M/s.Sandvik Tooling Sverige AB, Pune V. Deputy Commissioner of Income-tax, (International Taxation) Circle - 2, Pune

ITA 2523/PUN/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 3745 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 28-08-2019
• Assessment Year: misc
• Appeal Filed On: 01-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; Double taxation relief; International transaction; Retrospective amendment; Permanent establishment; Advance ruling
• Section: 195; 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER . / ITA NO.2523/PUN/2017 / ASSESSMENT YEAR : 2014-15 M/S.SANDVIK TOOLING SVERIGE AB, C/O. SANDVIK ASIA PRIVATE LIMITED, MUMBAI-PUNE, DAPODI, PUNE 411 012 PAN : AAKCS4689N VS. DCIT (IT), CIRCLE-2, PUNE (APPELLANT) (RESPONDENT) / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE FINAL ASSESSMENT ORDER DATED 24.08.2017 PASSED BY THE ASSES SING OFFICER (AO) U/S.143(3) R.W.S.144C(13) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMEN T YEAR 2014-15. ASSESSEE BY SHRI NIKHIL PATHAK REVENUE BY SHRI M.K, GAUTAM, CIT-DR DATE OF HEARING 28-08-2019 DATE OF PRONOUNCEMENT 30-08-2019 ITA NO.2523/PUN/2017 M/S. SANDVIK TOOLING SVERIGE AB 2 2. TWO PRINCIPAL ISSUES HAVE BEEN RAISED IN THE APPEAL. TH E FIRST ISSUE IS AGAINST TREATING SUM OF RS.1,48,54,717/- AS ROYALTY UNDER THE ACT AS WELL AS THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND SWEDEN (DTAA). 3. SUCCINCTLY, THE FACTUAL MATRIX OF THE CASE IS THAT THE ASSES SEE IS A NON-RESIDENT (FOREIGN) COMPANY INCORPORATED IN SWEDEN. I T FILED ITS RETURN DECLARING TOTAL INCOME AT NIL. THE ASSESSEE REPORTED TWO INTERNATIONAL TRANSACTIONS INCLUDING IT SUPPORT SERVICE FEES OF RS.1,87,52,134/- RECEIVED FROM SANDVIK ASIA PRIVATE LIMITE D (SAPL). THIS AMOUNT OF RS.1.87 CRORE HAS TWO COMPONENTS VIZ., RS.1,48,54,717/- TOWARDS CAD/CAM MONTHLY COST AND RS.38,97,417/- TOWARDS GSS MAINTENANCE CHARGES. THE F IRST ISSUE THAT WE ARE ESPOUSING IS IN RELATION TO CAD/CAM MONTHLY COST OF RS.1.48 CRORE RECEIVED BY THE ASSESSEE FROM SAPL, WHICH WAS CLAIMED TO BE NOT CHARGEABLE TO TAX IN THE ABSENCE OF THE AS SESSEE HAVING ANY PERMANENT ESTABLISHMENT (PE) IN INDIA. THE ASSESS ING OFFICER (AO) OBSERVED THAT THE ASSESSEE PROVIDED LIMITED US ER ACCESS TO THE SOFTWARE APPLICATION CAD/CAM UTILITY TO THE TOOLING DIVISION OF SAPL AS A QUID PRO QUO FOR THE SAID PAYMENT. TREATING THE SAME AS ROYALTY U/S. 9(1)(VI) OF THE ACT AS WELL AS UN DER THE ITA NO.2523/PUN/2017 M/S. SANDVIK TOOLING SVERIGE AB 3 DTAA, THE AO HELD THE AMOUNT TO BE CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE. IN REACHING THIS CONCLUSION, HE O BSERVED THAT THE DISPUTE RESOLUTION PANEL (DRP) HAS ALSO TAKEN SIMILAR VIEW VIDE ITS DIRECTION DATED 29-09-2016 FOR THE A.Y. 2013-14. THE LD. DRP IN ITS DIRECTION FOR THE YEAR UNDER CONSIDERATION REPRODUC ED ITS OWN ORDER FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEA R 2013-14 AND HELD THAT THE RECEIPT FROM SAPL FOR GRANTING ACCESS TO CAD/CAM SOFTWARE APPLICATION WAS ROYALTY AS PER THE PROVISION S OF THE ACT AS WELL AS THE DTAA. AGGRIEVED THEREBY, THE ASS ESSEE HAS APPROACHED THE TRIBUNAL. 4. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELE VANT MATERIAL ON RECORD. FIRSTLY, WE WILL EXAMINE THE TAXABILITY OF THE AMOUNT UNDER THE ACT. THE CLAIM OF THE ASSESSEE IS THAT THE AMOUNT RECEIVED BY IT FROM SAPL FOR ALLOWING LIMITED ACCESS TO CAD/CA M IS A CONSIDERATION FOR COPYRIGHTED ARTICLE AND NOT USE OF A COPYRIGHT. IN THIS REGARD, IT IS OBSERVED THAT THE HONBLE DELHI HIGH CO URT IN DIT VS. INFRASOFT LTD. (2014) 264 CTR 329 (DELHI) CONSIDERED ALMOST SIMILAR ISSUE IN WHICH CONSIDERATION WAS RECEIVED BY TH E ASSESSEE ON GRANT OF LICENCE FOR USE OF SOFTWARE. THE AO HELD THAT THE SOFTWARE WAS LICENSED AND NOT SOLD IN AS MUCH AS THE CO PYRIGHT ITA NO.2523/PUN/2017 M/S. SANDVIK TOOLING SVERIGE AB 4 OF THE SOFTWARE REMAINED WITH THE ASSESSEE WHICH SIMPLY ALLOW ED THE USE OF COPYRIGHT TO THE PERSON MAKING PAYMENT TO IT. IN VIEW OF THE FACT THAT THE ASSESSEE AUTHORIZED USE OF THE COPYRIGHT OF THE SOFTWARE TO CUSTOMERS IN INDIA, WHICH WAS A PATENTED SOFTWA RE, HE HELD THAT THE CONSIDERATION FOR ALLOWING THE USE OF SUCH PATENTE D SOFTWARE FELL WITHIN THE DEFINITION OF ROYALTY U/S. 9(1)(VI) O F THE ACT. NO RELIEF WAS ALLOWED IN THE FIRST APPEAL. HOWEVER, THE TRIBUNAL HELD THAT THE AMOUNT RECEIVED BY THE ASSESSEE UNDE R THE LICENCE AGREEMENT FOR ALLOWING THE USE OF THE SOFTWARE WAS NOT ROYALTY EITHER UNDER THE ACT OR UNDER THE DTAA. THE REVEN UE APPROACHED THE HONBLE HIGH COURT, WHICH HELD THAT THE CONSIDERATION RECEIVED BY THE ASSESSEE FOR GRANT OF LICENC E FOR USE OF SOFTWARE WAS NOT TAXABLE AS ROYALTY WITHIN THE MEANING OF ARTICLE 12(3) TO THE DTAA BETWEEN INDIA AND USA AND HENCE ACCEPTE D THE ASSESSEES CLAIM ON THE BASIS OF THE RELEVANT DTAA. 5. AU CONTRAIRE, THE HONBLE KARNATAKA HIGH COURT IN CIT VS. SAMSUNG ELECTRONICS CO. LTD. (2012) 345 ITR 494 (KAR.) HAS HELD THAT IMPORT OF SHRINK WRAPPED SOFTWARE/OFF-THE-SHELF SOFTWAR E FROM NON-RESIDENT COMPANY UNDER SOFTWARE LICENCE AGREEMENT, W HEREBY A LICENCE IS GRANTED TO THE ASSESSEE FOR TAKING COPY OF THE S OFTWARE, ITA NO.2523/PUN/2017 M/S. SANDVIK TOOLING SVERIGE AB 5 STORE THE SAME IN THE HARD DISK OF THE DESIGNATED COMPUTER AND TO TAKE A BACK UP COPY WHILE THE OWNERSHIP OF THE COPYRIGHT C ONTINUES TO VEST IN THE SUPPLIER, IS NOTHING BUT ROYALTY UNDER THE PROVIS IONS OF SECTION 9(1)(VI) OF THE ACT AS WELL AS UNDER ARTICLE 12 OF THE CONCERNED DTAA. THE HONBLE DELHI HIGH COURT IN INFRASOFT (SUPRA) RECORDED ITS DISSENT WITH THE DECISION IN SAMSUNG (SUPRA) AND THE MATTER IS NOW SUB-JUDICE BEFORE THE HONBLE SUPREME COURT. 6. ON A COMPARATIVE ANALYSIS OF THE JUDGMENTS OF THE HO NBLE DELHI AND THE HONBLE KARNATAKA HIGH COURT, IT TRANSPIRES THA T THE HONBLE DELHI HIGH COURT IN INFRASOFT (SUPRA) EXAMINED THE TAXABILITY OF THE AMOUNT RECEIVED BY THE ASSESSEE ON THE TOUCH STONE OF THE PROVISIONS OF THE DTAA AND HELD THE SAME TO BE NOT CONSTITUTING ROYALTY. IT DID NOT SPECIFICALLY EXAMINE THE POSITION UNDER THE ACT. HOWEVER, IN PARA 63, IT DID MENTION THAT: `WHA T IS THUS REQUIRED TO BE EXAMINED IS WHETHER INCOME OF THE ASSES SEE IS ROYALTY INCOME AS COVERED BY ARTICLE 12 OF THE DTAA IF NOT THEN THE SAME WOULD BE TAXABLE AS BUSINESS INCOME AS COVERED BY THE PROVISIONS OF ARTICLE 7 OF THE DTAA. A CLOSE READING OF TH E ABOVE PARA FAIRLY REVEALS THAT THE HONBLE HIGH COURT HELD, IN PRINCIP LE, THAT IF THE INCOME IS NOT ROYALTY, THEN IT WOULD BE TAXABLE AS A ITA NO.2523/PUN/2017 M/S. SANDVIK TOOLING SVERIGE AB 6 BUSINESS INCOME. SINCE IT HELD THAT THE AMOUNT IN QUESTION DID N OT CONSTITUTE ROYALTY WITHIN THE RELEVANT DTAA, IT LAID DOWN IN PARA 95 THAT : ` WE HAVE NOT EXAMINED THE EFFECT OF THE SUBSEQUENT AMENDMENT TO SECTION 9 (1)(VI) OF THE ACT AND ALSO WHETHER THE AMOUNT RECEIVED FOR USE OF SOFTWARE WOULD BE ROYALTY IN TE RMS THEREOF FOR THE REASON THAT THE ASSESSEE IS COVERED BY THE DTAA, THE PROVISIONS OF WHICH ARE MORE BENEFICIAL. IN THE OPPUGN ATION, THE HONBLE KARNATAKA HIGH COURT IN SAMSUNG (SUPRA) HAS HELD: `THAT THE PAYMENT WOULD CONSTITUTE 'ROYALTY' EVEN AS PER THE PROVISIONS OF S. 9(1)(VI). 