitions succeed. Impugned Notice issued by the Assessing Officer under Section 148 of the Income-tax Act, 1961 in each case is hereby quashed and set-aside.”

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the issue in turn relying on the decision of jurisdictional High Court in Khubchandani Healthparks (P.) Ltd. Vs. ITO (supra) and the same has not been reversed by higher Forum, cannot be brushed aside. The insistence of the learned Departmental Representative for the Revenue on later decision of the Hon’ble High Court of Delhi, where though earlier decisions are referred but not distinguished, is against judicial discipline especially where issue is settled by Apex Court in ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (supra). Accordingly, we hold that in the absence of live link between reason to believe of escapement of income with the tangible material and even in the present case where the assessment order was passed under section 143(1) of the Act, the requirement of section is for the Assessing Officer to come to a finding on the basis of tangible material to establish his case of reason to believe of escapement of income and in the absence of the same, re-assessment proceedings initiated were both invalid and bad in law. Accordingly, we hold so. We cancel the re-assessment proceedings initiated against the assessee and consequent order passed under section 143(3) r.w.s. 147 of the Act does not stand.

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of such products as well as of patent and trademark rights. The assessee had entered into Service Agreement dated 08.11.2002 with a group company in India i.e. Sandvik Asia Limited, Pune (SAL) for rendering various management services. In lieu thereof, the assessee received fees for management services rendered to SAL pursuant to the said contract. SAL had been issued a „Zero Tax Withholding Order‟, as per more beneficial provisions of India-Sweden Tax Treaty, on the basis that the income was not chargeable to tax in India. The assessee company thereafter, filed return of income declaring total income at Nil for the captioned assessment year. However, the Assessing Officer was of the view that the assessee had received management service fees of Rs.4,85,82,800/- from Sandvik Asia Limited, Pune. The Assessing Officer was of the view that the said management service fees of Rs.4.85 crores is to be assessed in the hands of assessee, rejecting the claim of the assessee that the said services were not taxable in India. The Assessing Officer was of the view that on joint reading of management services agreement and the definition of fees for technical services given in the DTAA with Sweden, it was apparent that the amount received by the assessee as per the said agreement with SAL was clearly in the nature of fees for technical services and therefore, was taxable in India. Another aspect noted by the Assessing Officer was whether the nature of services rendered by the assessee to SAL „makes available‟ any technical knowledge, experience, skills, know-how, etc. After considering the issue at length and taking note of the clauses of agreement and the correspondence between the parties, the Assessing Officer held that the amount was received by the assessee company for providing services as per the management services agreement dated 08.11.2002, which was covered not only by the definition of technical services as laid down in DTAA between India and Sweden but was also covered by the aforesaid decision as laid down in subsequent DTAA entered into by India with Netherland, USA, Portugal, etc. hence, same was taxable in the hands of assessee. But since the assessee was the actual beneficial owner of the fees for technical services, the tax was charged @ 10% as per DTAA of gross amount. 6. The CIT(A) was of the view that as per DTAA between India and Sweden, the amount received by the assessee falls into the category of fees for technical services unless it falls into restrictive definition „make available‟ clause signed with other OECD countries like Portugal, the benefit of which would also go to the assessee company. Referring to Article 12(4) of DTAA between India and Portugal, the CIT(A) observed that the learned Authorized Representative for the assessee could not explain the basic requirement and merely filed copies of invoices claiming that such technology, skills were not made available to SAL. However, the CIT(A) held from the correspondence between the parties that the payment was made for marketing services, management services, services related to HRD, administrative services and coordination in Information Technology services. The CIT(A) further observed that in the said services, there was nothing which could have been made available to SAL, but was not done. In view thereof, the order of Assessing Officer was upheld since the DRP had upheld the order of TPO / AO in assessment year 2007-08. 7. The assessee is in appeal against the aforesaid order of CIT(A) and both the learned Authorized Representatives have put forward their contentions. 8. We find that identical issue arose before the Tribunal in assessee‟s own case in assessment year 2007-08 and the Tribunal held on the principle of most favoured nation clause, that the payment received by the assessee company from its Indian subsidiaries could not be brought to tax. The relevant findings of the Tribunal are in paras 8 to 12, which read as under:- “8. We have heard the rival submissions of the parties and have also considered the written submissions and the precedents and decisions relied

