AKTIEBOLAGET SKF, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) 1(1)(1), MUMBAI

ITA 7361/MUM/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8011 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2013-2014
• Appeal Filed On: 26-12-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: DR SUNIL M LALA; BHAVYA SANDESH ARS
• Keywords: Double taxation relief; Revised return
• Section: 143(3); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K, BENCH MU MBAI BEFORE SHRI C.N.PRASAD, JUDICIAL MEMBE R & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ITA NO.7361/MUM/2017 ( ASSESSMENT YEAR: 2013-14 ) AKTIEBOLAGET SKF C/O SKF INDIA LIMITED MGM BUILDING NETAJI SUBHASH ROAD CHARNI ROAD MUMBAI-400 002 VS. DCIT(INTERNATIONAL TAXATION)-1(1)(1) 1 ST FLOOR, ROOM NO.119 SCINDIA HOUSE MUMBAI-400 038 PAN/GIR NO. AAC CA5944J (APPELLANT ) .. (RESPONDENT ) & ITA NO.7366/MUM/2018 ( ASSESSMENT YEAR: 2014-15 ) AKTIEBOLAGET SKF C/O SKF INDIA LIMITED MGM BUILDING NETAJI SUBHASH ROAD CHARNI ROAD MUMBAI-400 002 VS. DCIT(INTERNATIONAL TAXATION), CIRCLE-1(1)(1) 517, 5 TH FLOOR, AIR INDIA BUILDING NARIMAN POINT MUMBAI-400 021 PAN/GIR NO. AACCA5944J ( APP ELLANT ) .. ( RESPONDENT ) ASSESSEE BY DR. SUNIL M.LALA & BHAVYA SANDESH, ARS REVENUE BY SHRI RAKESH RANJAN, CIT-DR DATE OF HEARING 22/11 /201 9 DATE OF PRONOUNCEME NT 10 / 01 /20 20 / O R D E R PER G.MANJUNATHA (A.M) : THESE TWO APPEALS FILED BY THE ASSESSEE ARE DIRECTE D AGAINST FINAL ASSESSMENT ORDER PASSED BY THE LD. AO U/S 143 (3) R.W.S. ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 2 144C(13) OF THE I.T.ACT, 1961, DATED 13/10/2017, IN PURSUANT TO DIRECTIONS U/S 144C(5) OF THE I.T.ACT, 1961 ISSUED BY THE DISPUTE RESOLUTION PANEL [DRP]-1, MUMBAI, DATED 13/09/2017 FOR THE AYS 2013-14 AND ORDER DATED 24/10/2018 U/S 143(3) R.W.S . 144C(13) OF THE I.T.ACT, 1961, IN PURSUANT TO DIRECTIONS OF THE LD.DRP-1, U/S 144C(5) OF THE I.T.ACT, 1961 DATED 04/09/2018 FOR A Y 2014-15. SINCE, THE FACTS ARE IDENTICAL AND ISSUES ARE COMMO N, FOR THE SAKE OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED- OFF BY THIS CONSOLIDATED ORDER. ITA.NO.7361/MUM/2017:- 2. THE ASSESSEE HAS, MORE OR LESS RAISED COMMON GRO UNDS OF APPEAL FOR BOTH ASSESSMENT YEARS. THEREFORE, FOR TH E SAKE OF BREVITY, GROUNDS OF APPEAL FILED FOR THE AY 2013-14 ARE REPRODUCED AS UNDER:- 1 GROUND NO. I - TAXABILITY OF IT SERVICES AS FE ES FOR TECHNICAL SERVICES 1.1 ON THE FACTS AND IN THE CIRCUMSTANCE? OF THE CASE AND IN LAW, THE LEARNED DCIT AND DEPUTE RESOLUTION PANEL (HEREINAFT ER REFERRED AS DRP ) HAVE ERRED IN HOLDING THAT THE IT SERVICES IS TAX ABLE AS FEES FOR TECHNICAL SERVICE [FTS} UNDER INDIA - SWEDEN DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA). 1.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEARNED DCIT/DRP HAS ERRED IN HOLDING THAT THE PROT OCOL GRANTING MOST FAVORED NATION BENEFIT AVAILABLE IN INDIA - SWEDEN DTAA CAN BE GRANTED ONLY THROUGH GOVERNMENT NOTIFICATION DISREGARDING T HE FACT THAT NO SUCH NOTIFICATION K REQUIRED AS PER INDIA - SWEDEN DTAA. 1.3 ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED DCIT AND THE LEARNED DRP HAS. ERRED IN CONSIDERING THAT THE IT SERVICES ARE ANCILLARY AND SUBSIDIARY TO THE TECHNOLOGY LICE NSE AGREEMENT AND ACCORDINGLY TAXABLE UNDER ARTICLE 12(4}(A) OF INDIA - PORTUGUESE REPUBLIC DTAA. 1.4 ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE APPELLANT CONTENDS THAT AMOUNT RECEIVED FOR RENDERI NG IT SERVICES CANNOT BE CHARACTERIZED AS FTS SINCE SUCH SERVICES DO NOT MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, ETC.. ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 3 THE APPELLANT CRAVES LEAVE TO ADD, AFTER, AMEND, OR WITHDRAW ANY OF THE ABOVE STATED GROUND OF APPEAL AT ANYTIME. 3. THE BRIEF FACTS OF THE CASE EXTRACTED FROM ITA NO.7361/MUM/2017 FOR AY 2013-14 ARE THAT THE ASSESE E COMPANY IS INCORPORATED IN 1907 AND HEADQUARTERED AT GOTEBORG SWEDEN. SKF GROUP IS THE ORIGINATOR OF THE SELF ALIGNING BALL B EARINGS AND IS ONE OF THE LEADING GLOBAL SUPPLIERS OF PRODUCTS, SOLUTIONS AND SERVICES WITHIN ROLLING BEARINGS, SEALS MACHATRONICS, SERVIC ES AND LUBRICATION SYSTEMS. THE ASSESSEE HAS ENTERED INTO AGREEMENTS W ITH SKF INDIA AND SKF TECHNOLOGIES, IN RELATION TO TECHNOLOGY LIC ENSE AGREEMENT; TRADEMARK LICENSE AGREEMENT AND IT SERVICE DELIVERY AGREEMENT. THE ASSESSEE HAS FILED ITS RETURN OF INCOME FOR AY 2013-14 ON 31/11/2013, DECLARING TOTAL INCOME AT RS.87,48,43,5 40/- AND SUCH INCOME INCLUDES GROSS RECEIPTS FROM ROYALTY AND T RADEMARK FEE, IT RELATED SERVICES AND TRAINING AND SUPPORT SERVICES FEE. THE ASSESSEE HAS OFFERED ENTIRE RECEIPTS AS TAXABLE INCOME UNDER THE HEAD ROYALTY AS PER INDIA-SWEDEN DTAA. SUBSEQUENTLY, THE ASSESSE E HAS FILED A REVISED RETURN OF INCOME ON 31/03/2015, DECLARING T OTAL INCOME AT RS. 64,21,17,550/- AND EXCLUDED FEE RECEIVED FOR I. T. RELATED SERVICES AND TRAINING AND SUPPORT SERVICES AND STAT ED THAT SAID INCOME IS IN THE NATURE OF REIMBURSEMENT OF EXPENSE S AND HENCE, NOT LIABLE TO TAX IN INDIA, AND SUCH DECISION IS ON THE BASIS OF CERTAIN JUDICIAL PRECEDENTS, INCLUDING THE DECISION OF ITAT , PUNE BENCH DECISION, IN THE CASE OF SANVNICK AUSTRALIA VS DDI T (2013) 141 ITD 598 (PUNE). 4. THE CASE HAS BEEN SELECTED FOR SCRUTINY AND IN T HE DRAFT ASSESSMENT ORDER, THE LD. AO HAS NOTED THAT IN THE PRECEDING YEAR, THE ASSESSEE HAS ONLY TWO AGREEMENTS, I.E. THE TECH NOLOGY ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 4 COLLABORATION AND TECHNICAL ASSISTANCE AGREEMENT AN D THE SERVICE AGREEMENT WITH RESPECT TO VARIOUS SERVICES. HE, FUR THER OBSERVED THAT THESE HAVE NOW BEEN BROKEN DOWN INTO THREE AGR EEMENTS, I.E. THE TRADEMARK LICENSE AGREEMENT, TECHNOLOGY LICENSE AGREEMENT AND IT SERVICES DELIVERY AGREEMENT. THE LD. AO, FUR THER, NOTED THAT THE ROYALTY AGREEMENT I.E TECHNOLOGY COLLABORATION AND TECHNICAL ASSISTANCE AGREEMENT IS THE MAIN AGREEMENT, IN RESP ECT OF ROYALTY/FTS. THE LD. AO, FURTHER NOTED THAT ALTHOUG H, THE ASSESSEE HAS CHANGED THE AGREEMENTS FROM TWO TO THREE FROM A Y 2011-12 ONWARDS, BUT, THERE HAS NOT BEEN ANY CHANGE IN FUNC TIONS AND RISKS OF THE ASSESSEE WITH RESPECT TO ITS SERVICES TO THE AES IN LINE WITH THE CHANGE IN THESE AGREEMENTS. FURTHER, ONLY THE NOMEN CLATURE OF THE AGREEMENTS HAS BEEN CHANGED TO SEGREGATE TRAINING A ND SUPPORT COST TO BE NOT TAXABLE IN INDIA, BUT SUCH INCOME WA S BEING OFFERED TO TAX IN EARLIER YEARS. THE LD. AO, FURTHER OBSERVED THAT ALTHOUGH, THE ASSESEE HAS MADE FEW SUBMISSIONS WITH RESPECT TO IT SERVICES, BUT SUCH SUBMISSIONS ARE VAGUE, GENERAL IN NATURE AND I T IS NOT POSSIBLE TO INFER THE EXACT NATURE OF SUCH SERVICES. HE, FUR THER OBSERVED THAT RECEIPTS FROM IT RELATED SERVICES HAS DECREASED CON SIDERABLY DURING THE YEAR UNDER CONSIDERATION AS COMPARED TO PREVIOU S YEARS AND HENCE, THE SERVICES RENDERED BY THE ASSESEE TO ITS AES ARE MAKE AVAILABLE TECHNICAL KNOWLEDGE, SKILLS ETC. THEREFOR E, HE OPINED THAT THE INDIAN SUBSIDIARY HAS BEEN ENABLED TO APPLY TEC HNICAL KNOWLEDGE ACQUIRED FROM THE AE, WHICH RESULTS IN FALL OF EXPE NSES AND THUS, CONCLUDED THAT THE NATURE OF SERVICES IS SUCH THAT IT CAN BE TAKEN TO BE IN THE NATURE OF FTS, WHICH MAKES AVAILABLE TECH NICAL KNOWLEDGE/EXPERIENCE/SKILL OR PROCESS. THE LD. AO, FURTHER NOTED THAT THE SERVICES PROVIDED BY THE AE ARE PURSUANT T O THE ROYALTY AGREEMENT AND ARE ON A CONSOLIDATED PLATFORM COMPRI SING OF ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 5 MAINFRAME AND NON MAINFRAME COMPUTER SERVERS AND COMMUNICATION DEVICES. THE ASSESSEE IMPARTS INFORMA TION, KNOWLEDGE, ASSISTANCE OR SERVICES, WHICH ARE THE RE SULT OF COMMERCIAL EXPERIENCE ACQUIRED OVER THE YEARS AND F URTHER, SYSTEMIZED BY WAY OF VARIOUS MODULES IN INTEGRATED UTILITY SOFTWARE. HE, FURTHER NOTED THAT THE SERVICES RENDERED ARE IN THE NATURE OF SCIENTIFIC, COMMERCIAL AND INDUSTRIAL KNOWLEDGE AND EXPERIENCE AND IN ORDER TO ACCESS SUCH INFORMATION, THE INDIAN COM PANIES AND OTHER GROUP MEMBERS OF THE ASSESSEE COMPANY ARE REQUIRED TO HAVE COMPATIBLE SYSTEMS/SOFTWARE INSTALLED IN THEIR PREM ISES. THE LD. AO HAS DISCUSSED THE MEANING OF TERM INDUSTRIAL, COMM ERCIAL OR SCIENTIFIC EXPERIENCE AND HAS CONCLUDED THAT THE S ERVICES RENDERED BY THE ASSESSEE, ALSO FALLS UNDER THIS CATEGORY OF FTS AND WHILE DOING SO HE HAS RELIED UPON VARIOUS DECISIONS INCLU DING DECISION OF