7. IT, THEREFORE, CLEARLY EMERGES THAT A COMMON THREAD WHICH RUNS THROUGH BOTH THE ABOVE JUDGMENTS IS THAT THE CONSIDERATION IS OTHERWISE NOT EXEMPT FROM TAX UNDER THE ACT. THE DISPUTE IS ONLY AS TO WHETHER IT IS BUSINESS INCOME OR ROYALTY INCOME UNDER THE A CT. WHEREAS THE HONBLE KARNATAKA HIGH COURT HELD CONSIDERATIO N FOR USE OF SOFTWARE AS ROYALTY INCOME U/S 9(1)(VI), THE HONBLE DELHI HIGH COURT HAD NOT EXAMINED THE EFFECT OF THE SUBSEQUENT AMENDMENT TO SECTION 9 (1)(VI) OF THE ACT. 8. AT THIS JUNCTURE, IT IS PERTINENT TO NOTE THAT THE FINANCE ACT, 2012 HAS CARRIED OUT AN AMENDMENT TO SECTION 9(1)(VI) DE ALING WITH ITA NO.2523/PUN/2017 M/S. SANDVIK TOOLING SVERIGE AB 7 `INCOME BY WAY OF ROYALTY BY MEANS OF INSERTION OF EXP L. 4 W.R.E.F. 1.6.1976, WHICH READS AS UNDER: - EXPLANATION 4. FOR THE REMOVAL OF DOUBTS, IT IS HE REBY CLARIFIED THAT THE TRANSFER OF ALL OR ANY RIGHTS IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION INCLUDES AND HAS ALW AYS INCLUDED TRANSFER OF ALL OR ANY RIGHT FOR USE OR RI GHT TO USE A COMPUTER SOFTWARE (INCLUDING GRANTING OF A LICENCE) IRRESPECTIVE OF THE MEDIUM THROUGH WHICH SUCH RIGHT IS TRANSFERRED. 9. IT IS EVIDENT FROM A BARE PERUSAL OF THE EXPLANATION 4 , WHICH HAS BEEN INSERTED WITH RETROSPECTIVE EFFECT FROM 01-06-1976, TH AT THE TRANSFER OF ALL OR ANY RIGHTS IN RESPECT OF ANY RIGHT, PROP ERTY OR INFORMATION INCLUDES AND HAS ALWAYS INCLUDED TRANSFER OF ALL O R ANY RIGHT FOR USE OR RIGHT TO USE A COMPUTER SOFTWARE INCLUDING GRANTING OF LICENSE. WITH THIS AMENDMENT, THE LEGISLATURE HAS MADE IT O VERT AND THAT TOO WITH RETROSPECTIVE EFFECT THAT ANY CONSIDERATION FOR THE USE OR RIGHT TO USE OF COMPUTER SOFTWARE IN ANY FORM INCLUD ING A MERE GRANTING OF A LICENSE WILL BE CONSIDERED AS ROYALTY IN THE HANDS OF RECIPIENT U/S.9(1)(VI) OF THE ACT. THE HITHERTO CONTR OVERSY ON THE TAXABILITY OF THE INCOME, AS BUSINESS INCOME OR ROYALTY INCOME, FROM ALLOWING THE USE OF COMPUTER SOFTWARE IN ANY F ORM UNDER THE ACT HAS BEEN PUT TO REST BY THE LEGISLATURE BY CLEAR LY ROPING IT WITHIN THE PURVIEW OF U/S 9(1)(VI) OF THE ACT. IN VIEW OF ITA NO.2523/PUN/2017 M/S. SANDVIK TOOLING SVERIGE AB 8 THIS RETROSPECTIVE AMENDMENT CARRIED OUT TO SECTION 9(1)(VI) A LSO COVERING THE YEAR UNDER CONSIDERATION, IT IS AXIOMATIC THAT THE AMOUNT IN QUESTION IS CHARGEABLE TO TAX UNDER THE ACT AS ROYA LTY INCOME IN THE HANDS OF THE NON-RESIDENT. 10. SECTION 90(1) OF THE ACT PROVIDES THAT THE CENTRAL GO VERNMENT MAY ENTER INTO AN AGREEMENT WITH THE GOVERNMENT OF ANY OTHE R COUNTRY FOR THE GRANTING OF RELIEF OF TAX IN RESPECT OF INCOM E ON WHICH TAX HAS BEEN PAID IN TWO DIFFERENT TAX JURISDICTIONS. SUB- SECTION (2) OF SECTION 90 UNEQUIVOCALLY PROVIDES THAT WHERE THE CENTRAL GOVERNMENT HAS ENTERED INTO AN AGREEMENT WITH THE GOVERNMENT OF ANY COUNTRY OUTSIDE INDIA UNDER SUB-SECTION (1) FOR GRANTING RELIEF OF TAX OR FOR AVOIDANCE OF DOUBLE TAXATION, TH EN, IN RELATION TO THE ASSESSEE TO WHOM SUCH AGREEMENT APPLIES, 'THE