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on by both the parties. The assessee is tax resident of Sweden. It is claimed that that it does not have a permanent place of business in India (PE). The dispute is in respect of the payment of Rs.5.9 Crores received by the assessee company from its Indian subsidies i.e. Sandvik Asia Pvt. Ltd. (SAPL) and WTIPL. The claim of the assessee is that the assessee received the said payment from its Indian subsidies for rendering the services which are in the nature of commercial, management, marketing and production services. The nature of the services as per the agreement are already mentioned here-in-above. In this case there is no dispute about the legal position that the amount received by the assessee from its Indian subsidies is taxable in India under normal provisions of Act more particularly u/s. 9(1)(vii) r.w.s. 5(2) of the Income-tax Act. The main plank of the argument of the Ld. Counsel is that when the assessee is covered by the beneficial clauses in the treaty entered into as per the provisions of Sec. 90 (2) of the Income-tax Act then even if the assessee‟s income is taxable in the normal provisions still he can claim the exemption from the tax as per the clauses applicable in the treaty. 8.1 Ld. Counsel argues that the above payment received by the assessee company is not taxable in India in view of the beneficial provisions of the tax treaty between India and Sweden read with the protocol which is integral part of said treaty. He submits that the provisions of tax treaty between India and Sweden read with the protocol relating to the scope and taxation of fees for technical services being more beneficial than the correspondence provisions of the Income-tax Act hence, the assessee may be given the benefit of the treaty between India-Portugal on the basis of Protocol. He submits that without admitting even if the amount received by the assessee is in the nature of fees for technical services (FTS) but going on the principles of most favoured nation (MFN) clause in the protocol attached to the DTAA between India and Sweden, the assessee can claim the exemption from tax in India because subsequently the India has also entered into DTAA with Portugal which is also member of the OECD and fees for technical services are not taxable unless the condition of make available is fulfilled. 8.2 Ld. Counsel placed heavy reliance on the decision of the Hon'ble High Court of Karnataka in the case of CIT, Central Circle, Bangalore and another vs. M/s. De Beers India Minerals Pvt. Ltd. 340 ITR 467 (Kar) and Bharati Axa General Insurance Co. Ltd. Vs. DIT 326 ITR 477. He referred to the assessment order and submits that Assessing Officer has impliedly accepted that the tax treaty between India-Portugal can be applied to the assessee more particularly in the context of the protocol attached to the India and Sweden treaty. There is condition for beginning to tax the fees for technical services (FTS) in the DTAA between India and Portuguese i.e make available and if said condition is not fulfilled in source Country FTS cannot be taxed. The assessee is to be given the benefit of the India- Portuguese treaty on principle of MFN clause which is well recognized in international taxation. He submits that the identical issue has come for the consideration by the ITAT, Pune in the case of Sandvik Australia Pty. Ltd. Vs. D.D.I –International Tax-II, Pune in ITA No. 93/PN/2011 and the assessee‟s case is squarely covered on the interpretation of a expression- “make available”. Per contra, the Ld. DR relied on the written submissions. 9. In this case the only issue to be considered by us is whether the assessee can be given benefit of India-Portuguese treaty on principle of MFN clause? The India entered into DTAA with the Sweden which was notified vide notification no. GR 705/E dated 17.12.1997. Article 12 of the India-Sweden DTAA provides the mode of taxation of the royalties and fees