HONBLE KARNATAKA HIGH COURT, IN THE CASE OF SYNOPS IS INTERNATIONAL OLD LTD. (2012) 28 TAXMANN.COM 162 (KAR). THE RELEV ANT FINDINGS OF THE LD. AO ARE AS UNDER:- 25.34 TO SUM UP, IT IS RESPECTFULLY SUBMITTED THA T- (I) THE PAYMENTS MADE BY THE INDIAN COMPANIES TO TH E ASSESSE FOR THE USE OF ABSKF IT SERVICES MAY ALSO BE TREATED AS CON SIDERATIONS FOR INFORMATIONS CONCERNING INDUSTRIAL OR COMMERCIAL EX PERIENCE, WHICH IS DEFINED AS ROYALTY WITHIN THE MEANING OF SECTION 9( 1)(VI) OF THE ACT. AS WELL AS ARTICLE 12(3)(A) OF THE INDIA-SWEDEN DTAA. (II) THE PAYMENTS TO THE ASSESSES, FOR THE USE OR RIGHT TO USE THE SOFTWARE EMBEDDED IN ABSKF IT SERVICES, AND THE COMMERCIAL D ATABASE WHICH THE SOFTWARE OPERATES UPON, MAY BE TREATED AS PAYME NTS FOR USE OR RIGHT TO USE COPYRIGHT IN A LITERARY OR SCIENTIFIC WORK W ITHIN THE MEANING OF ROYALTY AS PER SECTION 9(1 )(VI) OF THE ACT. (III) THE PAYMENTS TO THE ASSESSES FOR THE USE OF T HE SOFTWARE EMBEDDED IN ABSKF IT SERVICES MAY ALSO BE TREATED AS ROYALTY BEING PAYMENT FOR USE OR RIGHT TO USE OF PROCESS PATENT, TRADEMAR K, DESIGN OR SIMILAR PROPERTY WITHIN THE MEANING OF THE PROVISIONS OF TH E ACT AS WELL AS THE DTAA BETWEEN INDIA AND SWEDEN ; AND ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 6 (IV) THE PAYMENTS TO THE ASSESSES, BEING OF THE NAT URE OF ROYALTY IS TAXABLE IN INDIA AS PER THE PROVISIONS OF THE ACT A S WELL AS ARTICLE 12(3)(A) OF THE DTAA BETWEEN INDIA AND SWEDEN. 5. BEING AGGRIEVED BY THE DRAFT ASSESSMENT ORDER, T HE ASSESSEE HAS FILED OBJECTIONS BEFORE THE LD. DRP-I, MUMBAI. BEFORE THE LD.DRP, THE ASSESEE HAS FILED ELABORATE WRITTEN SUB MISSIONS ALONG WITH VARIOUS JUDICIAL PRECEDENTS AND COPY OF AGREEM ENT BETWEEN THE ASSESEE AND INDIAN SUBSIDIARIES, WHICH HAS BEEN REP RODUCED AT PARA 5 ON PAGES 4 -19 OF LD. DRP ORDER. THE SUM AND SUBS TANCE OF ARGUMENTS OF THE ASSESSEE BEFORE THE LD. DRP ARE TH AT ALTHOUGH, THE LD. AO HAS REFERRED EARLIER AGREEMENTS BETWEEN THE PARTIES, BUT THOSE AGREEMENTS ARE NOT RELEVANT FOR THE YEAR UNDE R CONSIDERATION, AS THE SAME WAS NOT EFFECTIVE DURING THE YEAR. THE ASSESSEE HAS ALSO NARRATED, THE FUNCTIONS PERFORMED TO THE AES, AS PER THE SCOPE OF AGREEMENT BETWEEN THE PARTIES AND ARGUED THAT IT HAS PURCHASED SOFTWARE FROM THIRD PARTY VENDOR AND HENCE, THE QUE STION OF OWNERSHIP OF RIGHT IN THE SOFTWARE DOES NOT ARISE. THE ASSESEE HAS ALSO, REFERRED DTAA BETWEEN INDIA AND SWEDEN AND IT S CLAUSES MORE PARTICULARLY, THE DEFINITION OF THE TERM ROYAL TY AND ARGUED THAT PAYMENTS MADE FOR AVAILING OF MAINTENANCE AND SUPP ORT SERVICES, IN RELATION TO IT INFRASTRUCTURE CANNOT BE CONSIDERED AS PAYMENT MADE FOR USE OR RIGHT TO USE ANY COPYRIGHT OR LITERARY, ARTISTIC OR SCIENTIFIC WORK, INCLUDING CINEMATOGRAPH FILMS, ANY PATENT, T RADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR I NFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXP ERIENCE. THE ASSESSEE HAD ALSO ARGUED THAT SKF INDIA AND SKF TEC HNOLOGIES ARE PROVIDE WITH ONLY A COPYRIGHTED SOFTWARE PROGRAMS, BECAUSE THE ASSESEE ITSELF DOES NOT OWN INTELLECTUAL PROPERTY R IGHTS, IN RESPECT OF THE SOFTWARE PROGRAMS. THE ASSESSEE, FURTHER CONTEN DED THAT ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 7 MAJORITY OF IT COST ARE IN THE NATURE OF COST ALLOC ATION, BEING THIRD PARTY COST, WHICH IS RECHARGED TO VARIOUS GROUP ENT ITIES, BASED ON APPROPRIATE ALLOCATION KEYS. ACCORDINGLY, THESE COS TS ARE IN THE NATURE OF REIMBURSEMENTS OF EXPENSES NOT HAVING ANY INCOME ELEMENT AND HENCE, SHOULD NOT BE TAXED IN INDIA. TH E ASSESSEE HAD REFERRED ARTICLE 12 OF THE INDIA-SWEDEN TAX TREATY ALONG WITH THE PROTOCOL TO THE INDIA-SWEDEN TAX TREATY AND INVOKED MFN STATUS, IN LIGHT OF ARTICLE 12 OF THE INDIAN-PORTUGAL TREATY, WHEREIN THE RESTRICTIVE PROVISION OF MAKE AVAILABLE HAS BEEN PR OVIDED IN THE TREATY. THE ASSESSEE HAD ALSO, REFERRED ARTICLE 12( 4)(B) OF THE INDIA- U.S. DTAA AND THE MOU SIGNED BETWEEN THESE TWO COUN TRIES. 6. THE LD. DRP AFTER CONSIDERING RELEVANT SUBMISSIO NS OF THE ASSESEE AND ALSO, BY RELIED UPON VARIOUS JUDICIAL P RECEDENTS, INCLUDING CASE LAWS CITED BY THE ASSESSEE, CAME TO THE CONCLUSION THAT FEES RECEIVED FOR IT RELATED SERVICES ARE INEX TRICABLY LINKED WITH ROYALTY AGREEMENT AND HENCE, THE SAME CANNOT BE SEG REGATED TO MAKE IT NOT TAXABLE IN INDIA UNDER THE INDIA-SWEDEN TAX TREATY BY CHANGING THE NOMENCLATURE OF THE AGREEMENT, WHEN TH ERE HAS NOT BEEN ANY FUNCTIONAL CHANGE WITH RESPECT TO SERVICES OFFERED BY THE ASSESSEE TO ITS AE OR THE INTEGRAL NATURE OF ROYALT Y TO THE IT INFRASTRUCTURE SETUP BY THE ASSESSEE TO RENDER THES E SERVICES SUBSEQUENT TO REVISION OF THE AGREEMENTS. THE LD. D RP, FURTHER OBSERVED THAT WHILE, FILING ITS RETURN OF INCOME, T HE ASSESSEE HAD OFFERED THE ENTIRE RECEIPTS TO TAX. BUT, SUBSEQUENT LY, REVISED ITS RETURN OF INCOME TO EXCLUDE RECEIPTS ON ACCOUNT OF I.T. SERVICES, WHICH WAS CLAIMED TO BE NOT TAXABLE IN INDIA, EITHE R AS ROYALTY, OR FEES FOR TECHNICAL SERVICES, IN LIGHT OF THE MFN CL AUSE IN THE INDIA- SWEDEN TAX TREATY, WITHOUT BRINGING ON RECORD TO PR OVE THAT THERE ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 8 WAS ANY SIGNIFICANT CHANGE IN THE OPERATIONAL SETUP IN THE NEW AGREEMENT AND ALSO, WHEN SUBSTANCE OF THE TRANSACTI ONS HAS REMAIN THE SAME. THE LD. DRP HAS EXTENSIVELY DISCUSSED THE NATURE OF SERVICES RENDERED BY THE ASSESSEE TO ITS AES IN IN DIA AND RELEVANT FEES CHARGED FOR SERVICES, IN LIGHT OF VARIOUS CLAU SES OF AGREEMENT BETWEEN THE PARTIES TO COME TO THE CONCLUSION THAT ROYALTY AGREEMENT AND IT DELIVERY SUPPORT AGREEMENT ARE MEA NT TO FUNCTION TOGETHER AND THE ROYALTY AGREEMENT CANNOT BE EFFECT IVELY IMPLEMENTED, UNLESS IT IS INTEGRATED WITH I.T. SUPP ORT AGREEMENT. THE LD. DRP HAS ALSO REFERRED CLAUSE 3(II) OF AGREEMENT BETWEEN THE PARTIES, WHERE IT WAS CATEGORICALLY REFERRED THAT T HE LICENSOR SHALL WITHOUT DELAY DISCLOSE AND MAKE AVAILABLE TO LICENS EE ANY MODIFICATIONS OR IMPROVEMENTS OF THE TECHNOLOGY, IN TANGIBLE DEVELOPED BY THE LICENSOR OR ITS EMPLOYEES, WHETHER OR NOT PATENTED AND WHETHER OR NOT SAID MODIFICATION OR IMPROVEMENT IS SUBSTANTIAL. ACCORDINGLY, THE LD. DRP HAS FINALLY CONCLUDED THAT SERVICES RENDERED BY THE ASSESSEE ARE IN THE NATURE OF FTS A S PER THE PROVISION OF THE I.T.ACT, 1961 AND ALSO AS PER DEFI NITION OF FTS AS PROVIDED IN INDIA-SWEDEN TAX TREATY. THE LD. DRP HA S ALSO REJECTED MFN CLAUSE INVOKED BY THE ASSESEE, IN LIGHT OF THE INDIA-PORTUGAL TAX TREATY, ON THE GROUND THAT SUCH BENEFIT CANNOT BE G IVEN IN THE ABSENCE OF A SPECIFIC NOTIFICATION FROM THE GOVERNM ENT. THE RELEVANT FINDINGS OF THE LD. DRP AS UNDER:- DISCUSSION AND DIRECTIONS OF DRP 5.53. DURING THE COURSE OF PROCEEDINGS BEFORE U S, THE ASSESSEE HAS SUBMITTED A CHART CONTAINING VARIOUS ERRORS IN THE ORDER AS SUCH DISCUSSION REFERS TO VARIOUS TERMS INDUSTRY. THESE APPEAR TO BE EXTRANEOUS DISCUSSION WHICH HAVE CREPT THE ORDER ON ACCOUNT OF SOME MISUNDERSTANDING OF THE AO AND HENCE, THESE REFEREN CES AS WELL AS INFERENCES BASED ON SUCH DISCUSSION ARE BEING IGNOR ED WHILE DISCUSSING THE ISSUE AT HAND. ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 9 5.54. THE SUBMISSION MADE BY THE ASSESSEE AND VARIOUS ISSUES RAISED BY THE AO IN HIS ORDER HAVE BEEN EXAMINED. I T IS SEEN THAT WHILE FILING ITS RETURN OF INCOME, THE ASSESSEE HAD OFFER ED THE ENTIRE RECEIPTS TO TAX. HOWEVER, THROUGH REVISED RETURN, THE INCOME OF THE ASSESSEE WAS REDUCED BY EXCLUDING THE RECEIPTS ON ACCOUNT OF IT SERVICES WHICH WAS CLAIMED TO BE NOT TAXABLE IN INDIA EITHER AS ROYALT Y OR AS FEE FOR TECHNICAL SERVICES IN LIGHT OF THE MFN CLAUSE IN THE INDIA SW EDEN TREATY. 5.55. THE ISSUE AT HAND RELATES TO A CHANGE IN THE AGREEMENT BETWEEN THE INDIAN GROUP COMPANIES WHO ARE MANUFACTURERS OF BEARINGS AND THE ASSESSEE COMPANY WHICH OWNS THE TECHNOLOGY AS WELL AS THE TRADEMARK WITH RESPECT TO SUCH BEARINGS. ADMITTEDLY, THE ASS ESSEE IS IN AN AREA WHERE RESEARCH AND DEVELOPMENT .IS A REGULAR PROCES S AND THE RESULTS OF SUCH RESEARCH WITH .REFERENCE TO THE PRODUCTS FOR W HICH AGREEMENTS HAVE BEEN ENTERED ARE PASSED ON TO THE LICENSEE ENTITIES WITHOUT ANY DELAY. BEFORE US, THE ASSESSEE HAS SUBMITTED FOLLOWING DES CRIPTION OF IT SERVICES RENDERED BY IT. CATEGORY OF SERVICE DESCRIPTIVE NATURE OF SERVICE TAXABILITY OF THE TRANSACTION SKF INDIA LIMITED (EUROS) SKF TECHNOLOGIE S (SEK) END USER & SERVICE EQUIPMENT PC WORKPLACE THESE COSTS ARE FOR STANDARD SOFTWARE'S LIKE MS OFFICE, ADOBE, WEBEX, LOCAL AREA NETWORK, ETC. THESE ARE PAYMENTS FOR PURCHASE OF STANDARD SOFTWARE'S/COPYRIGHTED ARTICLES AND HENCE NOT TAXABLE UNDER ARTICLE 12 OF INDIA SWEDEN TAX TREATY. 