PROVISIONS OF THIS ACT SHALL APPLY TO THE EXTENT THEY ARE MORE BENEFICIAL TO THAT ASSESSEE . CRUX OF THE SUB-SECTION (2) IS THAT WHERE A DTAA HAS BEEN ENTERED INTO WITH ANOTHER COUNTRY, TH EN THE PROVISIONS OF THE ACT SHALL APPLY ONLY IF THEY ARE MORE BENEF ICIAL TO THE ASSESSEE. IN SIMPLE WORDS, IF THERE IS A CONFLICT BETWE EN THE PROVISIONS UNDER THE ACT AND THE DTAA, THE ASSESSEE WILL BE SUBJECTED TO THE MORE BENEFICIAL PROVISION OUT OF THE TWO. IF TH E ITA NO.2523/PUN/2017 M/S. SANDVIK TOOLING SVERIGE AB 9 PROVISION OF THE ACT ON A PARTICULAR ISSUE IS MORE BENEFICIAL TO THE ASSESSEE VIS-A-VIS THAT IN THE DTAA, THEN SUCH PROVISION OF THE ACT SHALL APPLY AND VICE VERSA . THE HONBLE SUPREME COURT IN THE CASE OF CIT V. P.V.A.L. KULANDAGAN CHETTIAR (2004) 267 ITR 654 (SC) HAS HELD THAT THE PROVISIONS OF SECTIONS 4 AND 5 ARE SUBJEC T TO THE CONTRARY PROVISION, IF ANY, IN DTAA. SUCH PROVISIONS OF A D TAA SHALL PREVAIL OVER THE ACT AND WORK AS AN EXCEPTION TO OR MODIFICATION OF SECTIONS 4 AND 5. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE JURISDICTIONAL HIGH COURT IN CIT V. SIEMENS AKTIONGESELLSCHAFT (2009) 310 ITR 320 (BOM.) . IN THE LIGHT OF THE ABOVE DISCUSSION, IT BECOMES VIVID THAT IF THE PROVISIONS OF TH E TREATY ARE MORE BENEFICIAL TO THE ASSESSEE VIS-A-VIS ITS COUNTERPART IN THE ACT, THEN THE ASSESSEE SHALL BE ENTITLED TO BE RULED BY THE PROVISIONS OF THE TREATY. HERE, IT IS MADE CLEAR THAT THE PROVISIONS OF SUB-SECTION (2A) OF SECTION 90 INSERTED BY THE FINANCE AC T, 2013 ARE NOT RELEVANT TO THE ASSESSMENT YEAR 2014-15 UNDER CO NSIDERATION AS THE SAME HAVE BEEN MADE EFFECTIVE W.E.F. 1.4.2016. 11. NOW WE TURN TO EXAMINE THE TAXABILITY OF THE AMOU NT IN THE HANDS OF THE ASSESSEE UNDER THE DTAA. RELEVANT PART OF ARTICLE 12 OF THE DTAA WITH SWEDEN RUNS AS UNDER: ITA NO.2523/PUN/2017 M/S. SANDVIK TOOLING SVERIGE AB 10 1. ROYALTIES AND FEES FOR TECHNICAL SERVICES ARISI NG IN A CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTH ER CONTRACTING STATE MAY BE TAXED IN THAT OTHER STATE. 2. NOTWITHSTANDING THE PROVISIONS OF PARAGRAPH (1) SUCH ROYALTIES AND FEES FOR TECHNICAL SERVICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THEY ARISE, AND ACCO RDING TO THE LAWS OF THAT STATE, BUT IF THE RECIPIENT IS THE BEN EFICIAL OWNER OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES, THE T AX SO CHARGED SHALL NOT EXCEED 10 PER CENT OF THE GROSS AMOUNT OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES. 3. (A) THE TERM 'ROYALTIES' AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FO R THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ART ISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPH FILMS, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA O R PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL O R SCIENTIFIC EXPERIENCE. (B) THE TERM 'FEES FOR TECHNICAL SERVICES' MEANS PA YMENT OF ANY KIND IN CONSIDERATION FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES INCLUDING THE PRO VISION OF SERVICES BY TECHNICAL OR OTHER PERSONNEL BUT DOES N OT INCLUDE PAYMENTS FOR SERVICES MENTIONED IN ARTICLES 14 AND 15 OF THIS CONVENTION. 