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for technical services whether the same are to be taxed in the source country or in the residence country. The definition of the fees for technical services (FTS) is given in Article 12(3)(b) of the Act. It is true that it is a very conservative definition and there is no condition that the technical services should be made available. The India also entered into the treaty with Portuguese republic which was notified vide notification no. GR F42/E dated 16th June, 2000. In the said Treaty, mode of taxation of the fees for technical services (FTS) between two countries is also provided in the Article 12 but instead of fees for technical services the expression used is “fees for included technical services”. As per the Article 12(4) fees for included services means payment of fees of any kind other than those mentioned in article 14 and 15 of the said treaty, to any person in consideration of the rendering of any technical or consultancy services (including through the provisions of services of technical or other personal) if such services – (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment describe in para no. 3 is received or (b) make available technical knowledge, expressions, skill, knowhow or process, or consist of the development and transfer of technical plan or technical design which enables the person acquiring the services to apply the technology contained therein. The main plank of the argument of the Ld. Counsel is that considering the principle of most favoured nation (MFN) clause in treaty between India and Portuguese unless a condition of make available the technical knowledge or skill or services is fulfilled then said payment cannot be taxed in source country i.e. India. 10. In the case of Sandvik Australia Pty. Ltd. (supra) and following the decision in the case of M/s. De Beers India Minerals Pvt. Ltd. (supra) on the expression “make available” it is held as under “12. The Assessing Officer has already reproduced Article 12 of the India Australia Treaty in his draft assessment order and he has interpreted that as per the Treaty FTS means payment of any kind to any person in consideration for the rendering of any technical or consultancy services if such services make available technical knowledge, experience, skill, know-how or process or consists of development and data of technical plan or technical design. In view of the above rendered by the assessee company to its Indian affiliates are in the nature of FTS or royalties and same is taxable in India. We reproduce herein under the relevant part of Article 12: ARTICLE XII - Royalties - 1. Royalties arising in one of the Contracting States, being royalties to which a resident of the other Contracting State is beneficially entitled, may be taxed in that other State. 2. Such royalties may also be taxed in the Contracting State in which they arise, and according to the law of that State, but the tax so charged shall not exceed: (a) in the case of : (i) royalties referred to in sub-paragraph (3)(b) ;

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(ii) payments or credits for services referred to in sub- paragraph (3)(d), subject to sub-paragraphs (3)(h) to (l), that are ancillary and subsidiary to the application or enjoyment of equipment for which payments or credits are made under sub-paragraph (3)(b); or

(iii) royalties referred to in sub-paragraph (3)(f) that relate to equipment mentioned in sub-paragraph (3)(b) ;

10 per cent of the gross amount of the royalties; and (b) in the case of other royalties : (i) during the first 5 years of income for which this Agreement has effect : (a) where the payer is the Government or a political sub-division of that State or a public sector company: 15 per cent of the gross amount of the royalties; and (b) in all other cases: 20 per cent of the gross amount of the royalties; and

(ii) during all subsequent years of income: 15 per cent of the gross amount of the royalties.

(a) the use of, or the right to use, any copyright, patent, design or model, plan, secret formula or process, trade mark or other like property or right;

(b) the use of, or the right to use, any industrial, commercial or scientific equipment;

(c) the supply of scientific, technical, industrial or commercial knowledge or information;

(d) the rendering of any technical or consultancy services (including those of technical or other personnel) which are ancillary and subsidiary to the application or enjoyment of any such property or right as is mentioned in sub-paragraph (a), or any such equipment as is mentioned in sub-paragraph (b) or any such knowledge or information as is mentioned in sub-paragraph (c);

(e) the use of, or the right to use : (i) motion picture films; (ii) films or video tapes for use in connection with television; or

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(iii) tapes for use in connection with radio broadcasting; (f) total or partial forbearance in respect of the use or supply of any property or right referred to in sub-paragraphs (a) to (e);

(g) the rendering of any services (including those of technical or other personnel), which make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or design; but that term does not include payments or credits relating to services mentioned in sub-paragraphs (d) and (g) that are made;

(h) for services that are ancillary and subsidiary, and inextricably and essentially linked, to a sale of property;

(i) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic;

(j) for teaching in or by an educational institution;

(k) for services for the personal use of the individual or individuals making the payments or credits; or

(l) to an employee of the person making the payments or credits or to any individual or firm of individuals (other than a company) for professional services as defined in Article 14.