2,70,359 6,18,772 SERVICE DESK THESE ARE COSTS FOR HELP DESK PROVIDED BY THIRD PARTY VENDOR (I.E. HP) FOR ANY TROUBLE SHOOTING. THE SERVICES PROVIDED ARE ROUTINE IT SUPPORT SERVICES IN THE NATURE OF HELP-DESK, ADMINI STRATIVE AND MAINTENANCE. THESE SERVICES ARE REQUIRED EVERY YEAR AND THESE SERVICES DOES NOT MAKE AVAILABLE TECHNICAL KNOWLEDGE, SKILL, KNOW- HOW ETC. ACCORDINGLY, SUCH PAYMENTS CANNOT BE CONSIDERED AS 'FEES FOR TECHNICAL SERVI CES' (FTS) IN TERMS OF 59,990 3,84,615 ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 10 ARTICLE 12 OF THE INDIA - SWEDEN TAX TREATY READ WITH THE MOST FAVOURED NATION CLAUSE (MFN). VIDEO CONFERENCIN G & MAIL IN PHONE THESE P AYMENTS ARE FOR AVAILING STANDARD FACILITIES LIKE ACCESS TO EMAIL ON MOBILE PHONE, VIDEO CONFERENCE FACILITY, ETC. THE SERVICES PROVIDED ARE STANDARD SERVICES AND HENCE NOT COVERED UNDER ARTICLE 12 OF THE INDIA - SWEDEN TAX TREATY AND HENCE NOT TAXABLE IN INDIA. WITHOUT PREJUDICE TO THE ABOVE, EVEN IF THESE SERVICES ARE CONSIDERED AS TECHNICAL IN NATURE, THE SAME CANNOT BE TAXED AS FTS AS THESE SERVICES DOES NOT MAKE AVAILABLE' TECHNICAL KNOWLEDGE, SKILL, KNOW- HOW ETC. ACCORDINGLY, SUCH PAYMENTS CANNOT BE CONSIDERED AS FTS IN TERMS OF ARTICLE 12 OF THE INDIA - SWEDEN TAX TREATY READ WITH MFN CLAUSE. 9,458 20,723 IT OPERATIONS AMS- FINANCIAL MGMT THESE COSTS ARE FOR STANDARD SOFTWARE'S LIKE SARA MASTERPIECE (I.E. ACCOUNTING SOFTWARE), SAP CPM, ETC. PROVIDED BY THIRD PARTY TIKE HP. THESE ARE PAYMENTS FOR PURCHASE OF STANDARD SOFTWARE'S/COPYRIGHTED ARTICLES AND HENCE NOT TAXABLE UNDER ARTICLE 12 OF INDIA - SWEDEN TAX TREATY, % 1,69,979 2,75,968 AMS- GLOBAL WEB & INFO MGMT THESE ARE COSTS FOR SOFTWARE/APPLICATION PROVIDED BY THIRD PARTY VENDORS LIKE CAP GEMINI, FINDWISE & 92,260 62,841 ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 11 MOGUL. AMS- INNOVATION MGMT THESE ARE COSTS FOR SOFTWARE/APPLICATION PROVIDED BY THIRD PARTY VENDORS LIKE CAD- Q, AUTODESK, PTC, ETC. 97,572 4,04,908 MAINTENAN C E - CUSTOMER MGMT THESE ARE COSTS F OR SOFTWARE/APPLICATION PURCHASED FOR CUSTOMER RELATIONSHIP MANAGEMENT, CUSTOMER ACCOUNT VALIDATION, NEW CUSTOMER OFFER, ETC. PROVIDED BY THIRD PARTY VENDORS LIKE CAPGEMINI, ORACLE ETC. 1,80,263 21,376 MAINTENAN CE - DEMAND CHAIN MGMT THESE ARE COSTS FOR SOFTWARE/APPLICATION PURCHASED FOR ORDER ENTRY PROCESS FOR SALES UNITS, ORDER HANDLING, PRICING, ETC. PROVIDED- _BY THIRD PARTY VENDORS LIKE APPER, INFOR, LLMERY' ETC 1,77,395 2,17,427 AMS- PEOPLE MGMT THESE COSTS ARE FOR STANDARD HR SOFTWARE PROVIDED BY VENDORS LIKE CORNER STONE, ETC. THESE ARE PAYMENTS FOR PURCHASE OF STANDARD SOFTWARE'S/COPYRIGHTED ARTICLES AND HENCE NOT TAXABLE UN DER ARTICLE 12 OF INDIA SWEDEN TAX TREATY 42,949 42,367 AMS- PROCESS INDEPENDE THESE COSTS ARE FOR STANDARD SOFTWARE PROVIDED BY THIRD 1,31,199 2,00,065 ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 12 NT MGMT PARTY VENDORS TIKE ACANDO, EVERY, ETC. DATACENTER SERVICES - MAINFRAME THESE PAYMENTS ARE TOWARDS GOVERNANCE FEE AND SERVICE MANAGEMENT FEE. THESE SERVICES HAVE BEEN PROVIDED BY HP. THE SERVICES PROVIDED ARE ROUTINE IT SUPPORT SERVICES IN THE NATURE OF ' MAINTENANCE SERVICES. THESE SERVICES ARE REQUIRED EVERY YEAR AND THESE SERVICES DOES NOT MAKE AVAILABLE TECHNICAL KNOWLEDGE, SKILL, KNOW- HOW ETC. ACCORDINGLY, SUCH PAYMENTS CANNOT BE CONSIDERED AS FTS AS PER ARTICLE 12 OF INDIA - SWEDEN TAX TREATY READ WITH MFN CLAUSE. THE SERVICES PROVIDED ARE STANDARD SERVICES AND HENCE NOT COVERED UNDER ARTICLE 12 OF THE INDIA - SWEDEN TAX TREATY AND HENCE NOT TAXABLE IN INDIA, WITHOUT PREJUDICE TO THE ABOVE, EVEN IF THESE SERVICES ARE CONSIDERED AS TECHNICAL IN NATURE, THE SAME CANNOT BE TAXED AS FTS AS THESE SERVICES DOES NOT MAKE AVAILABLE TECHNICAL KNOWLEDGE, SKILL, KNOW-HOW ETC. ACCORDINGLY, SUCH PAYMENTS CANNOT BE 73,242 84,112 ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 13 DATACENTER SERVICES - MIDRANGE THESE ARE PAYMENTS FOR HOSTING APPLICATION ON SERVER AND ITS MAINTENANCE PAID TO THIRD PARTIES LIKE HP, CAP GEMINI, ORACLE, ETC. CONSIDERED AS FTS IN TERMS OF ARTICLE 12 OF THE INDIA - SWEDEN TAX TREATY READ WITH MFN CLAUSE. 2,04,711 2,44,799 GROUP IT FUNCTION NETWORK SERVICES THESE ARE PAYMENTS FOR AVAILING WIDE AREA NETWORK SERVICES FROM BRITISH TELECOM. THE SERVICES PROVIDED ARE STANDARD SERVICES AND HENCE NOT COVERED UNDER ARTICLE 12 OF THE INDIA - SWEDEN TAX TREATY AND HENCE NOT TAXABLE IN INDIA 5,65,178 2,45,355 SUPPORT TEAM - CUSTOMER MGMT THESE ARE COSTS I NCURRED BY INTERNAL IT TEAM OF AB SKF TO SUPPORT THE INDIAN COMPANIES. AB SKF PROVIDES VARIOUS SUPPORT SERVICES INDIAN COMPANIES HAVE A VERY SMALL IT TEAM. ACCORDINGLY, APPELLANT PROVIDES ONGOING SUPPORT SERVICES IN RESPECT OF MAINTENANCE, TROUBLE SHOOTING ETC. THESE SERVICES DOES N OT MAKE AVAILABLE TECHNICAL 1,14,686 32,839 ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 14 TO INDIAN COMPANIES LIKE SERVICE DESK, SYSTEM DEVELOPMENT SUPPORT, IT SECURITY SUPPORT, INFRASTRUCTURE NETWORK SUPPORT, ETC, KNOWLEDGE, SKILL, KNOW- HOW ETC. ACCORDINGLY, THE AFORESAID PAYMENTS MADE CANNOT BE CONSIDERED AS FTS AS PER ARTICLE 12 OF INDIA - SWEDEN TAX TREATY READ WITH MFN CLAUSE TO THE TAX TREATY, SUPPORT TEAM - DEMAND CHAIN MGMT 62,798 3,98,161 SUPPORT TEAM - FINANCIAL MGMT 1,59,788 4,22,248 SUPPORT TEAM GLOBAL WEB & INFO MGMT 10,776 2,985 IT BUSINESS PROJECT SERVICES PROJECT SERVICES - EXIT MAINFRAME THESE ARE SOFTWARE DEVELOPMENT COSTS FOR MAPICS TEMPLATE I.E. INVENTORY SOFTWARE PROVIDED BY THIRD PARTY VENDOR LIKE INFOR. THESE ARE PAYMENTS FOR PURCHASE OF STANDARD SOFTWARE'S/COPYRIGHTED ARTICLES AND HENCE NOT TAXABLE UNDER ARTICLE 12 OF INDIA - SWEDEN TAX TREATY. 69,795 98,180 ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 15 PROJECT SERVICES - FINANCIAL MGMT THESE ARE COSTS FOR PURCHASE OF STANDARD ACCOUNTING SOFTWARE I.E. SARA PROVIDED BY THIRD PARTY LIKE HP. 69,102 1,45,0 35 PROJECT SERVICES - GLOBAL WEB & INFO MGMT F THESE COSTS ARE FOR PURCHASE OF UPGRADES FOR STANDARD SOFTWARE LIKE SPIDER AND INTRANET SOFTWARE PROVIDED BY THIRD PARTY VENDORS LIKE CAP GEMINI, MOGUL, ETC. 77,299 60,523 PROJECT SERVICES - GROUP IT PROJECT SERVICES - GROUP PROJECTS THESE ARE COSTS INCURRED FOR CONNECTIVITY ROOM APPLICATION DEVELOPMENT PROVIDED BY THIRD PARTY VENDORS LIKE HIQ, EVERY, ETC. THE SERVICES PROVIDED ARE IT SUPPORT SERVICES WHICH IN THE NATURE OF HELP-DESK, ADMINISTRATIVE AND MAINTENANCE. THE SERVICES DOES NOT MAKE AVAILABLE TECHNICAL 38,335 33,649 PROJECT SERVICES - INNOVATION MGMT THESE COSTS ARE FOR PDM LINK UPGRADE PROVIDED BY THIRD PARTY VENDOR TIKE PTC. KNOWLEDGE, SKILL, KNOW-HOW ETC. ACCORDINGLY, THE AFORESAID PAYMENTS MADE CANNOT BE CONSIDERED AS FTS AS PER ARTICLE 12 OF THE INDIA - SWEDEN TAX TREATY READ WITH THE MFN CLAUSE TO THE TAX TREATY. 16,877 11,519 ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 16 DEVELOPMEN T CUSTOMER MGMT THESE ARE SOFTWARE COSTS FOR WEB CUSTOMER LINK SOFTWARE FOR PRICE AND AVAILABILITY SEARCHES, PRODUCT SEARCHES, ORDER PLACEMENT ETC. PROVIDED BY THIRD PARTY VENDOR TIKE CAP GEMINI. THESE ARE PAYMENTS FOR PURCHASE OF STANDARD SOFTWARE'S/COPYRIGHT ED ARTICLES AND HENCE NOT TAXABLE UNDER ARTICLE 12 OF INDIA - SWEDEN TAX TREATY. 70,839 6,906 DEVELOPMEN T DEMAND CHAIN MGMT THESE ARE SOFTWARE DEVELOPMENT COSTS FOR OCH (I.E. CUSTOMER ORDER HANDLING SOFTWARE) CONSOLIDATION PROJECT, DATA WAREHOUSE UPGRADE, AND XA MAPICS (MANUFACTURING, ACCOUNTING AND PRODUCTION INFORMATION CONTROL SYSTEM) UPGRADE PROVIDED BY THIRD PARTY VENDORS LIKE ACANDO, LIMERY, QLIKTECH. 34,668 54,227 ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 17 PROJECT SERVICES - PEOPLE MGMT THESE ARE COSTS FOR STANDARD SOFTWARE PURCHASED FOR EMPLOYEE MASTER DATA FROM THIRD PARTY VENDORS LIKE EWORK, GLOBAL BUSINESS TRAINING ETC., 14,624 12,819 PROJECT SERVICES - PROCESS INDEPENDE NT MGMT THESE ARE COSTS FOR WINDOWS 7 UPGRADE PROJECT AND FOR PROJECT TO IMPLEMENT THE NEW OUTSOURCING CONTRACT PROVIDED BY THIRD PARTY VENDORS LIKE CGI, OPTICOS, ETC. THESE ARE PAYMENTS FOR PURCHASE OF STANDARD SOFTWARE'S /COPY RIGHTED ARTICLES AND HENCE NOT TAXABLE UNDER ARTICLE 12 OF INDIA - SWEDEN TAX TREATY. 