12. PARA 2 OF THE ARTICLE 12 CLEARLY STIPULATES THAT ROYALTY AS DEFINED IN PARA 3(A) MAY ALSO BE TAXED IN THE CONTACTING STATE IN WHICH IT ARISES. THUS, IN ORDER TO BE GOVERNED BY PARA 2, IT IS ESSENTIAL THAT THE RECEIPT SHOULD FIRST PASS THE TEST OF THE DEFIN ITION OF `ROYALTY AS GIVEN IN PARA 3 (A). ON GOING THROUGH SUC H DEFINITION, IT TRANSPIRES THAT `ROYALTIES IS A PAYMENT OF ANY K IND RECEIVED AS A CONSIDERATION: `FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY , ARTISTIC OR SCIENTIFIC WORK ETC. THE EXPRESSION ITA NO.2523/PUN/2017 M/S. SANDVIK TOOLING SVERIGE AB 11 ` THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT HAS ALSO BEEN USED IN ARTICLE 12 OF THE DTAA BETWEEN INDIA AND THE USA, WHICH HAS BEEN DISCUSSED IN THE CASE OF INFRASOFT (SUPRA). THE HONBLE DELHI HIGH COURT IN THAT CASE HELD THAT WHAT WAS TRANSFERRED WAS NOT COPYRIGHT OR RIGHT TO USE COPYRIGHT BUT A LIMITED RIGHT TO USE COPYRIGHTED MATERIAL, WHICH DID NOT GIVE RISE TO ANY ROYALTY INCOME. IT FURTHER OBSERVED THAT TO BE TAXABLE AS ROYALTY INCOME COV ERED BY ARTICLE 12 OF DTAA, INCOME OF ASSESSEE SHOULD BE GENERATE D BY 'USE OF OR RIGHT TO USE OF' ANY COPYRIGHT AND A LICENSE GRANTED TO LICENSEE PERMITTING HIM TO DOWNLOAD COMPUTER PROGRAMME AND STORING IT IN COMPUTER FOR HIS OWN USE IS ONLY INCIDENTAL TO F ACILITY EXTENDED TO LICENSEE TO MAKE USE OF COPYRIGHTED PRODUCT FOR HIS INTERNAL BUSINESS PURPOSE. FINDING THAT THERE WAS NO TRANSFE R OF ANY RIGHT IN RESPECT OF COPYRIGHT BY ASSESSEE AND IT WAS A CASE OF MERE TRANSFER OF A COPYRIGHTED ARTICLE WHILST COPYRIGHT REMAINED W ITH THE OWNER, THE HONBLE HIGH COURT HELD THAT THE PAYMENT WAS FOR A COPYRIGHTED ARTICLE AND REPRESENTED PURCHASE PRICE OF AN A RTICLE AND HENCE COULD NOT BE CONSIDERED AS ROYALTY IN THE HANDS OF THE RECIPIENT UNDER THE DTAA. ITA NO.2523/PUN/2017 M/S. SANDVIK TOOLING SVERIGE AB 12 13. ADVERTING TO THE FACTS OF THE INSTANT CASE, IT IS OBS ERVED THAT THE ASSESSEE TRANSFERRED A LIMITED RIGHT IN THE CAD/CAM TO SA PL. THERE WAS NO TRANSFER OF COPYRIGHT OR USE OF ANY COPYR IGHT. AS AGAINST THE REQUIREMENT OF PARA 3 OF THE ARTICLE 12 FOR ROYA LTY INCOME TO BE GENERATED BY USE OR RIGHT TO USE OF ANY COPY RIGHT ETC., WHAT IN THE EXTANT CASE HAS HAPPENED IS THAT THE ASSESSEE SIMPLY PERMITTED SAPL TO USE THE SOFTWARE FOR ITS LIMITED INTERNAL BUSIN ESS PURPOSE ONLY. NO FURTHER RIGHT WAS GRANTED TO SAPL TO DEAL WITH THE COPYRIGHT OF THE SOFTWARE. AS THERE IS NO TRANSFER OF ANY RIGHT IN RESPECT OF THE COPYRIGHT BY THE ASSESSEE TO SAPL, GOING BY THE DEFINITION OF THE TERM `ROYALTIES GIVEN IN ARTICLE 12 (3), THE CONSIDERATION SO RECEIVED CANNOT BE CONSTRUED AS `ROYALTIES UNDER THE DTAA. 14. THE LD. DR INVITED OUR ATTENTION TOWARDS THE JUDGME NT OF THE HONBLE KARNATAKA HIGH COURT IN SAMSUNG (SUPRA) , WHICH ALSO CONSIDERED ARTICLE 12 OF THE DTAA BETWEEN INDIA AND THE US A AND EVENTUALLY HELD THAT THE PAYMENT FOR USE OF SOFTWARE CONSTITUTED ROYALTY UNDER THE DTAA. 15. THE ASSESSEE UNDER CONSIDERATION IS NOT GOVERNED BY THE JURISDICTION OF THE HONBLE KARNATAKA HIGH COURT. THE HONBLE ITA NO.2523/PUN/2017 M/S. SANDVIK TOOLING SVERIGE AB 13 SUPREME COURT IN CIT VS. VEGETABLE PRODUCTS LTD. (1973) 88 ITR 192 (SC) HAS HELD THAT WHEN TWO INTERPRETATIONS ARE POSSIBLE, ORDINARILY THE COURT WOULD INTERPRET THE PROVISION IN FAVOUR OF A TAX- PAYER, AND AGAINST THE REVENUE. SIMILAR VIEW HAS BEEN RE ITERATED IN A SERIES OF JUDGMENTS INCLUDING MANISH MAHESHWARI VS. ACIT (2007) 289 ITR 341 (SC) . AS THE VIEW TAKEN BY THE HONBLE DELHI HIGH COURT IN INFRASOFT (SUPRA) IS IN FAVOUR OF THE ASSESSEE, WE FOLLOW THE SAME AND THAT IS MORE SO FOR THE RAISON D`ETRE THAT THE TRIBUNAL IN ITS ORDER DATED 29-03-2019 IN ITA NOS. 195 TO 197/PUN/2017 IN THE ASSESSEES OWN CASE FOR THE A.YRS. 20 10-11, 2011-12 AND 2012-13 HAS ALSO DECIDED SIMILAR ISSUE IN FAV OUR OF THE ASSESSEE. 