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permanent establishment or fixed base in connection with which the liability to pay the royalties was incurred, and the royalties are borne by the permanent establishment or fixed base, then the royalties shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

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Company. As the wordings of Article 12 in the Indo-Netherlands Treaty are analogous to Article 12 of the India Australia Treaty, as expression „make available‟ is also used while determining fiscal jurisdiction of the contracting state, the Hon'ble High Court explained the meaning of the expression „make available‟ which was appearing in the Indo-Netherlands Treaty, the Lordships explained the expression as under: “13. Under the Act if the consideration paid for rendering technical services constitute income by way of fees for technical services, it is taxable. However, Article 12 of the aforesaid India-Netherlands Treaty defines fees for technical services for the purpose of Article 12 which deals with royalties and fees for technical services. The fees for technical services means the payment of any amount to any person in consideration for rendering of any technical services only, if such services make available technical knowledge, expertise, skill, know-how or processes. If the technical knowledge expertise, skill, know how or process is not made available by the service provider, who has rendered technical service for the purpose of Article 12 of DTAA it would not constitute fees for technical services. To that extent the definition of fee for technical services found in the agreement is inconsistent with the definition of fees for technical services provided in Explanation 2 to clause (vii) of sub-section (1) of Section 9. In view of Section 90 the definition of fees for technical services contained in the agreement overrides the statutory provisions contained in the Act. In fact, the latest agreement between India and Singapore further clarifies this position, where they have explained the meaning of the word „make available‟. According to the aforesaid definition fees for technical service means payments of any kind to any person in consideration for services of technical nature if such services make available technical knowledge, experience, skill, know how or processes which enables the person acquiring the service to apply technology contained therein. Though this provision is not contained in India Netherlands Treaty, but virtue of Protocol in the agreement, Clause (iv)(2) reads as under: “If after the signature of this convention under any Convention or Agreement between India and third State which is a member of the OECD India should limit its taxation at source on dividends, interests, royalties, fees for technical services or payments for the use of equipment to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of income, then as from the date on which the relevant Indian Convention or Agreement enters into force the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this Convention.” 14. Therefore the Clause in Singapore agreement which explicitly makes it clear the meaning of the word „make available‟, the said clause has to be applied, and to be read into this agreement also. Therefore, it follows that for

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attracting the liability to pay tax not only the services should be of technical in nature, but it should be made available to the person receiving the technical services. The technology will be considered „made available‟ when the person who received service is enabled to apply the technology. The service provider in order to render technical services uses technical knowledge, experience, skill, know how or processes. To attract the tax liability, that technical knowledge, experience, skill, know how or process which is used by service provider to render technical service should also be made available to the recipient of the services, so that the recipient also acquires technical knowledge, experience, skill, know how or processes so as to render such technical Services. Once all such technology is made available it is open to the recipient of the service to make use of the said technology. The tax is not dependent on the use of the technology by the recipient. The recipient after receiving of technology may use or may not use the technology. It has no bearing on the taxability aspect is concerned. When the technical service is provided, that technical service is to be made use of by the recipient of the service in further conduct of his business. Merely because his business is dependent on the technical service which he receives from the service provider, it does not follow that he is making use of the technology which the service provider utilises for rendering technical services. The crux of the matter is after rendering of such technical services by the service provider, whether the recipient is enabled to use the technology which the service provider had used. Therefore, unless the service provider makes available his technical knowledge, experience, skill, know how or process to the recipient of the technical service, in view of the Clauses in the DTAA, the liability to tax is not attracted.” 11. Now, the next question is whether the assessee is entitled for the benefits of DTAA between India-Portuguese as second condition make available is not fulfilled. There is a Protocol to the treaty between India and Sweden which is as under: At the signing of the Convention between the Government of the Republic of India and the Government of the Kingdom of Sweden for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, the undersigned have agreed that the following shall form an integral part of the Convention :

With reference to Articles 10, 11 and 12 : In respect of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties and fees for technical services) if under any Convention. Agreement or Protocol between India and a third State which is a member of the OECD, India limits its taxation at source on dividends, interest, royalties, or fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of income, the same rate or scope as provided for in that Convention, Agreement or Protocol on the said items of income shall also apply under this Convention.”