73,441 76,865 PROJECT SERVICES - UNITE THE SE ARE COSTS FOR PAVE THE WAY FOR UNITE/GAL PROVIDED BY THIRD PARTY VENDORS LIKE ACANDO, THE SERVICES PROVIDED BY THE ASSESSEE ARE IT SUPPORT SERVICES IN THE NATURE OF HELP- DESK, ADMINISTRATIVE AND 3,157 0 ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 18 ETC. MAINTENANCE. THE SERVICES DOES NOT MAKE AVAILABLE TECHNICAL KNOWLEDGE, SKILL, KNOW- HOW ETC. TO INDIAN COMPANIES. THEREFORE, THE AFORESAID PAYMENTS MADE CANNOT BE CONSIDERED AS FTS AS PER ARTICLE 12 OF THE INDIA - SWEDEN TAX TREATY READ WITH THE MFN CLAUSE TO THE TAX TREATY. TOTAL IT RELATED COSTS (SEK) 28,90,742 (EURO) 41,79,284 (SEK) TOTAL IT RELATED COSTS (INR) 19,93,79,93 0 3,33,46,062 5.56. IT IS ALSO NOTICED THAT EARLIER, THE AS SESSEE HAD ONLY TWO AGREEMENTS WITH THESE AES, ONE RELATED TO TECHNOLOG Y COLLABORATION AND TECHNICAL ASSISTANCE AGREEMENT OR THE 'ROYALTY AGRE EMENT' AND ANOTHER RELATED TO THE SERVICE AGREEMENT WITH RESPECT TO VA RIOUS MANAGEMENT SERVICES. ALTHOUGH THE ASSESSEE HAS NOT PROVIDED TH E OLD ROYALTY AGREEMENT, IT IS CLEAR THAT THE TECHNOLOGY & UP GRA DATION WAS TO BE TRANSMITTED THROUGH IT INFRASTRUCTURE. BOTH, THE PR ESENT ROYALTY AGREEMENT AS WELL AS THE IT SERVICES AGREEMENT HAVE BEEN EXAM INED. 5.57, IT IS NOTICED THAT THE ASSESSEE ALREADY , HAD AN ELABORATE COMPUTER NETWORK SETUP FOR THE GROUP THROUGH WHICH THE TECHNICAL INFORMATION WAS BEING SHARED. IN THIS REGARD, IT IS NECESSARY TO EXAMINE CERTAIN CRITICAL DETAILS OF THE TWO AGREEMENTS WHIC H HAVE NOW BEEN SIGNED BY THE ASSESSEE: WHEREAS: ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 19 (A) THE SKF GROUP IS A GLOBAL SUPPLIER OF PRODUCTS, SOLUTIONS AND SERVICES WITHIN ROLLING BEARINGS, SEALS, MECHATRONI CS, SERVICES AND LUBRICATION SYSTEMS. LICENSOR AND LICENSEE BELONG T O THE SKF GROUP; (B) LICENSOR IS, THROUGH ITS AFFILIATES, ENGAGED IN THE MANUFACTURE AND SALE OF PRODUCTS, SOLUTIONS AND SERVICES WITHIN ROL LING BEARINGS, SEALS, MACHATRONICS, SERVICES AND LUBRICATION SYSTEMS, INC LUDING DEEP GROOVE BALL BEARINGS, TAPER ROLLER BEARINGS, HUB UNITS, SP LIT TAPER HUB UNITS, MACPHERSONS STRUT BEARING UNITS, KITS, MOUNTED PRO DUCTS, SEALS, LUBRICATION SYSTEMS AND MECHATRONIC PRODUCTS LIKE S ENSOR BEARINGS (HEREINAFTER REFERRED TO AS THE 'PRODUCTS'); (C) LICENSOR OWNS, OR HAS ACQUIRED THE RIGHT TO USE , VARIOUS PATENTS, DESIGNS, SPECIFICATIONS, AND SIMILAR KNOW-HOW RELAT ED TO OR ASSOCIATED WITH ITS PRODUCTS (HEREINAFTER COLLECTIVELY REFERRE D TO AS 'TECHNOLOGY INTANGIBLES'); (D) LICENSEE IS A MANUFACTURER AND SELLER OF THE PR ODUCTS. IN ORDER TO OBTAIN THE RIGHT TO MANUFACTURE AND SELL THE PRODUC TS, LICENSEE NEEDS ACCESS TO THE TECHNOLOGY INTANGIBLES RELATED TO THE PRODUCTS; (E) LICENSOR PROVIDES, UNDER THIS AGREEMENT, THE TE CHNOLOGY INTANGIBLES NECESSARY IN ORDER FOR LICENSEE TO MANUFACTURE AND SELL THE PRODUCTS ON THE INDIA MARKET AND IN SUCH OTHER COUNTRIES THAT M AY BE APPLICABLE (HEREINAFTER REFERRED TO AS THE 'TERRITORY'). III. ENGAGEMENT OF LICENSOR AND LICENSEE (1) LICENSOR SHALL ACTIVELY PROVIDE LICENSEE WI TH THE TECHNOLOGY INTANGIBLES AS SET OUT IN APPENDIX A. (2) LICENSOR SHALL WITHOUT DELAY DISCLOSE AND MAKE AVAILABLE TO LICENSEE ANY MODIFICATION OR IMPROVEMENT OF THE TEC HNOLOGY INTANGIBLES DEVELOPED BY LICENSOR OR ITS EMPLOYEES, WHETHER OR NOT PATENTED AND WHETHER OR NOT SAID MODIFICATION OR IM PROVEMENT IS SUBSTANTIAL. SUCH IMPROVEMENTS OR MODIFICATIONS SHA LL BE INCLUDED UNDER THE SCOPE OF THIS AGREEMENT AND SHALL BECOME PART OF THE TECHNOLOGY INTANGIBLE AS DEFINED WITHOUT AN INCREAS E IN LICENSE FEE. (3) LICENSEE SHALL MANUFACTURE THE PRODUCTS AND OPERATE ITS BUSINESS IN ACCORDANCE WITH THE TECHNOLOGY INTANGIB LES, SPECIFICATIONS, INSTRUCTIONS AND TECHNOLOGY PROVIDE D BY LICENSOR. (4) LICENSEE SHALL ACTIVELY USE ITS BEST EFFORTS TO (I) MAKE THE PRODUCTS KNOWN AND USED ON A BROAD SCALE (II) PROMOTE AND DE VELOP THE SALES OF THE PRODUCTS AND (HI)-PROMOTE.THE DISTRIBUTION OF T HE PRODUCTS IN A MANNER AND THROUGH MEANS WHICH CAN REASONABLY BE EX PECTED TO RESULT IN A MAJOR PENETRATION OF THE PRODUCTS ON THE MARKE T. APPENDIX A LICENSED TECHNOLOGY INTANGIBLES ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 20 INTANGIBLES PROVIDED BY LICENSOR UNDER THIS AGREEME NT TO LICENSEE INCLUDE, BUT ARE NOT LIMITED TO, PATENTS, DESIGNS, SPECIFICATIONS AND KNOW- HOW WITH THE FOLLOWING PRODUCTS: 1. DEEP GROOVE BALL BEARINGS 2. TAPER ROLLER BEARINGS 3. HUB UNITS 4. MACPHERSONS STRUT BEARING UNITS 5. SPLIT TAPER HUB UNITS 6. KITS 7. MOUNTED PRODUCTS 8. SEALS 9. LUBRICATIONS SYSTEMS 10. TEXTILE MACHINERY COMPONENTS 11. VALUE ADDED/NON BEARING PRODUCT LIKE ROLLERS, S OLID OIL BALL CAGE, CLUTCH LIFTER, CAM FOLLOWER, ROCKER ARM BEARING, ROCKER AR M ASSEMBLIES, ETC 12. MECHATRONIC PRODUCTS LIKE SENSOR BEARINGS 5.58. WITH RESPECT TO THE NEW IT SERVICES AGRE EMENT, THE FOLLOWING CLAUSES ARE NOTED; 1. CATEGORIES OF SERVICES TO BE PERFORMED SKF HEREBY AGREES TO PROVIDE TO THE PURCHASER - AT THE PURCHASER'S REQUEST - WITH INFORMATION TECHNOLOGY SERVICES AS T O CERTAIN PHASES OF ITS BUSINESS, INCLUDING BUT NOT LIMITED TO SYSTEMS, DEV ELOPMENT & MAINTENANCE, COMPUTER OPERATIONS & SUPPORT, EDUCATI ON & CONTROL, PROVIDING TELECOMMUNICATION AND NETWORK FACILITIES & SUPPORT, INFRASTRUCTURE DEVELOPMENT, PURCHASING, TECHNICAL S ERVICES IN VARIOUS FIELDS, PROJECT SERVICES, APPLICATION SERVICE SUBSC RIPTIONS, DESKTOP AND HELPDESK SERVICES, CORPORATE INVESTMENTS, ELECTRONI C MAIL SERVICES, DATA WAREHOUSE SERVICES AND -ALSO SUCH OTHER SERVICES, N OT SPECIFICALLY CONTEMPLATED HEREIN, AS THE PARTIES MAY SUBSEQUENTL Y AGREE TO. PAGE NO.174 2. MANNER IN WHICH SERVICES M TO BE PERFOMED SKF AGREES TO RENDER THE SERVICES UNDER THIS AGREEM ENT: A) BY DEVELOPING AND MAINTAINING COMMON (SKF GROUP) APPLICATIONS AS WELL AS THE PURCHASER SPECIFIC IT S YSTEMS IN USE OR TO BE USED BY THE PURCHASER; B) BY PROVIDING COMPUTER OPERATION CAPACITY AND RUN APPLICATIONS CONCERNING THE BUSINESS OF THE PURCHASER; C) BY PROVIDING THE PURCHASER WITH TELECOMMUNICATIO N, ELECTRONIC DATA INTERCHANGE AND ELECTRONIC MAIL SERVICES; D) BY PURCHASING SOFTWARE & SOFTWARE LICENCES USING THE PURCHASING POWER OF CENTRAL ACQUISITION IN ALL SERVICE CATEGOR IES AS MAY BE NECESSARY OR HELPFUL FOR THE DEVELOPMENT, EXPANSION AND IMPROVEMENT OF THE PURCHASER'S BUSINESS; AND ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 21 E) BY PROVIDING THE PURCHASER WITH SKF COMMON (SKF GROUP) IT INFRASTRUCTURE; AND F) BY PROVIDING THE PURCHASER WITH FACTUAL INFORMAT ION, DATA AND RECOMMENDATION AND THE RESULTS OF STUDIES AND SERVI CE RELATING TO THE IT BUSINESS AND MANAGEMENT OF THE PURCHASER, SO AS TO ENABLE IT TO PROMOTE AND IMPROVE ITS BUSINESS; AND G) BY PROVIDING THE PURCHASER WITH ONSITE AND REMOT E TECHNICAL SUPPORT CONCERNING PERSONAL COMPUTING, PROBLEM MANAGEMENT, INSTALLATION AND TEST OF IT APPLICATIONS AND HARDWARE; AND H) BY PROVIDING HELPDESK AND KNOWLEDGE SUPPORT NOT AVAILABLE WITH THE PURCHASER; AND I) BY PROVIDING THE PURCHASER WITH EDUCATION, INSTR UCTIONS AND MANUALS; AND J) BY PROVIDING THE PURCHASER WITH OTHER SUCH IT RE LATED SERVICES AS DESCRIBED IN THE IT SERVICE CATALOGUE. -SKF IS ALSO ENTITLED TO RENDER THESE SERVICES THRO UGH OTHER SKF CROUP COMPANIES OR THROUGH EXTERNAL COMPANIES. 5.59. THE TWO AGREEMENTS, READ TOGETHER, INDIC ATE THAT THE ROYALTY AGREEMENT AND THE I T SUPPORT AGREEMENT ARE MEANT T O FUNCTION TOGETHER AND THE ROYALTY AGREEMENT CANNOT BE EFFECTIVELY IMP LEMENTED UNLESS IT IS INTEGRATED WITH THE IT SUPPORT - AGREEMENT, IT IS A LSO NOTICED THAT THERE HAS SEEN NO GROUND LEVEL CHANGE IN THE NATURE OF SE RVICE WHICH IS BEING RENDERED BY THE AE OR THE SETUP WHICH HAS BEEN USED FOR RENDERING SUCH SERVICES, 5.60. IN THIS REGARD, THE INFERENCE OF THE AO THAT THE IT SERVICES EMANATE FROM THE ROYALTY AGREEMENT IS RIOT FOUND TO BE OUT OF CONTEXT OR NOT TENABLE. ADMITTEDLY, THE ASSESSEE IS REQUIRED T O CONTINUOUSLY UPGRADE THE TECHNOLOGY IN THE AREA OF MANUFACTURING WITH RE SPECT TO PRODUCTS UNDER LICENSE. THE ASSESSEE HARDLY HAS ANY SIGNIFIC ANT R&D SETUP WITH RESPECT TO THE CUTTING-EDGE TECHNOLOGY IN THIS AREA . THE ASSESSEE HAS NOT PROVIDED THE DETAILS OF MECHANISM THROUGH WHICH THE VARIOUS TECHNOLOGY TRANSFERS TAKE PLACE AND THE MECHANISM THROUGH WHIC H THE EMPLOYEES OF THE ASSESSEE COMPANY ARE EDUCATED OR MADE AWARE OF SUCH CHANGES. THE ASSESSEE HAS NOT PROVIDED THE DETAILS OF MODE I N WHICH THE CONTINUOUS UPGRADES TO VARIOUS MODELS REFERRED TO I N THE ROYALTY AGREEMENT ARE COMMUNICATED TO THE MANUFACTURING ENT ITIES WHICH HAVE PAID ROYALTY AND ARE ENTITLED TO CONTINUOUS IMPROVE MENT WITH RESPECT TO SUCH PRODUCTS. 