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

MA 75/MUM/2022

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1160 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 19 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 10-10-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 14-07-2022
• Assessment Year: 2013-2014
• Appeal Filed On: 21-03-2022
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Double taxation relief
• Section: 260A; 254(2); 13; 22

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL "K" BENCH, MUMBAI SHRI M. BALAGANESH, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER MA No. 75/MUM/2022 (Arising out of ITA No. 7361/Mum/2017) (Assessment Year: 2013-14) & MA No. 76/MUM/2022 (Arising out of ITA No. 7366/Mum/2018) (Assessment Year: 2014-15) Aktiebolaget SKF, C/o SKF India Limited, MGM Building, Netaji Subhash Road, Charni Road, Mumbai - 400002 [PAN: [ACCA5944J] DCIT (International Taxation)-1(1)(1) 1 st Floor, Room No. 119, Scindia House, Mumbai - 400038 .................. Vs ................ Applicant Respondent Appearances For the Applicant/Assessee For the Respondent/Department : : Shri Sunil Motilal Shri Samuel Pitta Date of conclusion of hearing Date of pronouncement of order : : 15.07.2022 11.10.2022 O R D E R Per Rahul Chaudhary, Judicial Member: 1. The present Miscellaneous Applications have been filed under Section 254(2) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟) seeking rectification of the common order, dated 10.01.2020 (hereinafter referred to as „the Order‟), passed by the Tribunal disposing off the appeals for the Assessment Years 2013-14 and 2014-15. The appeals for the Assessment Years 2013-14 and MA No. 75 & 76/Mum/2022 Assessment Years: 2013-14 & 2014-15 2 2014-15 were heard by the Tribunal on 06.08.2019. Thereafter, the appeals were listed for clarification on 22.11.2019. The Order was passed by the Tribunal on 10.01.2020 and was received by the Assessee on 16.03.2020. The Assessee filed the present applications electronically on 20.07.2020 during COVID-19 Pandemic lockdown period and thereafter, furnished physical copy of the applications on 23.03.2022. Accordingly, the present applications are treated as having been filed within limitation in view of order dated, 10.01.2022, passed by the Hon‟ble Supreme Court in Suo Motu Writ Petition (C) No. 3 of 2020. MA No. 75/MUM/2022 (arising out of ITA No.7361/MUM/2017) for the Assessment Year 2013-14 2. The Learned Authorised Representative for the Assessee appearing before us submitted that certain mistakes apparent from record had crept into the Order, dated 10.01.2020, passed by the Tribunal and therefore, the Assessee has been constrained filed the present applications. 3. The Ld. Authorised Representative for the Assessee submitted that for the year under consideration the Assessee had entered into IT Service Delivery Agreement with its Associated Enterprises (AEs) in India, namely SKF India Limited and SKF Technologies (India) Private Limited in addition to Technology License Agreement and Trademark License Agreement. The Tribunal had concluded that the services rendered in terms of the IT Service Delivery Agreement were ancillary in subsidiary to the Technology License Agreement and therefore, the receipts for rendering IT services under the IT Service Delivery Agreement were liable to tax in India as Fee For Technical Services in terms of Article 12 of India-Sweden Double Taxation Avoidance Agreement (DTAA) read with the Most Favored Nation MA No. 75 & 76/Mum/2022 Assessment Years: 2013-14 & 2014-15 3 (MFN) Clause contained in the protocol of the said DTAA read with Article 12 of the DTAA between India and Portuguese Republic. He submitted that the aforesaid conclusions were based upon following observations/findings: (a) the Assessee had broken-down/bifurcated 2 agreements into 3 agreements. (b) the combined reading of the agreements between the parties, it was clear that the technology up-gradation was to be transmitted through the IT infrastructure and that the royalty agreement could not be effectively implemented unless it was integrated with the IT support agreement. (c) the fact that 80% of the IT services represented third-party cost (reimbursement), did not alter the fact that the services were in the nature of technical services. 