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11.1 An MFN clause refers to a situation wherein two non-resident tax payers are given impartial treatment by the concerned country. In DTAAs, MFN clause find place when countries are reluctant to forego their right to tax some elements of the income. An MFN clause can direct more favourable treatment available in other treaties only in regard to the same subject matter, the same category of matter or the same clause of the matter. The protocol attached to the treaty take care of a situation where in cases either of the contracting states enter into a bilateral agreement into the nature of DTAA with the another sovereign state and where the same subject matter has been given more favourable treatment by way of a definition or mode of tax then the parties can claim the benefit on the recognized principle of MFN clause. In his introduction to „Double Taxation Conventions‟ (Third Edition) Klaus Vogel has explained the role of the protocol and its role in interpreting the treaty. The same has been considered by the ITAT, Calcutta in the case of DCIT V. ITC Ltd., 76 TTJ 323. 11.2 In the case of Maruti Udyog Ltd., Vs. ADIT reported in (2010) 37 DTR 85 (Delhi) explaining the scope of the protocol it is held as under : “11.1 It is settled position in law that protocol is an indispensable part of the treaty with the same binding force as the main clauses therein, as protocol is an integral part of the treaty and its binding force is equal to that of the principal treaty. The provisions of the aforesaid DTAA are, therefore, required to be read with the protocol clauses and are subject to the provisions contained in such protocol. Examined in the light of DTAAs between India and UK, USA and Switzerland, we find that in the case before us the assessee had not purchased any property from UTAC France. Therefore, none of the fees i.e., impact testing fees or fee paid for test reports is ancillary and subsidiary as well as inextricably and essentially linked to the sale of a property. Therefore, the decision of the Tribunal, Calcutta Bench in the case of Dy. CIT vs. ITC Ltd. (supra) relied upon by the assessee is not applicable to the facts of the case. In this case the assessee had purchased machines from UK and payments were made to foreign party for installation and commissioning of the machines. The foreign party did not have any PE in India to which such income could be attributed. In this view of the matter it was held that the payments made to foreign party for installation and commissioning of the machines were related to technical services, which were ancillary and subsidiary as well as inextricably and essentially linked to the sale of the property. Hence, the payments made to the foreign party were not liable to be taxed in India. In the decision relied upon by the assessee in the case of Raymond Ltd. vs. Dy. CIT (supra), it was held that no technical knowledge, experience, skills, know-how or process etc. was made available to the assessee company by the non-resident managers of the GDR issue within the meaning of art. 13(4)(c) of the DTAA. Likewise, decisions in the cases of Skycell Communications Ltd. (supra) and NQA Quality Systems Registrar Ltd. (supra) are distinguishable on facts, hence, are not applicable to the facts of the assessee‟s case.” 11.3 It is also worthwhile to refer to the ruling given in the case of Authority for Advanced Ruling (AAA) in the case of Poonavala Aviations reported in 343 ITR 381 though it is having persuasive value which reads as under :

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“16. In his introduction to Double Taxation Conventions (Third Edition), Klaus Vogel, has clarified the role of a protocol and its role in interpreting a treaty. He says, "Protocols and in some cases other completing documents are frequently attached to treaties. Such documents elaborate and complete the text of a treaty, sometimes even altering the text. Legally they are a part of the treaty, and their binding force is equal to that of the principal treaty text. When applying a tax treaty, therefore, it is necessary carefully to examine these additional documents". A protocol is said to be a treaty by itself that amends or supports the existing treaty. We cannot also forget the observations of the Supreme Court in Union of India vs. Azadi Bachao Andolan (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC) at p. 751 that "An important principle which needs to be kept in mind in the interpretation of the provisions of an international treaty, including one for double taxation relief, is that treaties are negotiated and entered into at a political level and have several considerations as their bases". So the argument of the Revenue that the protocol cannot be relied on to understand the scope of taxation cannot be accepted.” 12. So far as the present case before us is concerned, on the basis of the protocol to the DTAA between the India and Sweden the assessee can claim the benefit of the conditions imposed for bringing to tax the fees for technical services in the treaty between the India and Portuguese. We, therefore, hold that on the principle of the most favoured nation (MFN) clauses the payment of Rs.5.93 Crores received by the assessee company from its Indian subsidies cannot be brought to tax. We, therefore, allow the grounds taken by the assessee on the above reasons.” 9. The Tribunal further in assessment year 2008-09 vide order dated 22.05.2015 followed its earlier order. Following the above said parity of reasoning, where the issue raised is identical in assessment years 2007-08 and 2008-09, which was adjudicated by the Tribunal vide separate orders and in view of the CIT(A) placing reliance on the observations of DRP in assessment year 2007-08, we hold that the issue is squarely covered by the separate orders of Tribunal in assessee‟s own case relating to assessment years 2007-08 and 2008-09. Following the same parity of reasoning, we reverse the order of CIT(A) and allow the claim of the assessee and hold that on the principle of most favoured nation clauses, the payment of Rs.4,85,82,800/- received by the assessee company from its Indian subsidiary could not be brought to tax. Therefore, the grounds of appeal raised by the assessee are allowed.”