5.61. IT IS SEEN THAT THE ENTIRE IT SETUP MAINTAINE D BY THE AE WHOSE DETAILS HAVE BEEN REPRODUCED JIBOVE, IS DIRECTED TO WARDS RENDERING THE SERVICES WHICH ARE TAILORED TOWARDS EFFECTIVE TRANS MISSION OF INFORMATION AS WELL AS ASSISTANCE IN TECHNOLOGICAL AREAS WHICH ARE INCLUDED IN THE ROYALTY AGREEMENT. WHILE EARLIER, THE WHOLE PROCESS WAS UNDER AN ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 22 INTEGRATED AGREEMENT, THE ASSESSEE HAS NOW BIFURCAT ED THE AGREEMENT TO SEPARATE THE I T SERVICES SO THAT IT CAN BE TAKEN O UT OF THE AMBIT OF DEFINITION OF ROYALTY. IN THIS REGARD, IT IS AN ACK NOWLEDGED FACT THAT GROUP ENTITIES ARE ABLE TO ENTER INTO CONTRACTS WHICH MAY NOT REFLECT THE TRUE INTENT OF THE OPERATIONS AND HENCE, IN SUCH SITUATI ONS, THE AO IS ALLOWED TO, GO BEHIND THE AGREEMENT AND EXAMINE THE SUBSTAN CE OF SUCH TRANSACTIONS. 5.62. IN OUR VIEW, THERE HAS NOT BEEN ANY FUN CTIONAL CHANGE WITH RESPECT TO SERVICES OFFERED BY THE ASSESSEE TO ITS AE OR THE INTEGRAL NATURE OF ROYALTY TO THE IT INFRASTRUCTURE SET UP B Y THE ASSESSEE TO RENDER THESE SERVICES SUBSEQUENT TO REVISION OF THE AGREEM ENTS. NO DOCUMENTATION HAS BEEN FURNISHED WHICH SHOWS THAT THE I T SERVICES ARE NOW REORGANISED AFRESH AND TOTALLY DELINKED WITH TH E RENDERING OF SERVICES IN CONNECTION WITH THE ROYALTY AGREEMENT. IN FACT, THERE IS ABSOLUTELY NO CHANGE IN THE EXISTING SET UP AT ALL. 5.63. THE ASSESSEE, IN ITS SUBMISSION BEFORE U S, HAS MENTIONED A NUMBER OF TIMES THAT THE EXTENT OF SOFTWARE UTILISE D IS MUCH SMALLER THAN THE EXTENT OF SERVICES RENDERED. HENCE, THE ACQUISI TION OF SOFTWARE FORMS A SMALL-PORTION OF THE OVERALL QUANTUM OF SERVICES RENDERED-BY THE ASSESSEE. IT IS CLEAR THAT THE SERVICES RENDERED IN THE IT SEGMENT OR THE SERVICES, CONNECTED WITH TRAINING ARE INTEGRALLY LI NKED WITH THE ROYALTY AGREEMENT ENTERED INTO BY THE ASSESSEE WITH ITS AES AND BOTH CANNOT BE SEPARATED FROM EACH OTHER.- 5.64. THE ASSESSEE HAS OBJECTED TO THE AO'S RELIANC E ON EARLIER AGREEMENTS CLAIMING THAT THESE AGREEMENTS ARE NO LO NGER IN OPERATION AND HENCE THE AGREEMENTS RELEVANT TO THE PERIOD SHO ULD HAVE BEEN EXAMINED BY THE AO. THE CONTENTION OF THE ASSESSEE IS NOT FOUND ACCEPTABLE IN LIGHT OF THE FACT THAT THE ASSESSEE H AS NOT BROUGHT ANY FACTS TO OUR NOTICE TO EVIDENCE THAT THERE WAS ANY SIGNIF ICANT CHANGE IN THE OPERATIONAL SET UP IN THE NEW AGREEMENT. WHEN THE S UBSTANCE OF THE TRANSACTION HAS REMAINED THE SAME, THE AO IS CORREC T IN DISREGARDING THE NEW AGREEMENT OR IN RELYING ON THE EARLIER AGREEMEN T. 5.65 ADMITTEDLY, THE SERVICES RENDERED BY THE ASSES SEE ARE FTS AS PER THE PROVISIONS OF THE INCOME TAX ACT, THE DEFINITIO N OF FTS AS PER INDIA SWEDEN TREATY IS SIMILAR TO THE DEFINITION IN THE A CT AND HENCE, THE SERVICE IS LIABLE TO BE TREATED AS FTS. 5.66 HOWEVER, THE ASSESSEE HAS INVITED ATTENTION TO THE PROTOCOL WHICH OFFERS A MFN BENEFIT TO TAX RESIDENTS OF SWEDEN AND HAS RELIED ON THE DEFINITION OF FTS IN INDIA PORTUGAL TREATY. ORDINAR ILY, SUCH BENEFIT IS GRANTED TO A TAX RESIDENT ONLY THROUGH A GOVERNMENT NOTIFICATION AND HENCE, THE ASSESSEE WOULD NOT BE ELIGIBLE FOR A TRE ATY BENEFIT BASED ON MFN CLAUSE AUTOMATICALLY. THE ASSESSEE HAS NOT PROV IDED ANY NOTIFICATION WHICH ALLOWS THE BENEFIT OF PORTUGAL T REATY TO TAX RESIDENTS OF SWEDEN. HENCE, THE ASSESSEE IS NOT CORRECT IN INVOK ING THE MFN CLAUSE. 5.67 WITHOUT PREJUDICE TO ABOVE, THE RELIANCE PLACE D BY THE ASSESSEE ON THE INDIA PORTUGAL TREATY HAS BEEN EXAMINED. WHILE THE ASSESSEE HAS ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 23 ONLY ELABORATED ON THE ARTICLE 12(4)(B) OF THE TREA TY, THE ENTIRE CLAUSE RELATED TO FEE FOR TECHNICAL SERVICES IS AS REPRODU CED BELOW; 4.FOR THE PURPOSES OF THIS ARTICLE, 'FEES FOR INCLU DED 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 : (A)ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT. PROPERTY OR INFORMATION FOR WHICH A 'PAY MENT DESCRIBED IN PARAGRAPH 3 IS RECEIVED, OR (B)MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW- HOW OR PROCESSES OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN WHICH ENABLES TH E PERSON ACQUIRING SERVICES TO APPLY THE TECHNOLOGY CONTAINED THEREIN, (EMPHASIS SUPPLIED) 5.68. IT IS NOTICED THAT THE IT SERVICES REND ERED BY THE ASSESSEE RENDERED BY THE ASSESSEE ARE SUBSERVIENT TO THE RO YALTY AGREEMENT AND ARE ANCILLARY AND SUBSIDIARY TO THE ROYALTY AGREEME NT ENTERED INTO BY BOTH THE PARTIES. THE ASSESSEE ALREADY HAS A ROYALTY AGR EEMENT WITH AES UNDER WHICH IT TRANSFERS ITS KNOWLEDGE IN RELATION WITH THE PRODUCTS COVERED UNDER THE ROYALTY AGREEMENT TO THE AES. THE SETUP IS CLEARLY THE MEANS OF ACHIEVING THIS OBJECTIVE AND HAS TO BE TREATED A CCORDINGLY. 5.69. THE ASSESSEE IS NOT CORRECT IN MOVING TO THE SECOND LIMB OF FTS AS PER THE ABOVE DEFINITION TO CONCLUDE THAT THE SERVICES DO NOT MA KE AVAILABLE ANY TECHNICAL KNOWLEDGE, SKILL, PROCESS E TC. THESE SERVICES WOULD FALL IN THE FIRST LIMB AS THEY ARE INTEGRALLY CONNECTED WITH THE ROYALTY AGREEMENT AND HENCE, WOULD BE TREATED AS FEE FOR TECHNICAL SERVICES AS CONTEMPLATED UNDER SECTION 12(4)(A) OF THE TREATY. 5.70. THE AO AS WELL AS THE ASSESSEE HAVE DISC USSED ELABORATELY ON THE NATURE OF COST OF SOFTWARE WHICH HAVE BEEN PASS ED ON TO THE AES. IN OUR VIEW, IT IS NOT RELEVANT TO DISCUSS INDIVIDUAL NATURE OF SERVICE RENDERED OR INDIVIDUAL NATURE OF SOFTWARE UTILISED WHITE REN DERING SUCH SERVICE. THE NATURE OF THE SERVICE HAS TO BE DECIDED AS A WHOLE AND NOT INDIVIDUALLY. 5.71. THE ASSESSEE HAS ALSO SUBMITTED THAT 80% OF THE AMOUNT REPRESENTS THIRD PARTY COST OF SERVICE RENDERED. TH E SUBMISSION DOES NOT ALTER THE FACT THAT THE NATURE OF SERVICE IS FTS. I N ANY SERVICE, A MAJOR PORTION OF THE SERVICE WOULD REPRESENT COST OF SERV ICE WHICH MAY BE INCURRED BY THE SAME PARTY OR THROUGH A THIRD PARTY . SIMILARLY, A MAJOR PORTION OF A PRODUCT WOULD COMPRISE OF COST OF MATE RIAL WHICH MAY BE A THIRD PARTY COST. BUT SUCH COST CANNOT BE A FACTOR FOR DECIDING THE NATURE OF SERVICE. IN THE CASE OF M/S ASHOK LEYUND LTD AIT -2008-365-ITAT, CHENNAI BENCH, [2009] 120 ITD 14 (CHENNAI), THE EXP ENDITURE ON PERSONNEL VISITING THE INDIAN PARTY FOR RENDERING P ART OF THE SERVICE WAS HELD TO BE PART AND PARCEL IN THE PROCESS OF ADVICE OF TECHNICAL CHARACTER. THE COST WHICH FORMS A PART OF THE TOTAL RECEIPT O N ACCOUNT OF FTS CANNOT BE EXCLUDED WHILE COMPUTING TAX ON A GROSS BASIS. ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 24 5.72. ON THIS ISSUE, THE DECISION IN THE CASE OF CSC TECHNOLOGY SINGAPORE PVT LTD (2012) 19 TAXMANN.COM 123(DEL) AN D ANTWERP DIAMOND BANK NV ENGINEERING CENTRE (2014) 44 TAXMAN N.COM 175(MUM) RELIED ON BY THE ASSESSEE IN THIS REGARD HAS BEEN EXAMINED. IT IS SEEN THAT IN BOTH THESE CASES, THE COST OF SAP LICENSES AND 'FLEXCUBE 1 WERE HELD TO BE IN THE NATURE OF REIMBURSEMENT. IN THE PRESENT CASE, AS ADMITTED BY THE ASSESSEE, THE SOFTWARE FORM A PART OF THE OVERALL SERVICE RENDERED BY THE ASSESSEE AND THE SERVICE COMPONENT IS OVER 80% OF THE TOTAL COST. CLEARLY, THE ABOVE DECISIONS ARE NOT AP PLICABLE IN THE PRESENT CASE. 5.73. IN LIGHT OF THE ABOVE FACTS, THE RECEIPTS OF THE ASSESSEE COMPANY FROM IT SERVICES RENDERED TO THE INDIAN AES IS TREA TED AS FTS LIABLE TO TAX IN INDIA UNDER ARTICLE 12 OF INDIA SWEDEN TREAT Y, THE OBJECTIONS OF THE ASSESSEE ARE DECIDED ACCORDINGLY. 7. THE AR FOR THE ASSESSEE SUBMITTED THAT THE LD. AO, AS WELL AS THE LD. DRP HAVE ERRED IN HOLDING THAT I.T. SERVICE S IS TAXABLE AS FEES FOR TECHNICAL SERVICES UNDER THE INDIA-SWEDEN DTAA, WITHOUT APPRECIATING THE FACT THAT THE ASSESEE HAS PROVIDED SIMPLE BACK OFFICE SUPPORT SERVICES TO ITS INDIAN SUBSIDIARIES, WHICH IS EXCLUSIVE OF ROYALTY AGREEMENT BETWEEN THE PARTIES. THE LD. A R, FURTHER SUBMITTED THAT NO DOUBT, IN EARLIER YEARS, THERE WE RE TWO AGREEMENTS BETWEEN THE PARTIES I.E, ONE FOR TECHNOLOGY COLLABO RATION AND TECHNICAL ASSISTANCE AGREEMENT AND THE OTHER FOR SE RVICE AGREEMENT WITH RESPECT TO VARIOUS MANAGEMENT SERVICES. BUT, F ROM AY 2011-12 ONWARDS, THE AGREEMENTS HAVE BEEN CHANGED, AS PER W HICH THERE IS A SEPARATE AGREEMENT FOR I.T. DELIVERY SERVICES AS PER WHICH THE ASSESEE IS NOT PROVIDING ONLY LICENSE IN SOFTWARE, BUT NOT MAKE AVAILABLE ANY TECHNOLOGY, BECAUSE MOST OF THE SERV ICES ARE RENDERED TO THE AES ARE SOURCED FROM THIRD PARTY V ENDORS AND THEREFORE, IT IS INCORRECT TO SAY THAT THE ASSESSEE IS HAVING INTELLECTUAL PROPERTY RIGHTS, WHICH HAS BEEN PASSED ON TO THE AE S. ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 25 8. THE LD. AR, FURTHER SUBMITTED THAT THE LD. DRP H AS ERRED IN HOLDING THAT THE PROTOCOL GRANTING MOST FAVORED NAT ION(MFN) BENEFIT IS AVAILABLE IN THE INDIA -SWEDEN, DTAA CAN BE GRAN TED ONLY THROUGH GOVERNMENT NOTIFICATION, DISREGARDING THE FACT THAT NO SUCH NOTIFICATIONS REQUIRED, AS PER THE INDIA-SWEDEN DTA A. THE LD. AR, FURTHER SUBMITTED THAT THE LD. DRP HAS ERRED IN CON SIDERING I.T. SERVICES ARE ANCILLARY AND SUBSIDIARY TO THE TECHNO LOGY LICENSE AGREEMENT AND ACCORDINGLY, TAXABLE UNDER ARTICLE 12 (4)(A) OF INDIA- PORTUGUESE REPUBLIC DTAA, WITHOUT CONSIDERING THE R ELEVANT EVIDENCES FILED BY THE ASSESSEE TO PROVE THAT THESE AGREEMENTS ARE INDEPENDENT OF OTHERS AND I.T SERVICE DELIVERY AGRE EMENT IS NOT DEPENDED UPON TECHNOLOGY COLLABORATION AGREEMENT AN D SERVICE MANAGEMENT AGREEMENT. THE LD. AR, FURTHER SUBMITTED THAT AMOUNT RECEIVED FOR RENDERING I.T. SERVICES CANNOT BE CHAR ACTERIZED AS FTS, SINCE SUCH SERVICES DO NOT MAKE AVAILABLE TECHNICAL , KNOWLEDGE, EXPERIENCE SKILL ETC. THE LD. AR HAS REFERRED VARIO US CLAUSES IN THE INDIA-SWEDEN TAX TREATY, THE INDIA-US TAX TREATY A ND THE INDIA- PORTUGUESE REPUBLIC TAX TREATY TO ARGUE THAT IN C ASE, THE PROTOCOL PROVIDES FOR MFN IN THE TREATY, THEN IN SUCH SITUAT ION, INDIA LIMITS ITS TAXATION OF FTS TO A LOWER RATE OR A RESTRICTED SCO PE, THEN SUCH LOWER RATE ARE RESTRICTED SCOPE WOULD ALSO, APPLIED TO THE INDIA- SWEDEN TAX TREATY, WHETHER OR NOT SUCH TAX TREATY H AS BEEN ENTERED INTO BEFORE OR AFTER THE INDIA SWEDEN TAX TREATY W AS ENTERED INTO. THE LD. AR FURTHER REFERRING TO ARTICLE 12(4)(B) OF THE INDIA-U.S DTAA AND THE MOU SIGNED BETWEEN THE COUNTIES SUBMITTED T HAT SERVICES PROVIDED BY THE ASSESEE ARE I.T. SUPPORT SERVICES I N THE NATURE OF HELP DESK, ADMINISTRATIVE AND MAINTENANCE. THESE SE RVICES ARE PROVIDED THROUGH THIRD PARTY VENDORS, AS THE ASSESE E ITSELF IS NOT TECHNICALLY COMPETENT TO PROVIDE THE SAME. THE SERV ICES PROVIDED BY ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 26 THE ASSESSEE DO NOT IMPART ANY TECHNICAL KNOWHOW. S KILL, PROCESS OR TECHNICAL PLAN OR DESIGN TO THE EMPLOYEES OF SKF IN DIA AND SKF TECHNOLOGIES. FURTHER, THERE IS A DIFFERENCE BETWEE N RENDERING OF SERVICES AND TO MAKE AVAILABLE THE SERVICE. MERELY BECAUSE PROVISION OF SERVICES REQUIRES TECHNICAL INPUT, IT CANNOT BE SAID THAT TECHNICAL KNOWLEDGE, SKILLS, KNOWHOW IS BEING MADE AVAILABLE IN PROVIDING THE SERVICES. THE LD. AR FOR THE ASSESSEE HAS EXPLAINED THE DIFFERENCE BETWEEN EARLIER TWO AGREEMENTS BETWE EN, THE ASSESEE AND TWO INDIAN SUBSIDIARIES AND PRESENT THR EE AGREEMENTS BETWEEN THE ASSESSEE AND INDIAN SUBSIDIARIES AND AR GUED THAT THERE IS A DIFFERENCE BETWEEN THE AGREEMENTS ENTERED INTO FOR EARLIER YEARS AND THE PRESENT AGREEMENT AND THEREFORE, THE LD. AO IS INCORRECT IN REFERRING TO EARLIER AGREEMENTS TO COME TO THE CONC LUSION THAT THERE IS NO DIFFERENCE BETWEEN THE SCOPE OF SERVICE PROV IDED TO AES AS PER EARLIER AGREEMENTS AND PRESENT AGREEMENTS. IN T HIS REGARD, HE RELIED UPON THE FOLLOWING JUDICIAL PRECEDENTS. SR.NO. PARTICULARS CITATIONS 1 ITO V. M/S. M.S.K.TRAVELS & TOURS LTD. ITA NO.284 OF 2015 (KOL TRIB) 2 DCIT V. FORT INDIA LTD. (2017) 56 ITR (T) 433 (CHEN TRIB) 3 APOLLO TYRES LTD V. CIT (2018) 92 TAXMANN.COM 166 (KAR HC) 4 STERIA (INDIA) LTD. V. CIT (2016) 386 ITR 390 (DEL HC) 5 SHELL GLOBAL SOLUTIONS INTERNATIONAL BV. ITO (2016) 157 ITD 24(AHD TRIB) 6 DCIT V. SUN PHARMACEUTICALS LABORATORIES LTD. (2018) 96 TAXMANN.COM 105 (AHD TRIB.) 7 TORRENT PHARMACEUTICALS LTD. V. ITO ITA NO.451 & 624 OF 2012 (AHD TRIB) ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 27 8 DCIT V. GUPTA OVERSEAS (2014) 30 ITR (T) 738 (AGRA TRIB). BENEFICIAL PROVISIONS OF A DTAA CAN BE IMPORTED INT O ANOTHER DTAA WHERE THE PROTOCOL TO SUCH OTHER DTAA CONTAINS THE MOST FAVORED NATION CLAUSE SR.NO. PARTICULARS CITATION 9 SANDVIK AB. DDIT (2015) 67 SOT 297 (PUNE) 10 SANDVIK AB V. DDIT (2015) 70 SOT 551 (PUNE) 11 ACIT V. D.A. JHAVERI (2017) 183 TTJ 447 (MUM) 12 ITO V. CADILA HEALTHCARE LTD. ITA NO.2765 OF 2013 (AHD TRIB.) 13 XYZ, IN RE (2012) 348 ITR 31 (AAR) 14 IDEA CELLULAR LTD, IN RE (2012) 343 ITR 381 (AAR) 15 POONAWALLA AVIATION (P) LTD, IN RE (2012) 343 ITR 202 (AAR) 16 LANKA HYDRAULIC INSTITUTE LTD, IN RE ( 2011) 337 ITR 47 (AAR) RENDERING OF IT SERVICES (ON RECURRING BASIS) DO N OT MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE, SKILL, ETC. AS R EQUIRED UNDER THE DTAA AND THUS THE SAME DOES NOT AMOUNT TO FTS/FIS. FAVOUR:- SR.NO. PARTICULARS CITAITON 1. SANDVIK AUSTRALIA (2013) 141 ITD 598 (PUNE) 2 SOREGAM SA V. DDIT (2019) 101 TAXMANN.COM 94 (DEL TRIB) 3 SEAL FOR LIFE INDIA V. DCIT (2018) 173 ITD 229 (AHD TRIB) 4 BHARAT AXA GENERAL INSURANCE CO.LTD., IN RE (2010) 326 ITR 477 (AAR) 5 EXXON MOBIL COMPANY INDIA(P) LTD. V. ACIT (2018) 65 ITR(T) 583 (MUM TRIB) 6 OUTOTEC OYJ V. DDIT (2017) 183 TTJ 289 (KOL TRIB) 9. THE LD. DR, ON THE OTHER HAND, STRONGLY SUPPORTI NG ORDER OF THE LD. AO, AS WELL AS THE LD. DRP SUBMITTED THAT IF YO U GO THROUGH AGREEMENTS BETWEEN THE PARTIES, IT IS ABSOLUTELY CL EAR FROM CLAUSES ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 28 OF AGREEMENT THAT THOSE AGREEMENTS ARE COMPOSITE AG REEMENTS FOR DEVELOPING AND MAINTAINING AND WHICH ARE INSUFFERAB LE. THEREFORE, IT IS INCORRECT ON THE PART OF ASSESSEE TO SEGREGATE I T RELATED SERVICES FROM ROYALTY AGREEMENT TO MAKE IT NOT TAXABLE, AS P ER THE DEFINITION OF ROYALTY UNDER THE INDIA-SWEDEN TAX TREATY. THE LD. DR, FURTHER SUBMITTED THAT IT IS AN ADMITTED FACT THAT THE ASSE SSEE ITSELF HAD OFFERED TO TAX GROSS RECEIPTS FROM TWO ARGUMENTS IN EARLIER YEARS. BUT, SUBSEQUENTLY CHANGED ITS STANDS AND FILED REVI SED RETURN ON THE BASIS OF DECISION OF THE TRIBUNAL WITHOUT BRINGING ON RECORD AND EVIDENCES TO PROVE THAT HOW CHARACTERS OF INCOME RE CEIVED FROM THE SUBSIDIARIES BY WAY OF THOSE AGREEMENTS IS SUDDENLY CHANGED TO BE NOT TAXABLE AS ROYALTY WITHIN THE MEANING OF DEFINI TION OF ROYALTY AS PROVIDED IN UNDER THE I.T.ACT, 1961 AND THE DEFINIT ION AS PROVIDED UNDER THE INDIA-SWEDEN TAX TREATY. THE LD. DR, FURT HER HEAVILY RELIED UPON THE ORDERS OF THE LD. DRP AND ARGUED THAT SERV ICES REFERRED BY THE ASSESSEE ON THE BASIS OF I.T. SERVICES DELIVER Y AGREEMENT ARE ANCILLARY AND SUBSIDIARY SUPPORT SERVICE, WHICH ARE INEXTRICABLY LINKED WITH MAIN FRAME AGREEMENT OVER PROVIDING ROYALTY SE RVICES AND HENCE, THE LD. AO, AS WELL AS THE LD. DRP WERE RIGH T IN UPHOLDING THAT THE I.T. SERVICE DELIVERY IS IN THE NATURE OF FTS AS PER THE DEFINITION FTS UNDER THE I.T. ACT, 1961 AND THE DE FINITION OF FTS AS PER THE INDIA-SWEDEN TAX TREATY. 10. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW, ALONG WITH CASE LAWS CITED BY THE LD. AR FOR THE ASSESEE. THE FACTUAL MATRIX OF THE IMPUGNED DISPUTE IS THAT THE ASSESSEE COMPANY HAD ENTERED INTO TWO AGREEMENTS FOR PROVIDING TECHNOLOG Y COLLABORATION AND TECHNICAL ASSISTANCE AND SERVICE AGREEMENT WITH RESPECT TO ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 29 VARIOUS MANAGEMENT SERVICES AND SUCH AGREEMENTS ARE IN FORCE TILL AY 2010-11. THEREAFTER, THE ASSESSEE HAS BROKEN DOW N TWO AGREEMENTS INTO THREE ARGUMENTS, I.E. THE TRADEMARK LICENSE AGREEMENT, THE TECHNOLOGY LICENSE AGREEMENT AND I.T . SERVICES DELIVERY AGREEMENT. THE ASSESEE HAS CHARGED ROYALTY AND TRADEMARK FEES AS PER TECHNOLOGY COLLABORATION AND TECHNICAL ASSISTANCE AGREEMENT AND COLLECTED FEES FOR IT RELA TED SERVICES, TRAINING AND SUPPORT SERVICES, AS PER SERVICE AGREE MENT FOR VARIOUS MANAGEMENT SERVICES. THE ASSESSEE HAS OFFERED TOTAL RECEIPTS FROM BOTH AGREEMENTS UNDER THE HEAD ROYALTY, AS PER THE INDIA-SWEDEN DTAA. HOWEVER, SUBSEQUENTLY THE ASSESSEE HAS REVISE D ITS RETURN OF INCOME AND REDUCED FEES RECEIVED FROM TWO SUBSIDIAR IES, IN RESPECT OF IT RELATED SERVICES, ON THE GROUND THAT IT IS NO T IN THE NATURE OF ROYALTY, AS DEFINED UNDER THE INDIA-SWEDEN TAX TREA TY AND HENCE, NOT LIABLE TO TAX IN INDIA, FOR WHICH IT HAS TAKEN SUPP ORT FROM CERTAIN JUDICIAL PRECEDENTS, INCLUDING THE DECISION OF ITAT , PUNE BENCH, IN THE CASE OF SANDVIK AUSTRALIA VS DDIT (SUPRA), IN L IGHT OF MFN CLAUSE IN THE INDIA-SWEDEN TAX TREATY. THEREFORE, THE ISSU E TO BE DECIDED RELATES TO CHANGE IN THE AGREEMENT BETWEEN THE ASSE SSEE AND INDIAN COMPANIES, WHO ARE MANUFACTURERS OF BEARINGS . 