GUNNEBO, MUMBAI V. ACIT (INTERNATIONAL TAXATION),CIRCLE-2 (3)(2), MUMBAI

ITA 1441/MUM/2021

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 6843 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 19-07-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 17-08-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DHANESH BAFNAPRATIK
• Keywords: Double taxation relief; Revised return
• Section: 28; 139; 143(3); 153

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI ABY T. VARKEY, JM AND SHRI S. RIFAUR RAHMAN, AM आयकर अपील सं/ I.T.A. No. 1441/Mum/2021 (निर्धारण वर्ा / Assessment Year: 2016-17) Gunnebo AB PO Box No.5181, Goteberg, Sweden. बिधम/ Vs. ACIT (International Taxation), Circle-2(3)(2) Room No.2908, 29 th Floor, World Trade Centre-1, Cuffee Parade, Mumbai-400005. स्थधयी लेखध सं./जीआइआर सं./PAN/GIR No. : AAECG9613J (अपीलार्थी /Assessee) .. (प्रत्यर्थी / Respondent) सुनवाई की तारीख / Date of Hearing: 20/07/2023 घोषणा की तारीख /Date of Pronouncement: 04/10/2023 आदेश / O R D E R PER ABY T. VARKEY, JM: This appeal has been preferred by the assessee company against the order of the Assistant Commissioner of Income-tax (Intl. Taxation), Circle 2(3)(2), Mumbai [in short ‘AO’] dated 20.04.2021 passed u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter “the Act”) pursuant to the Ld. DRP direction dated 15.03.2021. 2. The material issue involved in this appeal is regarding the taxability of Microsoft License Fees, Data Centre Charges & Training, Telecom & Recruitment Charges aggregating to Rs.1,05,93,812/-. Briefly stated the facts of the case are that, the assessee is a foreign Assessee by: Shri Dhanesh Bafna/Pratik Shah/Riddhi Maru Revenue by: Shri Amit Kumar Soni (Sr. DR) ITA No.1441/Mum/2021 A.Y. 2016-17 Gunnebo AB 2 company resident of Sweden which is engaged in business of manufacture of safe deposits and allied articles. The assessee has a subsidiary in India namely, M/s Gunnebo India Pvt Ltd [in short ‘Gunnebo India’] which is engaged in the same line of business. The appellant had derived brand license fees along with Microsoft license fees & Data Centre Charges from the Indian subsidiary which was originally offered to tax in the return of income filed u/s 139 of the Act. In the course of assessment, the assessee by way of revised computation of income claimed that the Microsoft license fees & Data Centre Charges was in the nature of recovery of expenses from Gunnebo India and therefore not taxable in India. The AO however did not agree with this revised computation furnished by the assessee and assessed the Microsoft license fees to tax in India. Apart from the foregoing, the AO also brought to tax the Training, Telecom & Recruitment Charges recovered by the assessee from Gunnebo India. This action of the AO was upheld by the Ld. DRP. Aggrieved by the same, the appellant is now in appeal before us. 3. Assailing the action of lower authorities, the Ld. AR for the assessee made multi-fold submissions before us. Firstly, he claimed that the transaction involving receipt of Microsoft License Fees, Data Centre Charges & Training, Telecom & Recruitment Charges aggregating to Rs.1,05,93,812/- was in the nature of recovery of expenses on cost-to-cost basis and therefore in absence of any income element therein, no portion thereof was liable to tax in India. In ITA No.1441/Mum/2021 A.Y. 2016-17 Gunnebo AB 3 support of the same, the Ld. AR invited our attention to Form 3CEB issued by the transfer pricing auditor wherein these transactions were reported as reimbursements. He further brought to our notice that these transactions had been inter alia referred for transfer pricing scrutiny and the Ld. TPO in the order dated 27.06.2019 passed u/s.92CA(3) of the Act accepted the reimbursement of expenses and no adjustment was made in relation thereto. This according to AO established beyond doubt that the recovery of expenses were on cost-to-cost basis and therefore the impugned sum was not liable to tax in India. 4. In his next line of argument, the Ld. AR contended that the Microsoft License Fees & Data Centre Charges was paid for acquiring right to use copyrighted product and the assessee did not get any exclusive right in the same in terms of Section 14 of the Copyright Act. Relying upon the decision of the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt Ltd Vs CIT (125 taxmann.com 42), the Ld. AR submitted that identical payments had been impugned before the Hon’ble Supreme Court, wherein it was held that these payments to Microsoft towards their copyrighted product did not qualify as ‘royalty’ within the meaning of Article 12 of the DTAA and therefore not liable to be taxed in India. In respect of Training, Telecom & Recruitment Charges, the Ld. AR submitted that these payments did not qualify as ‘fees for technical services’ [in short ‘FTS’] under the DTAA and was therefore not liable to be taxed in India. Inviting our attention to the Protocol to Article 12 of the Indo- ITA No.1441/Mum/2021 A.Y. 2016-17 Gunnebo AB 4 Sweden DTAA, the Ld. AR pointed out that, where India limits its taxation at source for FTS at a rate lower or scope more restricted with another third state which is a member of OECD, then India shall limit its taxation at source for FTS to the rate lower or scope more restricted as provided for in the that convention, agreement with such country. In view of this protocol, the Ld. AR submitted that the appellant has relied on the provisions of India-Portugal DTAA which has a restricted scope of taxability of FTS. Taking us through Article 12 of India- Portugal DTAA, the Ld. AR submitted that these expenses did not result in making available any technical knowledge, experience, know how , skill etc. to the recipient enabling it to apply the technology contained therein independently. He accordingly contended that since the impugned payment did not qualify as FTS as per India-Sweden DTAA read with Protocol, it was not liable to be taxed in India. Per contra, the Ld. DR supported the order of the lower authorities. 5. We have heard both the parties and perused the material placed before us. As noted earlier, the issue-in-dispute before us is the taxability of Microsoft License Fees, Data Centre Charges & Training, Telecom & Recruitment Charges aggregating to Rs.1,05,93,812/-. It is noted that the receipts towards Microsoft License Fees & Data Centre Charges amounting to Rs.1,01,67,265/- were originally offered to tax by the assessee in the return of income and later on in the course of assessment, the same was claimed to be not liable to tax. It is noted that, the AO had rejected the said claim by relying on the decision of ITA No.1441/Mum/2021 A.Y. 2016-17 Gunnebo AB 5 the Hon'ble Supreme Court in Goetze (India) Ltd (284 ITR 223) observing that the same was not made by way of revised return of income. We however note that the Hon'ble Supreme Court had held that where claim of deduction was not made in the ROI or by filing a revised ROI, the same cannot be made before the AO, but it was clarified by the Hon'ble Apex Court that there is no bar in making a fresh claim before the appellate authorities. We further note that the Hon'ble Gujrat High Court in the case of CIT v. Mitesh Impex (367 ITR 85) after considering the decisions rendered by the Hon'ble Apex Court in the case of National Thermal Power Co. Ltd. v. CIT (229 ITR 383) and Goetze (India) Ltd. (supra) has held that that, if a claim which is available in law is not raised either inadvertently or an account of erroneous plea of complex legal position, in the return of income such a relief cannot be shut up for all the times to come merely because it is raised for the first time in appellate proceedings in absence of a revised return filed before the Assessing Officer. For the aforementioned reasons, the preliminary reason cited by the lower authorities rejecting the claim of the assessee viz., non-filing of such claim by way of revised return of income, is hereby rejected. 6. Now coming to the facts of the case, it is noted that, the assessee under the cover of letter dated 10.12.2019 had furnished complete details of the recovery of expenses towards Microsoft License Fees, Data Entry Charges and Training, Telecom & Recruitment Charges along with the back-to-back invoices before the AO. Perusal of the ITA No.1441/Mum/2021 A.Y. 2016-17 Gunnebo AB 6 same, which was placed before us at Pages 133 to 153 of Paper Book, reveals that the reimbursements were made on cost-to-cost basis. We however note that the AO had arbitrarily rejected these details by stating that the same was not properly evidenced by the assessee. Surprisingly no specific infirmity or defect was pointed out in the documentation furnished by the assessee. We further find that these facts were also brought to the notice of the Ld. DRP. The Ld. DRP is noted to have not disputed that the reimbursements were made on cost- to-cost basis, but they rejected the plea of the assessee regarding non- taxability of reimbursements by observing that Section 28 of the Act charges tax on ‘gross receipts’ and not ‘net income’. In our considered view this particular proposition laid down by the Ld. DRP was erroneous and unjustified. It is by now well settled in law that, it is the ‘income’ element embedded in the ‘receipt’ and not the ‘receipt’ itself which is liable to be taxed under Section 4 & 5 of the Act. 7. We further find merit in the Ld. AR’s contention that, when the TPO in his order u/s.92CA(3) did not dispute that the transactions involving recovery of Microsoft License Fees, Data Entry Charges and Training, Telecom & Recruitment Charges reported to be in the nature of