M/s. Sandvik AB., Pune V. Deputy Director of Income-tax,

ITA 384/PUN/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6942 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-10-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 06-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DANESH BAFNA
• Keywords: Business income; Double taxation relief; Opportunity of being heard; Permanent establishment
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI , AM . / ITA NO. 384 /P U N/20 15 / ASSESSMENT YEAR : 20 1 0 - 11 M/S. SANDVIK AB, C/O SANDVIK ASIA PVT. LTD., MUMBAI - PUNE ROAD, DAPODI, PUNE 411012 . / APPELLANT PAN: AAHCS748 6E VS. THE DY. DIRECTOR OF INCOME TAX (INTERNATION AL TAXATION) , CIRCLE - II, PUNE . / RESPONDENT / APPELLANT BY : SHRI DANESH BAFNA / RESPONDENT BY : SHRI RAJEEV KUMAR, CIT / DATE OF HEARING : 09 . 1 0. 201 7 / DAT E OF PRONOUNCEMENT: 20 . 1 2 . 201 7 / ORDER PER SUSHMA CHOWLA, JM: THE APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF D C IT (IT) , CIRCLE - II, PUNE, DATED 2 3 .02.2015 RELATING TO ASSESSMENT YEAR 20 1 0 - 11 PASSED UNDER SECTION 143(3) R.W.S. 144C (13) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 2 ITA NO. 384 /P U N/201 5 SANDVIK AB ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW: 1 . GROUND 1 ; THE LEARNED DISPUTE RESOLUTION PANEL ('LD.DRP') HAS ERRED IN C ONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER ('LD AO') OF TAXING RECEIPTS FOR MANAGEMENT SERVICES PROVIDED TO ITS INDIAN AFFILIATES AMOUNTING TO RS.18,94,69,420 TO BE IN THE NATURE OF FEES FOR TECHNICAL SERVICES' ('FTS') WITHIN THE MEANING OF ARTI CLE 12 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND SWEDEN ('TAX TREATY BETWEEN INDIA AND SWEDEN) READ WITH THE PROTOCOL THERETO AS WELL AS UNDER SECTION 9(I)(VII) OF THE INCOME - TAX ACT, 1961 (THE ACT). THE APPELLANT PRAYS THAT THE RECEIPT S FOR MANAGEMENT SERVICES AMOUNTING TO RS.18,94,69,420 ARE NOT TAXABLE IN INDIA AND HENCE, THE ADDITION IN THIS REGARD BE DELETED. 2 . GROUND 2: THE LD DRP HAS ERRED IN CONFIRMING THE ACTION OF THE LD AO OF TAXING RECEIPTS FOR MANAGEMENT SERVICES PROVIDE D TO ITS INDIAN AFFILIATES OF RS.18,94.69,420 TO ALTERNATIVELY BE TR EATED IN THE NATURE OF DIVIDENDS AND TAXABLE UNDER ARTICLE 10 OF THE TAX TREATY BETWEEN INDIA AND SWEDEN AS WELL AS UNDER SECTION 9(I)(IV) OF THE ACT. THE APPELLANT PRAYS THAT THE RECEIPT S FOR MANAGEMENT SERVICES AMOUNTING TO RS . 18,94,69,420 ARE NOT TAXABLE IN INDIA AS DIVIDENDS AND HENCE, THE ADDITION IN THIS REGARD BE DELETED. 3. GROUND 3: WITHOUT PREJUDICE TO GROUND 1 AND 2 ABOVE, THE LD. DRP HAS ERRED IN UPHOLDING THE ACTION OF THE LD AO AND DETERMINED THE RECEIPTS FOR MANAGEMENT SERVICES AT RS.18,94,69,420 INSTEAD OF RS.17,65,11,825 AS SUBMITTED BY THE APPELLANT IGNORING THE CREDIT NOTES ISSUED BY THE APPELLANT. THE APPELLANT PRAYS THAT THE RECEIPTS FOR MANAGEMENT SERVICES BE CONSIDERED AS RS.17,65,11,825 AFTER TAKING INTO ACCOUNT THE CREDIT NOTES ISSUED BY THE APPELLANT. 