Faurecia Automotive Holdings, Pune, Pune V. Assistant Commissioner of Income Tax(IT), Circle-1, Pune, Pune

ITA 44/PUN/2023

AI Insights

Faurecia Automotive Holdings, a tax-resident of France, appealed against the findings of the Disputes Resolution Panel-3, Mumbai, which had upheld the assessment order treating certain receipts as taxable under Indian law. The company argued that the receipts from IT support and management services, as well as reimbursements of expat salary, should not be considered as Fees for Technical Services (FTS) or royalty, and thus not taxable. The Tribunal examined previous rulings in similar cases and found a consistent precedent in favor of the assessee, leading to the decision that such incomes are not taxable under the current agreements and laws.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124526 (ITAT-PUNE)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowedAllowed
• Bench Allotted: C
• Next Hearing Date: 09-04-2023
• Assessment Year: 2020-2021
• Appeal Filed On: 11-01-2023
• Other Referred Cases: ITA No. 488/PUN/2022, ITA No. 784/PUN/2015
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVRAJ MOREY
• Assessee Lawyers: SIDDHANT CHANDGUDE; HARSHAD KONDE
• Keywords: Double taxation relief; Earning of tax free income; Initiation of penalty proceedings
• Section: 2; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ITA No. 44PUN/2023 : A.Y. 2020-21 Faurecia Automotive Holdings Plot No. T-187 Pimpri Industrial Area (B.G. Block) Behind Bhosari Police Station, Bhosari, Pune-411 026 PAN: AABCF 6351 K Appellant Vs. The Asstt. C.I.T. (International Taxation) Circle 1, Pune. Respondent Appellant by : Shri Siddhant Chandgude & Shri Harshad Konde Respondent by : Shri Shivraj Morey, CIT DR Date of Hearing : 10-04-2023 Date of Pronouncement : ___04-2023 ORDER PER PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER This appeal preferred by the assessee emanates from findings of the Disputes Resolution Panel-3, Mumbai-2, dated 03-10-2022 for A.Y. 2020-21 u/s 144C(5) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) as per the following grounds of appeal. “The following grounds of appeal are independent of and without prejudice to one another. 1. Assessment order time barred 1.1 On the facts and circumstances of the case and in law, the ld. A.O has erred in issuing assessment order beyond the time limit as prescribed u/s 153 of the Act. 2. Income from providing Information Technology ('IT') Support Services and Management Services considered taxable as Fees from Technical Services ('FTS') 2.1 The Hon'ble DRP / Ld. AO has erred on facts and in law in treating the receipts from IT Support services and Management Services taxable as 'FTS' as per the provisions of Section 9( 1)(vii) of the Act and as well as Double Taxation Avoidance Agreement ('DT AA ') between India and France especially not considering the 'make available' clause in light of beneficial provisions of India-France tax DT AA read with India- UK DT AA. 2 ITA No. 44/PUN/2023 Faurecia Automotive Holdings A.Y. 2020-21 3. Income from providing IT Support Services and Management Services considered taxable as Royalty 3.1 The Hon'ble DRP / Ld. AO has erred on facts and in law in treating the receipts from IT Support services and Management Services taxable as 'Royalty' as per the provisions of Section 9( I )(vi) of the Act and the provisions of DT AA between India and France . 4. Receipts from reimbursement of salary cost of expat (Mr. Jacques Milon) considered taxable as FTS. 4.1 The Hon'ble DRP / Ld. AO has erred on facts and in law in treating the receipts from reimbursement of salary cost of expat (Mr. Jacques Milon) from taxable as 'FTS' as per the provisions of Section 9( I )(vii) of the Act and provisions of DT AA between India and France. 4.2 The Hon'ble DRP / Ld. AO has erred on facts and in law in not considering the fact that recharge of salary cost to the Appellant made by Indian entity are purely in the nature of reimbursement of 'expenses at cost' and there is no income element embedded in it and hence, it is not chargeable to tax in India. 