16. HERE IT IS ESSENTIAL TO MENTION THAT UNLIKE THE INSERTION OF EXPLANATION 4 TO SECTION 9(1)(VI) ENGULFING CONSIDERATION FOR U SE OF SOFTWARE IN ANY FORM WITHIN THE AMBIT OF `ROYALTY, THERE IS NO CORRESPONDING AMENDMENT IN THE DTAA AND HENCE THE DTAA, IN THE ABSENCE OF THE APPLICABILITY OF SECTION 90(2A) TO THE YEAR UNDER CONSIDERATION, WOULD NOT AUTOMATICALLY IMBIBE THE CHANGES MADE IN THE ACT. WE HAVE NOTICED ABOVE THAT IF THE PROVISIONS OF D TAA ARE MORE BENEFICIAL TO THE ASSESSEE THEN THOSE WOULD APPLY IN ITA NO.2523/PUN/2017 M/S. SANDVIK TOOLING SVERIGE AB 14 SUPERSESSION OF THE PROVISIONS OF THE ACT. IT IS, THEREFO RE, HELD THAT THE SUM OF RS.1.48 CRORE AND ODD CANNOT BE CONSTRUED A S `ROYALTIES IN THE HANDS OF THE ASSESSEE AS PER THE MANDATE OF ARTICLE 12 OF THE DTAA. IT IS RELEVANT TO NOTE THAT THE ASSESSEE SPECIFICALLY STA TED BEFORE THE AO THAT IT DID NOT HAVE ANY PE IN INDIA AND FURTHER IT IS NOT THE CASE OF THE AO THAT THE ASSESSEE HAS ANY PE IN IND IA, SO AS TO WARRANT THE CONSIDERATION OF THE AMOUNT IN QUESTION AS BUSINE SS PROFITS UNDER ARTICLE 7 OF THE DTAA. 17. THE SECOND ISSUE IS TREATMENT OF A SUM OF RS.38, 97,417/- WHICH WAS RECEIVED BY THE ASSESSEE FROM SAPL FOR PROVIDIN G MAINTENANCE SERVICES IN RESPECT OF GSS SOFTWARE. THE AO H ELD THIS AMOUNT TO BE IN THE NATURE OF FEES FOR TECHNICAL SERVICES U/S.9(1)(VII) OF THE ACT AND ALSO UNDER THE DTAA. HE, THER EFORE, INCLUDED IT IN THE TOTAL INCOME OF THE ASSESSEE. THE DRP UP HELD THE DECISION OF THE AO IN THE DRAFT ORDER, AGAINST WHICH THE AS SESSEE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL. 18. HAVING HEARD BOTH THE SIDES AND GONE THROUGH TH E RELEVANT MATERIAL ON RECORD, WE FIRST NEED TO PRECISELY ASCERTAIN THE NATURE OF SERVICE FOR WHICH THE INSTANT CONSIDERATION WAS RECEIVED. NO AGREEMENT WAS PRODUCED BEFORE US TO DEMONSTRATE THE NATUR E OF ITA NO.2523/PUN/2017 M/S. SANDVIK TOOLING SVERIGE AB 15 RECEIPT. ON A SPECIFIC QUERY, THE LD. AR STATED THAT THE PAYM ENT WAS RECEIVED FOR MAINTENANCE OF THE EXISTING SOFTWARE WITH SAPL, WHICH WAS NOT CONTROVERTED. ALBEIT A FEEBLE ATTEMPT WAS MADE FOR SHOWING THAT THE AMOUNT WAS ALSO TOWARDS GIVING ACCESS TO THE GSS SOFTWARE, BUT THE ASSESSEE COULD NOT SUBSTANTIATE THE SAME WITH ANY COGENT EVIDENCE OR MATERIAL. EVEN THE CONCERNED INTERNATION AL TRANSACTION HAS ALSO BEEN REPORTED BY THE ASSESSEE AS `GS S MAINTENANCE CHARGES. THUS, IT TURNS OUT THAT THE ASSESSEE RECEIVED RS.38.97 LAKH FROM SAPL NOT FOR GIVING ACCESS TO ANY SOF TWARE BUT ONLY FOR MAINTENANCE OF EXISTING SOFTWARE. 19. THE AO HAS TREATED SUCH AMOUNT IN THE NATURE OF F EES FOR TECHNICAL SERVICES. SECTION 9(1)(VII) OF THE ACT DEFINES THE TERM FEES FOR TECHNICAL SERVICES AS PER EXPLANATION 2 AS UNDE R :- `FOR THE PURPOSES OF THIS CLAUSE, 'FEES FOR TECHNIC AL SERVICES' MEANS ANY CONSIDERATION (INCLUDING ANY LUMP SUM CON SIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR C ONSULTANCY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TE CHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR A NY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDE RTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD 'SALARIES'. 