4. GROUND 4: THE LD.DRP HAS ERRED IN CONFIRMING THE ACTION OF THE LD AO OF TAXING RE CEIPTS OF RS.29,81,376 BEING A RECEIPT OF AN AFFILIATE COMPANY, AS A RECEIPT OF THE ASSESSEE. THE APPELLANT PRAYS THAT THE RECEIPTS RS.29,81,376 ARE RECEIPTS OF AN AFFILIATE COMPANY AND HENCE, THE ADDITION IN THIS REGARD BE DELETED. 5. GROUND 5: THE LD . DRP HAS ERRED IN CONFIRMING THE ACTION OF THE LD. AO OF TAXING RS.1,69,840 BEING RECEIPTS FOR INDUCTION AND LEADERSHIP TRAINING PROVIDED BY THE ASSESSEE CONSIDERING IT TO BE TAXABLE IN INDIA AS ROYALTY / FTS. THE APPELLANT PRAYS THAT THE RECEIPTS FOR IN DUCTION AND LEADERSHIP TRAINING AMOUNTING TO RS. 1,69,840 ARE NOT TAXABLE IN INDIA AND HENCE, THE ADDITION IN THIS REGARD BE DELETED. 3 ITA NO. 384 /P U N/201 5 SANDVIK AB 3. THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS AGAINST ASSESSABILITY OF MANAGEMENT SERVICE CHARGES RECEIVED BY THE ASSESSEE FROM ITS INDIAN AFFILIATES AMOUNTING TO RS.18,94,69,420/ - . 4. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE WAS RESIDENT OF SWEDEN AND HAD RECEIVED MANAGEMENT SERVICE FEES FROM THE INDIAN COMPANIES. THE IS SUE WHICH ARISES IN THE PRESENT GROUND OF APPEAL IS WHETHER THE SAME IS FEES FOR TECHNICAL SERVICES (FTS). HE FURTHER SUBMITTED THAT THE ASSESSEE UNDER THE PROTOCOL WAS TAKING THE BENEFIT OF INDIA PORTUGUESE TREATY. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY POINTED OUT THAT IT WAS BUSINESS INCOME BUT IN THE ABSENCE OF PERMANENT ESTABLISHMENT (PE) IN INDIA, THE SAME WAS NOT TAXABLE IN THE HANDS OF ASSESSEE. THE ASSESSING OFFICER ON THE OTHER HAND, TAXED THE SAME AS FTS. THE LEARNED AU THORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER REFERRED TO SEPARATE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2007 - 08, 2008 - 09 AND 2004 - 05, WHEREIN APPLYING THE MOST FAVOURED NATION CLAUSE, THE SERVICE CHARGES HAVE BEEN HELD TO B E NOT TAXABLE IN THE HANDS OF ASSESSEE. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WE FIND THAT SIMILAR ISSUE AROSE IN THE CASE OF ASSESSEE ITSELF IN EARLIER YEARS I.E. STARTING FROM ASSESSMENT YEAR 2007 - 08. THE TRIBUNAL IN ITA NO.1720/PN/2011, RELATING TO ASSESSMENT YEAR 2007 - 08, VIDE ORDER DATED 28.11.2014, THEREAFTER VIDE ITA NO.47/PN/2013, RELATING TO ASSESSMENT YEAR 2008 - 09, VIDE ORDER DATED 22.05.2015 AND LASTLY IN ASSESSMENT YEAR 2004 - 05 IN ITA NO.745/PN/2014, VIDE ORDER DATED 19.02.2016 HAS DELIBERATED UPON THE ISSUE ELABORATELY. 4 ITA NO. 384 /P U N/201 5 SANDVIK AB 7. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS NON RESIDENT COMPANY WHICH WAS INCORPORATED IN SWEDEN. THE ASSESSEE WAS PROVIDING VARIOUS MANAGEMENT SERVICES TO GROUP COMPANY IN INDIA I.E. SANDVIK ASIA PVT. LTD., PUNE. IN VIEW THEREOF, THE ASSESSEE WAS RECEIVING SERVICE CHARGES PURSUANT TO SERVICE AGREEMENT ENTERE D INTO BETWEEN THE PARTIES. SANDVIK ASIA PVT. LTD. HAD ZERO TAX HOLDING ORDER, AS PER MORE BENEFICIAL PROVISIONS OF INDIA SWEDEN TAX TREATY, ON THE BASIS OF WHICH THE SAID INCOME WAS NOT