5. Penalty proceedings are bad in law 5.1 On the facts and in the circumstances of the case, the Ld. AO has erred on facts & law in initiating penalty proceedings under section 270A of the Act on the premise that there is under-reporting of income by the Appellant, without appreciating the fact that the additions made by the Ld. AO is not in accordance with the law. 5.2 The Ld. AO has erred on facts & law in initiation of penalty proceedings without taking into consideration that the provisions of section 270A of the Act cannot be invoked when there is a mere difference of opinion regarding taxability of income / non-acceptance of legal claim. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Hon'ble IT AT to decide this appeal according to law.” 2. The assessee is a tax-resident of France. It had filed return of income on 10-02-2021 declaring total income at Rs. 38,21,890/- and exempt income at Rs. 51,12,39,933/-. The assessee is engaged in designing and building dashboards, doors, panels, sound proofing and insulation installations and other moulded plastic parts for passenger car interiors. It provides Information Technology support services and management services and others to M/s. Feurecia India Pvt. Ltd. its group entity in India. 3. From the draft assessment order, it emerges that after due verification, the income amounting to Rs. 51,14,18,048/- of the assessee was found to be 3 ITA No. 44/PUN/2023 Faurecia Automotive Holdings A.Y. 2020-21 chargeable to tax and a show cause notice was issued accordingly, requiring the assessee to explain why the receipt of Rs. 50,93,44,646/- claimed on account of „IT support fees and management services‟ and receipts of Rs. 20,73,402/- claimed on account of „reimbursement of expat salary‟ should not be held to be taxable. In response, the assessee filed reply and in detailed submissions,, the assessee furnished various details/documents including service agreement with its AE i.e. Faurecia Technology Centre India Pvt. Ltd. The assessee further relied on various case-laws and judicial pronouncements to support its contention that such receipts are neither in the nature of royalty nor in the nature of fees for technical services which are taxable under the Act or Treaty. 4. In this regard, at the very outset, the ld. Counsel for the assessee submitted that they are not pressing the issue regarding receipts of Rs. 20,73,402/- claimed on account of reimbursement of expat salary which are enumerated in the grounds No. 1 and 4 in the grounds of appeal by the assessee. Having heard the submissions of the ld. Counsel for the assessee, grounds No. 1 and 4 are dismissed as not pressed. 5. Regarding the contention of the assessee whether the receipts are neither in the nature of royalty or FTS and hence are not taxable under the Act nor the Treaty, the ld. A.O starts his decision from para 4.1.3, order dated 13-1- 2022 and at para 4.1.4 holds that the payment received by the assessee from its AE are in terms of service agreement covered by the definition of royalty under Article 13(3) of India France DTAA. The A.O further held that the amount received from Indian AE towards services are taxable as royalty under clause 4 of Explanation 2 to section 9(1)(vi) of the Act also. That on the taxability of receipts as fees for technical services, the A.O starts his decision from para 4.2 4 ITA No. 44/PUN/2023 Faurecia Automotive Holdings A.Y. 2020-21 onwards and at para 4.5.2 holds that the receipts for IT support fees and management services are in the nature of FTS which further „make available‟ within the meaning of Article 13 of DTAA between India and UK through protocol and therefore, taxable in India. 6. The D.R.P on this issue has given their findings at para 4.1 and therein they have observed that the current year‟s facts are similar to the earlier years and has been decided by the D.R.P in earlier years and it was seen that the issue involved was the same as that of A.Y. 2019-20 which was even conceded by the ld. Counsel for the assessee. The D.R.P. relied upon the detailed findings for A.Y. 2019-20 which it had rendered after considering the D.R.P‟s directions for A.Y. 2017-18. At para 3 of D.R.P‟s findings, they have given a categorical decision whereby they have relied upon their own directions for A.Y. 2019-20 regarding case of the assessee. 