20. ON GOING THROUGH THE ABOVE EXPLANATION, IT IS PATENTLY DECIPHERED THAT ANY CONSIDERATION, INTER ALIA, FOR RENDERING TECHNICAL ITA NO.2523/PUN/2017 M/S. SANDVIK TOOLING SVERIGE AB 16 OR CONSULTANCY SERVICES, WHICH IS NOT IN THE NATURE OF CONSTR UCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKING BY THE RECIPIENT, CONSTITUTES FEES FOR TECHNICAL SERVICES. WHEN WE APPLY THE MANDATE OF THE EXPLANATION 2 TO THE FACTUAL PANORAMA OBTAINING BEF ORE US, IT CLEARLY EMERGES THAT WHAT THE ASSESSEE RECEIVED IS CONSIDE RATION FOR MAINTENANCE OF THE EXISTING SOFTWARE WITH SAPL WHICH OBVIOUSLY INVOLVES USE OF TECHNICAL KNOWLEDGE AND IS NOTHING SHORT OF FEES FOR TECHNICAL SERVICES IN THE NATURE OF TECHNICAL OR CONSULTANCY SE RVICES. THUS, THE AMOUNT IN QUESTION CONSTITUTES INCOME OF THE RECIPIEN T- ASSESSEE U/S.9(1)(VII) OF THE ACT. 21. NOW WE TURN TO EXAMINE THE POSITION UNDER THE DTAA. WE HAVE REPRODUCED ABOVE THE RELEVANT PARTS OF THE ARTICLE 12 BETWEEN INDIA AND SWEDEN. PARA 3(B) OF THE ARTICLE 12 DEFINES THE EX PRESSION FEES FOR TECHNICAL SERVICES TO MEAN PAYMENT OF ANY KIND IN CONSIDERATION FOR RENDERING OF MANAGERIAL, TECHNICAL OR CONS ULTANCY SERVICES INCLUDING THE PROVISION OF SERVICES BY TECHNICAL OR OTHER PERSONNEL. IN SO FAR AS THE RENDERING OF TECHNICAL OR C ONSULTANCY SERVICES TO CONSTITUTE FEES FOR TECHNICAL SERVICES UNDER PA RA 3(B) IS CONCERNED, WE FIND THAT THE DEFINITION OF THE TERM FEES FO R TECHNICAL SERVICES IN THE DTAA TO THAT EXTENT IS ALMOST SIMILAR TO THAT ITA NO.2523/PUN/2017 M/S. SANDVIK TOOLING SVERIGE AB 17 CONTAINED IN EXPLANATION 2 TO SECTION 9(1)(VII). HOWEVER, AT THIS STAGE, IT IS PERTINENT TO NOTE THE TERMS OF THE PROTOCOL WITH REFE RENCE TO ARTICLE 12 OF THE DTAA, WHICH PROVIDES THAT : `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 SOU RCE ON DIVIDENDS, INTEREST, ROYALTIES OR FEES FOR TECHNICAL SERV ICES TO A RATE LOWER OR A SCOPE MORE RESTRICTED THAN THE RATE OR SCO PE PROVIDED FOR IN THIS CONVENTION ON THE SAID ITEMS OF INCOME, THE SAME RATE OR SCOPE AS PROVIDED FOR IN THAT CONVENTION, AGREEMENT OR PRO TOCOL ON THE SAID ITEMS OF INCOME SHALL ALSO APPLY UNDER THIS CONVENTION. THIS IS IN THE NATURE OF THE MOST FAVOURED NATION (MFN) CLAUSE IN THE DTAA BETWEEN INDIA AND SWEDEN WHICH SEEKS TO PROVIDE TH AT IF INDIA HAS LIMITED, INTER ALIA, ITS SCOPE OF FEES FOR TECHNICAL SERVICES IN A DTAA WITH ANY OTHER OECD COUNTRY, THEN SUCH LIMITED SC OPE SHALL STAND SUBSTITUTED IN THE DTAA WITH SWEDEN. PORTUGUESE REPUBLIC IS A MEMBER OF THE OECD WITH WHICH INDIAN HAS ENTER ED INTO A DTAA. THE RELEVANT PART OF THE TERM FEES FOR INCLUD ED SERVICES HAS BEEN DEFINED IN THE ARTICLE 12(4) OF THE DTAA BETWEEN INDIA AND PORTUGUESE, WHICH IS AS UNDER : - ITA NO.2523/PUN/2017 M/S. SANDVIK TOOLING SVERIGE AB 18 `FOR THE PURPOSES OF THIS ARTICLE 'FEES FOR INCLUDE D SERVICES' MEANS PAYMENTS OF ANY KIND, OTHER THAN THOSE MENTIO NED IN ARTICLES 14 AND 15 OF THIS CONVENTION, TO ANY PERSO N IN CONSIDERATION OF THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THROUGH THE PROVISIONS OF SERVI CES OF TECHNICAL OR OTHER PERSONNEL) IF SUCH SERVICES:.(B ) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESSES OR CONSIST OF THE DEVELOPMENT AND TRANSFE R OF A TECHNICAL PLAN OR TECHNICAL DESIGN WHICH ENABLES TH E PERSON ACQUIRING THE SERVICES TO APPLY THE TECHNOLOGY CONT AINED THEREIN. 