11. ADMITTEDLY, THE ASSESSEE IS IN AREA, WHERE RESE ARCH AND DEVELOPMENT IS A REGULAR PROCESS AND THE RESULTS OF SUCH RESEARCH, WITH REFERENCE TO THE PRODUCTS, FOR WHICH AGREEMENT S HAVE BEEN ENTERED ARE PASSED ON TO THE LICENSED ENTITIES WITH OUT ANY DELAY. AS ADMITTED, IN EARLIER YEAR, THE ASSESSEE HAD ONLY TW O AGREEMENTS WITH AES, I.E. ONE RELATED TO TECHNOLOGY COLLABORATION AND TECHNICAL ASSISTANCE AGREEMENT OR THE ROYALTY AGREEMENT AND A NOTHER RELATED TO THE SERVICE AGREEMENT WITH RESPECT TO VARIOUS MA NAGEMENT ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 30 SERVICES. FROM THE COMBINED READING OF AGREEMENTS B ETWEEN THE PARTIES, IT IS CLEAR THAT THE TECHNOLOGY AND UP-GRA DATION WAS TO BE TRANSMITTED THROUGH IT INFRASTRUCTURE. THEREFORE, F OR THIS PURPOSE, THE ASSESSE HAD AN ELABORATE COMPUTER NETWORK SETUP FOR THE GROUP THROUGH WHICH, THE TECHNICAL INFORMATION WAS BEING TRANSMITTED. THE ASSESEE HAD ALSO FURNISHED COPIES OF AGREEMENTS BET WEEN THE PARTIES. AS PER THE AGREEMENT BETWEEN THE PARTIES, CLAUSE 3 (II) REFERS TO ENGAGEMENT OF LICENSOR AND LICENSEE. AS P ER THE SAID CLAUSE, THE LICENSOR SHALL WITHOUT DELAY DISCLOSE A ND MAKE AVAILABLE TO LICENSEE ANY MODIFICATION OR IMPROVEMENT OF THE TECHNOLOGY INTANGIBLES DEVELOPED BY THE LICENSOR OR ITS EMPLOY EES, WHETHER OR NOT PATENTED AND WHETHER OR NOT SAID MODIFICATION O R IMPROVEMENT IS SUBSTANTIAL. SUCH IMPROVEMENTS OR MODIFICATIONS SHA LL BE INCLUDED UNDER THE SCOPE OF THIS AGREEMENT AND SHALL BECOME PART OF THE TECHNOLOGY INTANGIBLE, AS DEFINED WITHOUT AN INCREA SE IN LICENSE FEE. FURTHER, THE SAID CLAUSE ALSO SPECIFIED THAT LICENS EE SHALL MANUFACTURE THE PRODUCTS AND OPERATE ITS BUSINESS I N ACCORDANCE WITH THE TECHNOLOGY INTANGIBLES, SPECIFICATIONS, IN STRUCTIONS AND TECHNOLOGY PROVIDED BY THE LICENSOR AND WAS ALSO PR OVIDED TO LICENSED AGREEMENT INDICATING LICENSED TECHNOLOGY I NTANGIBLES, AS PER WHICH INTANGIBLES PROVIDED BY LICENSOR UNDER TH IS AGREEMENT TO LICENSEE, INCLUDING, BUT OR NOT LIMITED TO PATENTED , DESIGNS, SPECIFICATIONS AND KNOWHOW. 12. WE HAVE CAREFULLY GONE THROUGH IT DELIVERY SERV ICE AGREEMENT AND ITS CLAUSES. THE TWO AGREEMENTS READ TOGETHER I NDICATE THAT THE ROYALTY AGREEMENT AND THE IT SUPPORT AGREEMENT ARE MEANT TO FUNCTION TOGETHER AND THE ROYALTY AGREEMENT CANNOT BE EFFECTIVELY IMPLEMENTED, UNLESS IT IS INTEGRATED WITH THE IT SU PPORT AGREEMENT. IT ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 31 IS ALSO NOT IN DISPUTE THAT THERE HAS BEEN NO GROUN D LEVEL CHANGE IN THE NATURE OF SERVICES, WHICH IS BEING RENDERED BY THE AE OR THE SET UP, WHICH HAS BEEN USED FOR RENDERING SUCH SERVICES , AFTER CHANGE IN AGREEMENTS EFFECTIVE FROM AY 2011-12. FURTHER, IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE IS REQUIRED TO CONTINUOUS LY UPGRADE THE TECHNOLOGY IN THE AREA OF MANUFACTURING WITH RESPEC T TO PRODUCT UNDER LICENSE. THE ASSESSEE HAS HARDLY ANY SIGNIFIC ANT R&D SETUP WITH RESPECT TO THE CUTTING-EDGE TECHNOLOGY IN THIS AREA. THE ASSESSEE HAS ALSO NOT PROVIDED THE DETAILS OF MECHA NISM THROUGH, WHICH VARIOUS TECHNOLOGY TRANSFERS TAKE PLACE AND T HE MECHANISM THROUGH, WHICH THE EMPLOYEES OF THE ASSESSEE COMPAN Y ARE EDUCATED OR MADE AWARE OF SUCH CHANGES. THE ASSESSE E HAS NOT PROVIDED THE DETAILS OF MODE IN WHICH, THE CONTINUO US UPGRADES TO VARIOUS MODELS REFERRED TO IN THE ROYALTY AGREEMENT ARE COMMUNICATED TO THE MANUFACTURING ENTITIES, WHICH H AVE PAID ROYALTY AND ARE ENTITLED TO CONTINUOUS IMPROVEMENT WITH RE SPECT TO SUCH PRODUCTS. 13. WE, FURTHER NOTED THAT THE ENTIRE IT SETUP MAIN TAINED BY THE AE, WHOSE DETAILS HAVE BEEN REFERRED IN AGREEMENT B ETWEEN THE PARTIES, AS DIRECTED TOWARDS RENDERING THE SERVICES , WHICH ARE TAILORED MADE TOWARDS EFFECTIVE TRANSMISSION OF INF ORMATION, AS WELL AS ASSISTANCE IN TECHNOLOGICAL AREAS WHICH ARE INCL UDED IN THE ROYALTY AGREEMENT. WE, FURTHER NOTED THAT IN EARLIE R PERIOD THE WHOLE PROCESS WAS UNDER AN INTEGRATED AGREEMENT, BUT NOW FROM AY 2011- 12 ONWARDS, THE ASSESSEE HAS BIFURCATED THE AGREEME NTS INTO SEPARATE IT SERVICES AGREEMENT, SO THAT IT CAN BE TAKEN OUT OF THE AMBIT OF DEFINITION OF ROYALTY WHICH IS EVIDENT FRO M THE FACT THAT IT IS AN ACKNOWLEDGED FACT THAT GROUP ENTITIES ARE ABLE T O ENTER INTO ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 32 CONTRACTS, WHICH MAY NOT REFLECT THE TRUE INTENT OF THE OPERATIONS AND HENCE, IN SUCH SITUATIONS, IT IS NECESSARY TO EXAMI NE THE SUBSTANCE OF SUCH TRANSACTIONS. THEREFORE, IN OUR CONSIDERED VIEW THE ASSESSEE HAS FAILED TO DEMONSTRATE THAT THERE HAS BEEN ANY F UNCTIONAL CHANGE WITH RESPECT TO SERVICES OFFERED BY THE ASSESSEE T O ITS AE OR THE INTEGRAL NATURE OF ROYALTY TO THE IT INFRASTRUCTURE SET UP BY THE ASSESSEE TO RENDER THESE SERVICES, SUBSEQUENT TO CH ANGE IN AGREEMENTS. FURTHER, NO EVIDENCE HAS BEEN FURNISHED , WHICH PROVES THAT THE IT SERVICES PROVIDED BY THE ASSESSEE ARE N OW REORGANIZED AFRESH AND TOTALLY DELINKED WITH THE RENDERING OF S ERVICES IN CONNECTION WITH THE ROYALTY AGREEMENT. 14. THE ASSESEE HAS ALSO TAKEN ANOTHER ARGUMENT, IN LIGHT OF THE FACT THAT THE EXTENT OF SOFTWARE UTILIZED IN IT REL ATED SERVICES IS MUCH SMALLER THAN THE EXTENT OF SERVICES RENDERED AND HE NCE, THE EXTENT OF SOFTWARE FORMS A SMALL PORTION OF THE OVERALL QUANT UM OF SERVICES AND ACCORDINGLY, IT CANNOT BE CONSIDERED THAT IT IS PART OF INTEGRATED SERVICES. WE FIND THAT THE SERVICES RENDERED IN THE IT SEGMENT OR THE SERVICES CONNECTED WITH TRAINING ARE INTEGRALLY LIN KED WITH THE ROYALTY AGREEMENT ENTERED INTO BY THE ASSESSEE WITH ITS AE AND BOTH CANNOT BE SEPARATED FROM EACH OTHER. THE ASSESSEE HAS ALSO OBJECTED THE LD. AO REFERENCE TO EARLIER AGREEMENTS ON THE GROUN D THAT THESE AGREEMENTS ARE NO LONGER IN OPERATION AND HENCE, TH E AGREEMENTS RELEVANT TO THE PERIOD SHOULD HAVE BEEN CONSIDERED TO ARRIVE AT CONCLUSION THAT THE IT SERVICE DELIVERY AGREEMENT I S INEXTRICABLY LINKED WITH ROYALTY AGREEMENT. THE CONTENTION OF TH E ASSESSE IS NOT FOUND TENABLE, IN LIGHT OF THE FACT THAT THE ASSESS EE HAS NOT BROUGHT ON RECORD ANY EVIDENCES TO PROVE THAT THERE WAS ANY SIGNIFICANT CHANGE IN THE OPERATIONAL SET UP IN THE NEW AGREEME NT. FURTHER, ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 33 WHEN, THE SUBSTANCE OF TRANSACTIONS HAS REMAINED TH E SAME, THE LD. AO IS CORRECT IN REFERENCE TO EARLIER AGREEMENTS, W HILE ARRIVED AT A CONCLUSION THAT THERE IS NO CHANGE IN TOTAL SERVICE S RENDERED BY THE ASSESSEE TO ITS AE, EVEN THOUGH, THE IT SERVICES DE LIVERY AGREEMENT HAS BEEN SEPARATED FROM AY 2011-12 ONWARDS. WE, THE REFORE, ARE OF THE VIEW THAT THE NATURE OF SERVICES RENDERED BY TH E ASSESEE ARE CONSIDERED, IN LIGHT OF SCOPE OF SERVICES MENTIONED IN AGREEMENT BETWEEN THE PARTIES, THE SERVICE RENDERED BY THE AS SESSEE ARE FTS AS PER THE PROVISION OF SECTION 9(1)(VII) OF THE I. T.ACT, 1961, AS WELL AS PER THE DEFINITION OF FTS AS PER THE INDIA-SWEDE N TREATY AND HENCE, LIABLE TO BE TAXED IN INDIA. 