CHARGEABLE TO TAX IN INDIA. THE ASSESSEE COMPANY CONSEQUENT THERETO , FILED THE RETURN OF INCOME DECLARING NIL INCOME FOR THE CAPTIONED ASSESSMENT YEAR. HOWEVER, THE ASSESSING OFFICER WAS OF THE VIEW THAT MANAGEMENT SERVICES RECEIVED BY THE ASSESSEE AT RS.18.94 CRORES WERE TO BE ASSESSED IN THE HANDS OF ASSESSEE AND FOLLO WING EARLIER YEARS, THE ASSESSING OFFICER HELD THAT THE SERVICE CHARGES RECEIVED BY THE ASSESSEE WERE NOT ONLY COVERED BY THE DEFINITION OF TECHNICAL SERVICES AS LAID DOWN IN DTAA BETWEEN INDIA AND SWEDEN BUT ALSO COVERED BY SUBSEQUENT DTAA ENTERED INTO BY INDIA WITH NETHERLANDS, USA AND PORTUGUESE, ETC.; HENCE, THE SAME WAS TAXABLE IN THE HANDS OF ASSESSEE. BUT SINCE THE ASSESSEE WAS ACTUAL BENEFICIAL OWNER OF FEES FOR TECHNICAL SERVICES, THE TAX WAS CHARGED @ 10% OF GROSS AMOUNT AS PER THE DTAA. THE TRI BUNAL 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 - - VIS PAYMENT RECEIVED BY THE ASSESSEE COMPANY FROM ITS INDIAN SUBSIDIARIES HELD THAT THE SAME CO ULD 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 MOS T 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 PAGE S 5 TO 14 OF THE ORDER OF TRIBUNAL DATD 19.02.2016. WE ARE MAKING REFERENCE TO THE AFORESAID FINDINGS OF THE TRIBUNAL BUT 5 ITA NO. 384 /P U N/201 5 SANDVIK AB FOR THE SAKE OF BREVITY, WE ARE NOT REPRODUCING THE SAME. CONSEQUENTLY, WE ALLOW THE CLAIM OF ASSESSEE AND HOLD THAT THE RECEIPTS FO R 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 MERI T 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 TRIBU NAL 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 B EFORE US WAS 6 ITA NO. 384 /P U N/201 5 SANDVIK AB 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. 13. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT ONCE THE EARLIER GROUNDS OF APPEAL ARE ALLOWED, THE GROUND OF APPEAL NO.3 WOULD BECOME ACADE MIC. ACCORDINGLY, WE HOLD SO. 14. NOW, COMING TO THE ISSUE RAISED VIDE GROUND OF APPEAL NO.4 I.E. IN RESPECT OF TAXING RECEIPTS OF RS.29,81,376/ - BEING RECEIPT OF AFFILIATE COMPANY AS RECEIPT OF THE ASSESSEE. 15. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD, POINTED OUT THAT THE ISSUE IS WHETHER THE SAID RECEIPTS OF RS.29,81,376/ - BELONGS TO THE ASSESSEE AND THE DRP IN THIS REGARD HAD GIVEN DIRECTIONS WHICH HAVE NOT BEEN FOLLOWED. THE DRP VIDE PARA 2.2.9 AT PAGE 25 OBSERVED A S UNDER: - 2.2.9 WE HAVE CAREFULLY CONSIDERED THE FACTS AND ARGUMENTS FURNISHED BY THE ASSESSEE. THE ASSESSEE HAS STATED THAT RS.29,81,376/ - IS INADVERTENTLY TAXED IN ITS HANDS AS ITS RECEIPT. HOWEVER, IN REALITY, IT IS RECEIPT OF ITS AFFILIATE COMPANY. IN THIS CONNECTION, WE DIRECT THE LEARNED AO TO EXAMINE THE ASSESSEES CONTENTION AND TAX THE AMOUNT IN THE HANDS OF THE CORRECT RECIPIENT, IF THE ASSESSEES CONTENTION IS FOUND TO BE CORRECT. IN THE CASE OF ASSESSEES CONTENTION FOUND TO BE CORRECT, THE AMOUNT OF RS.29,81,376/ - WILL BE DELETED. 