22. A CAREFUL CIRCUMSPECTION OF THE RELEVANT PART OF THE DEFINITION OF THE EXPRESSION FEES FOR INCLUDED SERVICES IN ARTICLE 12 OF THE DTAA WITH PORTUGUESE DISCLOSES THAT ANY CONSIDERATION TO QUALIFY AS FEES FOR INCLUDED SERVICES MUST NECESSARILY RESULT INTO M AKING AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE OR SKILL ETC. TO THE RECIPIENT OF THE SERVICE. THE TERM MAKE AVAILABLE HAS BEEN JUDICIALLY INTERPRETED BY THE HONBLE KARNATAKA HIGH COURT IN CIT VS. DE BEERS INDIA MINERALS PVT. LTD. (2012) 346 ITR 467 (KAR.) HOLDING THAT THE PAYER OF THE SERVICES SHOULD BE ABLE TO UTILIS E THE ACQUIRED KNOWLEDGE OR KNOWHOW AT HIS OWN IN FUTURE WITHOUT THE AID OF SERVICE PROVIDER. THE AUTHORITY FOR ADVANCE RULING IN PRODUCTION RESOURCES GROUP, IN RE (2018) 401 ITR 56 AA R HAS ALSO HELD THAT MAKE AVAILABLE CONNOTES SOMETHING WHICH RESULTS IN TRANSMITTING THE TECHNICAL KNOWLEDGE SO THAT THE RECIPIENT COULD DERIVE AN ENDURING BENEFIT AND UTILISE THE SAME IN FUTURE ON HIS OWN ITA NO.2523/PUN/2017 M/S. SANDVIK TOOLING SVERIGE AB 19 WITHOUT THE AID AND ASSISTANCE OF THE PROVIDER. ON GOING THRO UGH THE ABOVE INTERPRETATION, IT BECOMES PALPABLE THAT IN ORDER TO ` MAKE AVAILABLE TECHNICAL SERVICES, IT IS SINE QUA NON THAT THE RECIPIENT OF THE SERVICES MUST ACQUIRE SUCH TECHNICAL KNOW-HOW ETC. WHICH HE CAN HIMSELF USE IN FUTURE WITHOUT ANY ASSISTANCE OF THE PROV IDER AND THE SAME IS NOT ANY SUCH ACT OR SERVICE WHICH VANISHES O R DISAPPEARS ON ITS PROVISION BY THE PAYEE ITSELF. 23. ADVERTING TO THE FACTS OF THE INSTANT CASE, IT IS FO UND THAT THE TECHNICAL SERVICES PROVIDED BY THE ASSESSEE FOR MAINTENANCE OF THE EXISTING GSS SOFTWARE SUPPLIED TO SAPL AMOUNTS TO RENDERING OF TECHNICAL OR CONSULTANCY SERVICES SIMPLICITOR WITHOUT ` MAKING AVAILABLE ANY TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESSES ETC. TO SAPL FOR USE IN FUTURE INDEPENDENTLY. IN O THER WORDS, IT IS A SIMPLE CASE OF PROVIDING SERVICES INVOLVING TE CHNICAL KNOWLEDGE WHICH EXHAUSTED WITH ITS PROVISION ITSELF. SINCE SUCH SERVICES DID NOT RESULT INTO PROVISION OF ANY TECHNICAL KNOWLE DGE, EXPERIENCE OR SKILL ETC. TO SAPL, WE ARE SATISFIED THAT THE CONSIDERATION SO RECEIVED BY THE ASSESSEE CANNOT BE CATEGO RIZED AS FEES FOR TECHNICAL SERVICES IN TERMS OF DTAA. GOING BY THE BENEFICIAL PROVISION IN THE DTAA VIS--VIS THE ACT, THIS AMOUNT IS ITA NO.2523/PUN/2017 M/S. SANDVIK TOOLING SVERIGE AB 20 DIRECTED NOT TO BE CONSIDERED AS FEES FOR TECHNICAL SERVICES . SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN ITS AFORE-REFERRED O RDER IN THE ASSESSEES OWN CASE FOR THE EARLIER YEARS. FURTHER, IT IS NOT THE CASE OF THE AO THAT THE ASSESSEE HAS ANY PERMANENT ESTABLISHMENT IN INDIA, SO AS TO NECESSITATE THE CONSIDERATION OF THE ASPECT OF ITS TAXABILITY AS BUSINESS PROFITS UNDER ARTICLE 7 OF THE DTAA. 24. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH AUGUST, 2019. SD/- SD/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 30 TH AUGUST, 2019 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-13, PUNE 4. 5. 6. THE PR.CIT-5, PUNE , , / DR C, ITAT, PUNE; / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR P RIVATE SECRETARY , / ITAT, PUNE ITA NO.2523/PUN/2017 M/S. SANDVIK TOOLING SVERIGE AB 21 DATE 1. DRAFT DICTATED ON 28-08-2019 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 30-08-2019 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *