M/s. Sandvik System Development AB., Pune V. Deputy Commissioner of Income-tax, Pune

CO 122/PUN/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 5071 (ITAT-PUNE)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 12-10-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-07-2018
• Assessment Year: 2009-2010
• Appeal Filed On: 22-12-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T VIJAYA B REDDY
• Keywords: Double taxation relief
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E . , , ! ' , # $ BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AW ASTHY, JM . / ITA NO.497/PUN/2016 #& ' (' / ASSESSMENT YEAR : 2009-10 THE DEPUTY DIRECTOR OF INCOME TAX, (INTERNATIONAL TAXATION), CIRCLE-2, PUNE. ....... / APPELLANT & / V/S. M/S. SANDVIK SYSTEM DEVELOPMENT AB, C/O. SANDVIK ASIA LIMITED, MUMBAI PUNE ROAD, DAPODI, PUNE-411 012 PAN : AAHCS7485H / RESPONDENT )*$ . /CO.NO.122/PUN/2017 #& ' (' /ASSESSMENT YEAR: 2009-10 (ARISING OUT OF ITA NO.497/PUN/2016) M/S. SANDVIK SYSTEM DEVELOPMENT AB, C/O. SANDVIK ASIA LIMITED, MUMBAI PUNE ROAD, DAPODI, PUNE-411 012 PAN : AAHCS7485H .. / CROSS OBJECTOR & / V/S. THE DEPUTY COMMISSIONER OF INCOME TAX, (INTERNATIONAL TAXATION), CIRCLE-2, PUNE. / RESPONDENT REVENUE BY : SHRI T. VIJAYA B. REDDY ASSESSEE BY : SHRI NIKHIL PATHAK 2 ITA NO. 497/PUN/2016 CO. NO.122/PUN/2017 A.Y.2009-10 / DATE OF HEARING : 17.07.2018 / DATE OF PRONOUNCEMENT : 12.10.2018 + / ORDER PER VIKAS AWASTHY, JM THIS APPEAL HAS BEEN FILED BY THE DEPARTMENT AGAINST AS SESSMENT 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 AC T) FOR THE ASSESSMENT YEAR 2009-10. THE ASSESSEE HAS FILED CROSS OBJECTION AGA INST THE APPEAL FILED BY THE DEPARTMENT. 2. 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. NO TICE, U/S. 148 OF THE ACT WAS SERVED ON THE ASSESSEE/APPELLANT FOR THE R EASON THAT THE ASSESSEE HAS RECEIVED FEE FOR PROVIDING IT SUPPORT SERVIC ES 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 ASSESS EE 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 ACCOU NT OF FTS VIDE DRAFT ASSESSMENT ORDER DATED 24.03.2015. THE ASSESSEE FILE D OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (DRP) AGAINST THE ADDIT ION MADE IN THE DRAFT ASSESSMENT ORDER, AS WELL AS ON RE-OPENING OF ASSES SMENT. 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-OP ENING OF ASSESSMENT. HOWEVER, ON MERITS OF THE ADDITION, THE DRP HE LD 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 ADDITIO N. 3. NOW, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL ASSAILIN G 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 PROVID ED 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 B ETWEEN 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 AVAI LABLE 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 ASSESSEES 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 A NY OF THE GROUNDS OF APPEAL. 4. SHRI NIKHIL PATHAK APPEARING ON BEHALF OF THE ASSESSEE S UBMITTED 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 ASSESSEES HOLDING COMPANY, M/S. SANDVIK AB VS. DDIT IN ITA NO.1720/P N/2011 FOR THE ASSESSMENT YEAR 2007-08 DECIDED ON 28 TH NOVEMBER, 2014. THE DRP GRANTED RELIEF TO THE ASSESSEE BY PLACING RELIANCE ON THE DECISION OF THE TRIBUNAL IN THE AFORE-MENTIONED CASE. 5. ON THE OTHER HAND, SHRI T. VIJAYA B. REDDY REPRESENT ING THE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF ASSESSIN G 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 TH AT THE DRP WHILE GRANTING RELIEF TO THE ASSESSEE HAS FAILED TO EXAMINE T HE 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. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY REPRESENTATIV ES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. THE S OLITARY ISSUE EMANATING FROM THE GROUNDS RAISED IN APPEAL BY THE REVE NUE 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 R ESPECT OF APPLICATION INTERNALLY DEVELOPED NAMELY SOPIC BY ASSESSE E FOR SANDVIK GROUP OF COMPANIES. DURING THE PERIOD RELEVANT TO THE A SSESSMENT YEAR UNDER APPEAL, THE ASSESSEE PROVIDES APPLICATION DEVELOPMEN T 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 TOWA RDS 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. 7. THE CIT(A) AFTER ANALYSING THE AGREEMENT, NATURE OF S ERVICES AND INVOICES RAISED BY ASSESSEE ON SAPL, CAME TO THE CONCLU SION 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 APPLICAT ION 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 DEFIN ITION OF ROYALTY AS DEFINED IN THE DTAA OR WITHIN THE MEANING OF E XPLANATION (2) UNDER SECTION 9(1)(VI) OF THE ACT. 8. AS REGARDS HOLDING THE PAYMENTS AS FTS, THE DRP PLAC ED 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 MENTI ONED ABOVE THAT IN ORDER TO BE CONSIDERED AS FTS, THE SERVICES RENDERE D BY THE ASSESSEE, APART FROM BEING TECHNICAL OR CONSULTANCY SERVICES, SHOULD ALSO SATISFY THE CONDITION THAT SUCH SERVICES MAKE AVAILABLE TEC HNICAL 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, EXPERIEN CE ETC. BY ITSELF WITHOUT RECOURSE TO THE SERVICE PROVIDER IN FUTURE. 4.21 IN THE PRESENT CASE, THE IT SUPPORT SERVICES R ENDERED BY THE ASSESSEE TO SAPL ARE IN THE NATURE OF SYSTEM DEVELO PMENT SERVICES AND MAINTENANCE OF INTERNALLY DEVELOPED APPLICATIONS. I T IS SEEN THAT THE ASSESSEE MERELY PROVIDES DEVELOPMENT/UPDATION AND M AINTENANCE OF THE INTERNALLY DEVELOPED SOFTWARE APPLICATIONS OWNE D 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 DOE S 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 O RDER/DIRECTIONS OF THE DRP. HENCE, THE GROUNDS RAISED BY THE REVENUE IN AP PEAL ARE DISMISSED BEING DEVOID OF ANY MERIT. 9. 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 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 ASSESSEES 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 ACADEM IC. THEREFORE, THE SAME ARE DISMISSED. 11. TO SUM UP, APPEAL FILED BY THE REVENUE AND THE CROS S OBJECTIONS FILED BY ASSESSEE, ARE DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 12 TH DAY OF OCTOBER, 2018. SD/- SD/- ( . / D. KARUNAKARA RAO ) ( ! ' /VIKAS AWASTHY) / ACCOUNTANT MEMBER ! / JUDICIAL MEMBER / PUNE; '# / DATED : 12 TH OCTOBER, 2018 SB + , )#-.! /!(- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT( INTERNATIONAL TAXATION), CIRCLE-2, PUNE. 4. THE PR. CIT-5, PUNE. 5. &'( !!)* , + )* , ,-. , / DR, ITAT, B BENCH, PUNE. 6. (/0 12 / GUARD FILE. // TRUE COPY // +3 / BY ORDER, !4 ). / PRIVATE SECRETARY + )* , / ITAT, PUNE.