16. THE PLEA OF ASSESSEE BEFORE US IS THAT THE ASSESSING OFFICER HAS NOT EXAMINED THE SAID ISSUE WHILE PASSING THE ASSESSMENT ORDER UNDER SECTION 143(3) R.W.S. 144C(13) OF THE ACT. THE DRP HAD DIRECTED THE ASSE SSING OFFICER TO EXAMINE THE CONTENTION OF ASSESSEE AS TO WHETHER THE SAID RECEIPTS BELONGED TO THE ASSESSEE OR ITS AFFILIATE COMPANY AND TAX THE AMOUNT IN THE HANDS OF CORRECT 7 ITA NO. 384 /P U N/201 5 SANDVIK AB RECIPIENT. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE INVOICES RAISED IN THIS REGARD AND TAX THE AMOUNT IN THE HANDS OF CORRECT RECIPIENT I.E. THE ASSESSEE OR ITS AFFILIATE COMPANY. UNDOUBTEDLY, REASONABLE OPPORTUNITY OF BEING HEARD WOULD BE GRANTED TO THE ASSESSEE IN THIS REGARD. THE GROUND OF APPEAL NO.4 RAISED B Y THE ASSESSEE IS THUS, ALLOWED AS INDICATED ABOVE. 17. NOW, COMING TO THE GROUND OF APPEAL NO.5 RAISED BY THE ASSESSEE I.E. IN RESPECT OF TAXING OF RS.1,69,840/ - BEING RECEIPTS FOR INDUCTION AND LEADERSHIP TRAINING PROVIDED BY THE ASSESSEE AS TAXABLE IN INDIA AS ROYALTY / FTS. 18. THE SAID ADDITION WAS MADE IN THE HANDS OF ASSESSEE BY THE TPO/ASSESSING OFFICER IN THE ABSENCE OF ANY EVIDENCE BEING FURNISHED IN THIS REGARD. BEFORE THE DRP ALSO, THE ASSESSEE FAILED TO FURNISH ANY EVIDENCE. THE DRP OBSERVE D THAT THE AGREEMENT DEFINES THE TERM SERVICES ACCORDING TO THE SERVICES MENTIONED IN SCHEDULE 2 OF THE AGREEMENT. ACCORDINGLY, THE DRP HELD THAT TRAINING SERVICES WOULD BE COVERED BY THE SERVICES MENTIONED IN SCHEDULE 2 OF THE AGREEMENT AND SINCE THE A SSESSEE HAD MADE AVAILABLE THE INFORMATION RELATED TO SERVICES TO THE SERVICE RECIPIENT, THE ASSESSEE THUS, SATISFIED THE MAKE AVAILABLE CONDITION FOR TRAINING SERVICES AND THE SUM OF RS.1,69,840/ - WAS HELD TO BE TAXABLE. 19. THE LEARNED AUTHORIZED REPR ESENTATIVE FOR THE ASSESSEE IN THIS REGARD POINTED OUT THAT EVEN IN RESPECT OF INDUCTION AND LEADERSHIP TRAINING RECEIPTS, INDIA PORTUGUESE TREATY IS TO BE APPLIED AND IT WAS POINTED OUT THAT SINCE THE SAID TREATY ALSO TALKS OF MAKE AVAILABLE CLAUSE, HENCE NOT TAXABLE IN THE HANDS OF ASSESSEE. 20. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 8 ITA NO. 384 /P U N/201 5 SANDVIK AB 21. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.5 IS LINKED TO THE ISSUE RAISED VIDE GROUND OF APPEAL NO.1. THE SERVICES PROVIDED BY THE ASSESSEE ARE GOVERNED BY INDIA - PORTUGUESE TREATY AND CONSEQUENTLY, APPLYING THE PRINCIPLE OF MOST FAVOURED NATION CLAUSE, THE PAYMENTS RECEIVED BY THE ASSESSEE CO MPANY FROM ITS INDIAN SUBSIDIARY COULD NOT BE BROUGHT TO TAX IN THE HANDS OF ASSESSEE . ACCORDINGLY, WE HOLD SO. THEREFORE, THE GROUND OF APPEAL NO.5 RAISED BY THE ASSESSEE IS ALLOWED. 22 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 20 TH DAY OF DECE MBER , 201 7 . SD/ - SD/ - ( ANIL CHATURVEDI ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 20 TH DECE MBER , 201 7 . GCVSR / COPY OF THE O RDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE DRP, PUNE ; 4. THE DIT (TP/IT), PUNE ; 5. THE DR A , ITAT, PUN E; 6. GUARD FILE . / BY ORDER , //TRUE COPY// / SR. PRIVATE SECRETARY , / ITAT, PUNE