7. We observe that on perusal of the relevant documents/records before us that when the matter for A.Y. 2019-20 had travelled before Pune Tribunal in ITA No. 488/PUN/2022, order dated 1-11-2022, wherein it was contended by the ld. A.R for the assessee that this issue has been consistently held in favour of the assessee by Pune Tribunal in assessee‟s own case starting from A.Y. 2011-12 in ITA N. 784/PUN/2015 which was followed for A.Y. 2017-18 also and the assessee was provided relief. Thereafter, at para 6, Pune Tribunal placed reliance on earlier assessment year‟s order for A.Y. 2017-18 in assessee‟s own case on the same parity of reasoning allowed this ground in favour of assessee as evident from para 7 of the said order (supra). We have also perused the lead order on this issue whether the receipts of assessee can be termed as royalty or FTS which is addressed in A.Y. 2011-12 in assessee‟s own case and therein at para 8 the nature of services rendered by the 5 ITA No. 44/PUN/2023 Faurecia Automotive Holdings A.Y. 2020-21 assessee to Faurecia India has been mentioned and it is in terms of service agreement dated 3-1-2011. The ld. Counsel for the assessee submitted before us that the same agreement continues even for the present assessment year before us. We have also perused the termination clause where the agreement continues until and unless either of the parties wishes to terminate the agreement. Therefore, the genesis of entire transaction relating to the services is based on the same service agreement dated 3-1-2011. The Tribunal has given relief to the assessee for A.Y. 2011-12. Similarly, in assessee‟s own case for A.Y. 2012-13, order dated 08-07-2019 following the earlier order of the Tribunal for A.Y. 2011-12 in ITA No. 784/PUN/2015 (supra) the appeal of the Revenue was dismissed. That, with regard to the assessment year before us, the D.R.P had placed reliance on their earlier findings in assessee‟s own case for A.Y. 2019-20. We have already examined that the Tribunal in assessee‟s own case for A.Y. 2019-20 placing reliance on the decision in assessee‟s own case for A.Y. 2017-18 has given relief to the assessee that such income is neither royalty nor FTS and therefore, not taxable either within the Act or within DTAA. 8. The ld. D.R has not submitted any documents/evidences on record to suggest something contrary to the facts already on record. As on date, the Hon‟ble Jurisdictional High Court has not passed any order in the case of the assessee either upholding or dismissing the findings of the Tribunal, and therefore, on date the issue whether the receipts are royalty or FTS has been consistently held in favour of the assessee. Therefore, on the same parity of reasoning the grounds pertaining to this issue are allowed. 9. Ground No. 5 in the ground of appeal is premature. 6 ITA No. 44/PUN/2023 Faurecia Automotive Holdings A.Y. 2020-21 10 In the combined result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on this 10 th day of April 2023 Sd/- sd/- (R.S. SYAL) (PARTHA SARATHI CHAUDHURY) VICE PRESIDENT JUDICIAL MEMBER Pune; Dated, the 10 th day of April 2023 Ankam Copy of the Order forwarded to : 1. The Appellant. 2. The Respondent. 3. The DRP Panel 3, Bombay 4. D.R. ITAT „C‟ Bench 5. Guard File BY ORDER, Sr. Private Secretary ITAT, Pune. 7 ITA No. 44/PUN/2023 Faurecia Automotive Holdings A.Y. 2020-21 1 Draft dictated on 10-04-2023 Sr.PS/PS 2 Draft placed before author 10-04-2023 Sr.PS/PS 3 Draft proposed and placed before the second Member JM/AM 4 Draft discussed/approved by second Member AM/JM 5 Approved draft comes to the Sr. PS/PS Sr.PS/PS 6 Kept for pronouncement on 10-04-2023 Sr.PS/PS 7 Date of uploading of order 10-04-2023 Sr.PS/PS 8 File sent to Bench Clerk 10-04-2023 Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order