15. COMING TO ANOTHER ARGUMENT OF THE ASSESEE, IN L IGHT OF PROTOCOL PROVIDED IN THE INDIA-SWEDEN TAX TREATY, WHICH OFFE RS A MFN BENEFIT TO TAX RESIDENTS OF SWEDEN AND IN THIS REGARD HAS R ELIED UPON THE DEFINITION OF FTS IN THE INDIA-PORTUGAL TAX TREATY. IN THIS REGARD, THE AR HAS RELIED UPON VARIOUS JUDICIAL PRECEDENTS, INC LUDING THE DECISION OF ITAT, KOLKATA BENCH K, IN THE CASE O F ITO VS MSK TRAVELS AND TOURS LTD. IN ITA NO. 284/MUM/2015. WE FIND THAT THERE IS NO DOUBT OF WHATSOEVER WITH REGARD TO THE APPLIC ABILITY OF THE BENEFIT OF MFN STATUS, IF THE OTHER COUNTRY, WHERE THE INDIA IS HAVING DTAA IS A MEMBER OF OECD, THEN EVEN IF THERE IS NO SEPARATE NOTIFICATION FROM THE GOVERNMENT, THE BENEFIT OF MF N HAS TO BE GIVEN TO THE ASSESSEE TO EXAMINE SERVICES RENDERED, IN LI GHT OF THE DEFINITION OF FTS AS PROVIDED IN DTAA BETWEEN INDIA AND OTHER COUNTRIES. HOWEVER, THE FACT REMAINS THAT SINCE, WE HAVE ALREADY HOLD THAT SERVICES RENDERED BY THE ASSESSEE, IN LIG HT OF SCOPE OF SERVICES OFFERED BY THE ASSESSEE TO ITS AE AS REFER RED TO IN IT SERVICE DELIVERY AGREEMENT, ARE IN THE NATURE OF FTS, AS PE R THE INDIA- ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 34 SWEDEN TAX TREATY, AS WELL AS THE DEFINITION OF FTS , AS PROVIDED IN SECTION 9(1)(VII) OF THE I.T.ACT, 1961, APPLICABIL ITY OF DEFINITION OF FTS AS PROVIDED IN THE INDIA-PORTUGAL TAX TREATY HAS TO BE EXAMINED IN LIGHT OF NATURE OF SERVICE RENDERED BY THE ASSESSEE TO ITS AE. AS PER THE INDIA-PORTUGAL TREATY AND THE INDIA USA TREATY , ARTICLE 12, THE DEFINITION OF ROYALTY AND FEES FOR INCLUDED SERVICE HAS TWO LIMBS. THE FIRST LIMB SPEAKS ABOUT ANCILLARY AND SUBSIDIARY SE RVICES AND THE SECOND LIMB SPEAKS ABOUT MAKE AVAILABLE CLAUSE. IF, THE ASSESSEE NEEDS TO APPLY SECOND LIMB, THEN IT HAS TO FIRST EX HAUST FIRST LIMB. FURTHER, IF YOU GO THROUGH THE DEFINITION AS PER AR TICLE 12, PRIMA-FACIE IT APPEARS THAT AS PER ARTICLE 12(4)(B) OF THE TREA TY BETWEEN THE INDIA-PORTUGAL AND INDIA-US, IF SERVICE RENDERED AR E ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE R IGHT, PROPERTY OR INFORMATION, FOR WHICH A PAYMENT DESCRIBED IN PARAG RAPH 3 IS RECEIVED OR MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXP ERIENCE, SKILL, KNOWHOW OR PROCESS OR CONSIST OF THE DEVELOPMENT AN D TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN, WHICH ENABLES T HE PERSON ACQUIRING THE SERVICES TO APPLY THE TECHNOLOGY CONT END THEREIN, THEN IT COMES UNDER THE DEFINITION OF FEES FOR INCLUDED SERVICES, WHICH IS AKIN TO THE DEFINITION OF ROYALTY AS PROVIDED IN SE CTION 9(1)(VII) OF THE I.T.ACT, 1961 AND THE DEFINITION OF ROYALTY AS PROV IDED IN THE INDIA- SWEDEN TAX TREATY. 16. IN THIS CASE, IT IS NOTICED THAT THE I.T SERVIC ES RENDERED BY THE ASSESSEE ARE SUBSERVIENT TO THE ROYALTY AGREEMENT A ND ARE ANCILLARY AND SUBSIDIARY TO THE MAIN FRAME ROYALTY AGREEMENT ENTERED INTO BY BOTH THE PARTIES. SINCE, THE ASSESSEE HAS ALREADY A ROYALTY AGREEMENT WITH AES UNDER WHICH IT TRANSFERS ITS KN OWLEDGE IN RELATION WITH THE PRODUCTS COVERED UNDER THE ROYALT Y AGREEMENT, THE ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 35 IT SETUP IS CLEARLY MEANT FOR ACHIEVING THE OBJECTI VE AND HAS TO BE TREATED ALONG WITH ROYALTY AGREEMENT. FURTHER, WHEN THE SERVICES RENDERED BY THE ASSESSEE UNDER AGREEMENT ARE COMES UNDER FIRST LIMB OF FTS, THEN THE ASSESEE IS NOT CORRECT IN MOV ING TO THE SECOND LIMB OF FTS, AS PER THE ABOVE DEFINITION TO ARGUE T HAT THE SERVICES DO NOT MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE, SKILL, PROCESS ETC. THE SERVICES RENDERED BY THE ASSESSEE WOULD DEFINITELY FALL IN THE FIRST LIMB, AS THEY ARE INTEGRALLY CONNECTED WITH THE ROY ALTY AGREEMENT AND HENCE, WOULD BE TREATED AS FEE FOR TECHNICAL SERVIC ES, AS CONTEMPLATED UNDER ARTICLE 12(4)(A) OF THE TAX TREA TY BETWEEN INDIA- PORTUGAL AS WELL AS THE INDIA-US AND ACCORDINGLY, E VEN IF THE ASSESSEE GETS THE BENEFIT OF MFN, AS PROVIDED IN PR OTOCOL OF THE INDIA- SWEDEN TAX TREATY, THE ASSESSEE DOES NOT GET ANY BENEFIT, BECAUSE SERVICES RENDERED BY THE ASSESSEE ARE IN TH E NATURE OF FEES FOR TECHNICAL SERVICES, WHICH ARE LIABLE TO BE TAXE D IN INDIA. 17. INSOFAR AS, THE LAST BUT NOT LEAST ARGUMENT OF THE ASSESSEE, IN LIGHT OF 80% OF THE AMOUNT REPRESENTS THIRD PARTY C OST OF SERVICES RENDERED, WE FIND THAT SAID SUBMISSION DOES NOT ALT ER THE FACT THAT THE NATURE OF SERVICES IS FTS, BECAUSE, IN ANY SERV ICES A MAJOR PORTION OF THE SERVICES WOULD REPRESENT COST OF SER VICES, WHICH MAY BE INCURRED BY THE SAME PARTY OR THROUGH A THIRD PA RTY. IN OUR CONSIDER VIEW, THE COST FACTOR IS NOT RELEVANT TO D ISCUSS INDIVIDUAL NATURE OF SERVICE RENDERED OR INDIVIDUAL NATURE OF SOFTWARE UTILIZED, WHILE RENDERING SUCH SERVICES. THE NATURE OF SERVIC ES HAS TO BE DECIDED AS A WHOLE AND NOT INDIVIDUALLY. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO MERIT IN THE ARGUM ENTS OF THE ASSESSEE THAT SERVICES RENDERED, IN LIGHT OF IT SER VICE DELIVERY AGREEMENT IS A SEPARATE AND DISTINCT AGREEMENT FROM MAIN ROYALTY ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 36 AGREEMENT AND ACCORDINGLY, IT IS NOT COMES UNDER TH E DEFINITION OF FTS, AS PROVIDED UNDER THE PROVISION OF SECTION 9(1 )(VII) OF THE I.T.ACT, 1961 OR UNDER THE INDIA-SWEDEN TAX TREATY. THE LD.DRP AFTER CONSIDERING RELEVANT FACTS AND ALSO BY CONSID ERING CERTAIN JUDICIAL PRECEDENTS HAS RIGHTLY ARRIVED AT A CONCLU SION THAT SERVICES RENDERED BY THE ASSESSE THROUGH IT SERVICE DELIVERY AGREEMENT IS PART AND PARCEL OF MAIN AGREEMENT OF TECHNOLOGY LIC ENSE AND TRADEMARK, WHICH CANNOT BE SEPARATED AND ACCORDINGL Y, FEES RECEIVED FOR IT RELATED SERVICES IS LIABLE TO BE TA XED AS FTS, AS PER THE DEFINITION OF FTS, AS PROVIDED UNDER SECTION 9( 1)(VII), AS WELL AS PROVIDED UNDER THE INDIA-SWEDEN TAX TREATY. HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE LD. DRP AND REJECT GR OUNDS TAKEN BY THE ASSESEE. 18. INSOFAR AS, VARIOUS CASE LAWS RELIED UPON BY TH E ASSESSEE, IN LIGHT OF PROTOCOL PROVIDED IN DTAA BETWEEN THE INDI A-SWEDEN TAX TREATY, WE ARE OF THE CONSIDERED VIEW THAT ALTHOUGH , THE ASSESEE IS ENTITLED FOR MFN BENEFIT, AS PER THE PROTOCOL, BUT, FACT REMAINS THAT SERVICES RENDERED BY THE ASSESSEE, IN LIGHT OF IT S ERVICES DELIVERY AGREEMENT IS IN THE NATURE OF FTS EVEN UNDER THE IN DIA-PORTUGAL TAX TREATY, AS WELL AS INDIA-U.S.A. TAX TREATY, THE CAS E LAWS RELIED UPON BY THE ASSESEE ARE CONSIDERED TO BE NOT RELEVANT T O DECIDE THE ISSUE IN HAND AND ACCORDINGLY, REJECTED. 19. IN THE RESULT, APPEAL FILED BY THE ASSESSEE FOR AY 2013-14 IS DISMISSED. ITA NO.7366/MUM/2018:- ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 37 20. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL:- 1. GROUND NO.I- TAXABILITY OF IT SERVICES AS FEES FOR TECHNICAL SERVICES 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED DCLT AND DISPUTE RESOLUTION PANEL (HEREINAF TER REFERRED AS DRPJ HAVE ERRED IN HOLDING THAT THE IT SERVICES IS TAXABLE AS FEES FOR TECHNICAL SERVICE (FTS) UNDER INDIA - SWEDEN DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA). 1.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, LAW, THE LEARNED DCIT AND THE LEARNED DRP HAS ERRED IN HOL DING THAT THE PROTOCOL GRANTING MOST FAVORED NATION BENEFIT AVAIL ABLE IN INDIA - SWEDEN DTAA CAN HE GRANTED ONLY THROUGH GOVERNMENT NOTIFICATION DISREGARDING THE FACT THAT NO SUCH NOTIFICATION IS REQUIRED AS PER INDIA - SWEDEN DTAA. 1.3 ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED DCLT AND THE LEARNED DRP HAS ERRED IN CONSIDERING T HAT THE IT SERVICES ARE ANCILLARY ARID SUBSIDIARY LO THE TECHNOLOGY LIC ENSE AGREEMENT AND ACCORDINGLY TAXABLE UNDER ARTICLE 12(4}(A) OF INDIA - PORTUGUESE REPUBLIC DTAA. 1.4 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED DRP HAS ERRED IN HOLDING THAT THE MEMORANDUM OF UND ERSTANDING TO THE INDIA - USA DTAA EXPLAINING THE TERM 'ANCILLARY AND SUBSIDIARY' CANNOT BE IMPORTED FOR THE PURPOSE OF INTERPRETING THE INDIA - SWEDEN DTAA READ WITH THE INDIA - PORTUGUESE REPUBLIC DTAA , NOTWITHSTANDING THE FACT THAT BOTH THE DTAA'S ARE I DENTICAL IV WORDED, 1.5 ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE APPELLANT CONTENDS THAT AMOUNT RECEIVED FOR RENDERING IT SERV ICES CANNOT BE CHARACTERIZED AS FTS SINCE SUCH SERVICES DO NOT MAK E AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, ETC. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, OR WITHDRAW ANY OF THE ABOVE STATED GROUND OF APPEAL AT ANY TIME. 21. THE FACTS AND ISSUES INVOLVED IN THIS APPEAL AR E IDENTICAL TO THE FACTS AND ISSUES, WHICH WE HAD ALREADY CONSIDERED I N ITA NO.7361/MUM/2017 FOR AY 2013-14. THE REASONS GIVEN BY US IN PRECEDING PARAGRAPH IN ITA NO.7361/MUM/2017 SHALL M UTATIS MUTANDIS APPLY TO THIS APPEAL AS WELL. THEREFORE, F OR DETAILED ITA NOS.7361/MUM/2017 & 7366/MUM/2018 AKTIEBOLAGET SKF 38 REASONS GIVEN IN ITA NO.7361/MUM/2017, WE DISMISS A PPEAL FILED BY THE ASSESSEE FOR AY 2014-15. 22. AS A RESULT, BOTH APPEALS FILED BY THE ASSESSE E ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10/01/ 2020 SD/- (C.N.PRASAD) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 10/01/2020 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//