reimbursements in Form 3CEB, then the lower authorities had erred in ignoring this factual position. In light of the aforesaid facts noted by us, as the receipts in question did not have any profit element embedded therein, the same was not liable to tax in India. We find that the issue-in-dispute before us is squarely covered by the decision of ITA No.1441/Mum/2021 A.Y. 2016-17 Gunnebo AB 7 the Hon’ble Supreme Court in the case of DIT (International Taxation) v. A.P. Moller Maersk AS (392 ITR 186), wherein, the Hon'ble Supreme Court has observed that once the character of the payment is found to be in the nature of reimbursement of expenses without having any profit element embedded therein, it cannot be held to be chargeable to tax. The findings of the Hon’ble Supreme Court which are relevant to the present case are set out below:- “10. The facts which emerge on record are that the assessee is having its IT System, which is called the Maersk Net. As the assessee is in the business of shipping, chartering and related business, it has appointed agents in various countries for booking of cargo and servicing customers in those countries, preparing documentation etc. through these agents. Aforementioned three agents are appointed in India for the said purpose. All these agents of the assessee, including the three agents in India, used the Maersk Net System. This system is a facility which enables the agents to access several information like tracking of cargo of a customer, transportation schedule, customer information, documentation system and several other information. For the sake of convenience of all these agents, a centralized system is maintained so that agents are not required to have the same system at their places to avoid unnecessary cost. The system comprises of booking and communication software, hardware and a data communications network. The system is, thus, integral part of the international shipping business of the assessee and runs on a combination of mainframe and non-mainframe servers located in Denmark. Expenditure which is incurred for running this business is shared by all the agents. In this manner, the systems enable the agents to co-ordinate cargos and ports of call for its fleet. ITA No.1441/Mum/2021 A.Y. 2016-17 Gunnebo AB 8 11. Aforesaid are the findings of facts. It is clearly held that no technical services are provided by the assessee to the agents. Once these are accepted, by no stretch of imagination, payments made by the agents can be treated as fee for technical service. It is in the nature of reimbursement of cost whereby the three agents paid their proportionate share of the expenses incurred on these said systems and for maintaining those systems. It is re-emphasized that neither the AO nor the CIT (A) has stated that there was any profit element embedded in the payments received by the assessee from its agents in India. Record shows that the assessee had given the calculations of the total costs and pro rata division thereof among the agents for reimbursement. Not only that, the assessee have even submitted before the Transfer Pricing Officer that these payments were reimbursement in the hands of the assessee and the reimbursement was accepted as such at arm's length. Once the character of the payment is found to be in the nature of reimbursement of the expenses, it cannot be income chargeable to tax.” 8. Identical view is noted to have been expressed by the coordinate Benches of this Tribunal at Mumbai in the following decisions: (i) SCA Hygiene Products AB v. Dy. CIT (IT) (187 ITD 419) (ii) Essity Hygiene and Health AB Vs DCIT (IT) (190 ITD 166) 9. Respectfully following the ratio laid down in the aforesaid decisions (supra), and having regard to the fact that the assessee has demonstrated that recovery of expenses aggregating to Rs.1,05,93,812/- was on cost-to-cost basis, the impugned sum cannot ITA No.1441/Mum/2021 A.Y. 2016-17 Gunnebo AB 9 be treated as taxable income in the relevant AY 2016-17. The AO is accordingly directed to delete the aforesaid addition. 10. As Ground No. 1 of the appeal challenging the taxability of Rs.1,05,93,812/- has been allowed, all other grounds taken in the appeal have been rendered academic and is therefore not being adjudicated upon. 11. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on this 04/10/2023. Sd/- Sd/ (S. RIFAUR RAHMAN) (ABY T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER मुंबई Mumbai; दिनांक Dated : 04/10/2023. Vijay Pal Singh, (Sr. PS) आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलार्थी / The Assessee 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त / CIT 4. दवभागीय प्रदतदनदि, आयकर अपीलीय अदिकरण, मुंबई / DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //True Copy// उि/सहधयक िंजीकधर /(Dy./Asstt. Registrar) आयकर अिीलीय अनर्करण, मुंबई / ITAT, Mumbai