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held that since the issue has been decided against the assessee in earlier years, reasons were being recorded for reopening assessment for the year under appeal also. Once the issue has been decided in favour of assessee in earlier year, on which reliance was placed by the Assessing Officer while reopening the assessment, then also reasons recorded for reopening of assessment do not stand. Hence, re-assessment proceedings initiated against the assessee are invalid and bad in law.

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technical services, the tax was charged @ 10% of gross amount as per the DTAA. The Tribunal vide para 8 in assessment year 2004-05 referring to earlier order in assessment year 2007-08 discussing the principle of Most Favoured Nation clause vis-à-vis payment received by the assessee company from its Indian subsidiaries held that the same could not be brought to tax. The Tribunal held that the issue is squarely covered by the earlier orders of Tribunal in assessment years 2007-08 and 2008-09 and following the same parity of reasoning, the claim of assessee was allowed on the principle of Most Favoured Nation clause and it was held that the receipt of Rs.18,94,69,420/- received by the assessee from its Indian subsidiaries could not be brought to tax in its hands. The relevant findings of the Tribunal are reproduced under paras 8 and 0 at pages 5 to 14 of the order of Tribunal datd 19.02.2016. We are making reference to the aforesaid findings of the Tribunal but for the sake of brevity, we are not reproducing the same. Consequently, we allow the claim of assessee and hold that the receipts for management services provided to the Indian affiliates amounting to Rs.18.94 crores are not to be taxed in the hands of assessee. The ground of appeal No.1 raised by the assessee is thus, allowed. 8. Now, coming to the second issue which is raised vide ground of appeal No.2 which is alternative to the ground of appeal No.1. 9. The Dispute Resolution Panel (DRP) / Assessing Officer had in the alternate held that the receipts for management services of Rs.18.94 crores be treated in the nature of dividends and taxable under Article 10 of the Tax Treaty between India and Sweden as well as under section 9(1)(iv) of the Act. 10. The learned Authorized Representative for the assessee pointed out that the said receipts were received from Sandvik Asia Pvt. Ltd. and the Tribunal had held in the case of said concern that the same could not be treated as dividend. 11. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the orders of authorities below. 12. We find no merit in the orders of authorities below that alternatively the receipts for management services be treated in the nature of dividend and taxed under Article 10 to the Tax Treaty between India and Sweden as well as under section 9(1)(iv) of the Act. The Tribunal in the case of payer i.e. Sandvik Asia Pvt. Ltd. in ITA No.1750/PUN/2013 with Cross Appeal in ITA No.1804/PUN/2013, relating to assessment year 2005-06 vide order dated 14.06.2017 held that management fees paid to Sandvik AB, Sweden i.e. the assessee before us was income on account of rendering of management services and could not be treated as dividend. Following the same parity of reasoning, we dismiss the alternative stand of the DRP/Assessing Officer in taxing the management service charges in the hands of assessee. The ground of appeal No.2 raised by the assessee is thus, allowed.”

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and our decision in ITA No.608/PUN/2014 and CO No.20/PUN/2015 shall apply mutatis mutandis to ITA No.623/PUN/2014 and CO No.28/PUN/2015.

Order pronounced on this 5th day of June, 2018.

Sd/- Sd/- (D.KARUNAKARA RAO) (SUSHMA CHOWLA) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक Dated : 5th June, 2018. GCVSR आदेश की प्रयिलऱपप अग्रेपषि/Copy of the order is forwarded to : 1. The Appellant; 2. The Respondent; 3. The DRP, Pune; 4. The DIT (TP/IT), Pune; 5. The DR ‘A’, ITAT, Pune; 6. Guard file. आदेशािुसार/ BY ORDER, सत्यापऩत प्रतत //True Copy// वररष्ठ तनजी सचिव / Sr. Private Secretary आयकर अऩीऱीय अचधकरण, ऩुणे / ITAT, Pune