4. Taking us through the application, the Learned Authorised Representative for the Assessee submitted that inadvertently mistakes apparent from record had crept into paragraph 10 to 14, 16 and 17 of the order passed by the Tribunal leading to incorrect conclusion that IT Services Delivery Agreement is ancillary and subsidiary the Technology Collaboration and Technical Assistance Agreement. He made following submission: (a) The Tribunal had inadvertently overlooked the Chart (Actual Position : AB SKF – Chart Showing changes in agreement entered into with India AEs over the years‟ ) relied upon by the Assessee during the course of hearing of the appeal as well the agreement between the Indian AEs [i.e., SKF India Limited/SKF Technologies (India) Private Limited] with SKF Sverige (placed MA No. 75 & 76/Mum/2022 Assessment Years: 2013-14 & 2014-15 4 at page No. 71 to 78 of the paper book), which clearly demonstrates that the finding of the Tribunal that the Assessee had broken down/bifurcated the two agreements i.e. Technology Collaboration and Technical Assistance Agreement and Service Agreement applicable till Assessment Year 2010- 11 into three agreements i.e. Technology License Agreement, Trademark License Agreement and IT Service Delivery Agreement is apparently incorrect and constitutes a mistake apparent from record. (b) The Tribunal had inadvertently overlooked paragraph 7 of the Technology Collaboration and Technical Assistance Agreement (placed at page 83 in the paper book). He submitted that the aforesaid paragraph 7 clearly provided that all the technical improvements in the knowhow and upgradation were to be informed to the AEs by handing over the documents required for realising such improvements/upgradations. Therefore, the finding of the Tribunal that IT Infrastructure was meant for the transmission of the technology/upgradation was apparently incorrect and constituted a mistake apparent from record. (c) The findings of the Tribunal that the receipts from IT services rendered under the IT Service Delivery Agreement would be taxable as Fees for Technical Services, notwithstanding the fact that 80% of the amount received by the Applicant for the IT services represented reimbursement of third party cost, was apparently contrary to the decisions of Hon'ble Supreme Court in DIT v. A.P. Moller Maersk AS [2017] 78 taxmann.com 287 (SC) and the Hon'ble Jurisdictional High Court in case of CIT v. Siemens Aktiongesellschaft [2009] 177 Taxman 81 (Bombay). MA No. 75 & 76/Mum/2022 Assessment Years: 2013-14 & 2014-15 5 (d) The mistake highlighted in paragraph (a) to (c) above constituted mistake apparent from record rectifiable under Section 254(2) of the Act. 5. Per contra, the Ld. Departmental Representative submitted the finding returned and the conclusion arrived at by the Tribunal cannot be considered as a mistake apparent from record. He submitted that the Order passed by the Tribunal is well reasoned order. The Tribunal has taken into consideration all the relevant agreements before returning the findings. The Tribunal has carefully gone through the IT Delivery Service Agreement and examined the substance of the other relevant agreements to finally return findings of fact and conclusions which cannot form subject matter of rectification under section 254(2) of the Act. LDR Ld. Departmental Representative submitted that the assessee is, in effect, seeking review of the entire order passed by the Tribunal. The Tribunal has confirmed the order passed by the Assessing Officer by concluding that the Assessee had broken down the agreements with the object of excluding consideration for IT services from being taxed in India. In this regard, he relied upon paragraph 20 to 22 of the Draft Assessment Order, dated 29.12.2016. He further submitted that contention of the Tribunal had inadvertently overlooked the Chart/agreement is without any basis. 6. We have considered the rival submission, perused the material on record and considered the legal position. 7. It was contended on behalf of the Assessee that the Tribunal committed mistake apparent on record by concluding that the Assessee had broken down or split the agreements. We have perused the order, dated 10.01.2020, passed by the Tribunal sought MA No. 75 & 76/Mum/2022 Assessment Years: 2013-14 & 2014-15 6 to be rectified and the alleged mistakes in the same highlighted by the Assessee by way of the present application. 7.1 In paragraph 4 of the order, the Tribunal has, after taking note of the stand taken by the Assessing Officer, observed that according to the Assessing Officer in the preceding years, the Assessee had only two agreements [i.e. the technology collaboration and technical assistance agreement and the service agreement] which were broken down into three agreements, [i.e. the Trademark License Agreement, Technology License Agreement and IT services Delivery Agreement] from AY 2011-12 onwards. However, there has not been any change in functions and risks of the Assessee with respect to its services to the AEs in line with the change in these agreements. The Assessing Officer had observed that only the nomenclature of the agreements has been changed to segregate training and support cost to be not taxable in India though such income was being offered to tax in earlier years. The Assessing Officer was of the view that the submissions made by the Assessee with respect to IT services were vague, general in nature and it was not possible to infer the exact nature of such services. The Assessing Officer had further observed that receipts from IT related services had decreased considerably during the year under consideration as compared to previous years and hence, the services rendered by the Assessee to its AE's were make available technical knowledge, skills etc. 7.2 In paragraph 5 and 6, the Tribunal has summarized the proceedings before the Dispute Resolution Panel and observed that before DRP the sum and substance of the arguments of the Assessee before DRP was that although the Assessing Officer had relied upon the agreements for the earlier years between the parties, however, those agreements were not relevant for the years under consideration, as MA No. 75 & 76/Mum/2022 Assessment Years: 2013-14 & 2014-15 7 the same were not effective during the year. However, the DRP had come to a conclusion that the fee received by the Assessee for the IT Services were inextricably linked with the royalty agreement. The Assessee offered to tax the receipts from IT Services in the original return of income, but had, subsequently claimed the same to be exempt from tax in the revised return without bringing on record proof to show significant change in set up in the new agreements. According to DRP, the substance of transaction had remained the same. Therefore, the DRP had concluded that the services rendered by the Assessee were in the nature of Fee for Technical Services. The Tribunal had also reproduced the findings of the DRP related to nature and scope of services. 7.3 In Paragraph 7 and 8, the Tribunal has recorded the submissions advanced on behalf of the Assessee on nature and scope of the services forming part of the IT Service Agreement. At the end of paragraph 8, The Tribunal has recorded the submission advanced on behalf of the Assessee: “the AO is incorrect in referring to the earlier agreements to come to the conclusion that there is no difference between the scope of the services provided to AEs as per the earlier agreements and present agreements.”. 7.4 After recording the submission of the Learned Departmental Representative in paragraph 9, the Tribunal has returned a finding in paragraph 13 and 14 which reads as under: 13. We, further noted that the entire IT setup maintained by the AE, whose details have been referred in agreement between the parties, as directed towards rendering the services, which are tailored made towards effective transmission of information, as well as assistance in technological areas which are included in the royalty agreement. We, further noted that in earlier period the whole process was under an integrated agreement, but now from AY 2011- 12 onwards, the MA No. 75 & 76/Mum/2022 Assessment Years: 2013-14 & 2014-15 8 assessee has bifurcated the agreements into separate IT services agreement, so that it can be taken out of the ambit of definition of royalty which is evident from the fact that it is an acknowledged fact that group entities are able to enter into contracts, which may not reflect the true intent of the operations and hence, in such situations, it is necessary to examine the substance of such transactions. Therefore, in our considered view the assessee has failed to demonstrate that there has been any functional change with respect to services offered by the assessee to its AE or the integral nature of royalty to the IT infrastructure set up by the assessee to render these services, subsequent to change in agreements. Further, no evidence has been furnished, which proves that the IT services provided by the assessee are now reorganized afresh and totally delinked with the rendering of services 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 related services is much smaller than the extent of services rendered and hence, the extent of software forms a small portion of the overall quantum 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 linked 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 ground that these agreements are no longer in operation and hence, the agreements relevant to the period should have been considered to arrive at conclusion that the IT service delivery agreement is inextricably linked with royalty agreement. The contention of the assesse is not found tenable, in light of the fact that the assessee has not brought on record any evidences to prove that there was any significant change in the operational set up in the new agreement. Further, when, the substance of transactions has remained the same, the Ld. AO is correct in reference to earlier agreements, while arrived at a conclusion that there is no change in total services rendered by the assessee to its AE, even though, the IT services delivery agreement has been separated from AY 2011-12 onwards. We, therefore, are of the view that the nature of services rendered by the assesee are considered, in light of scope of services mentioned in agreement between the parties, the service rendered by the assessee are „FTS‟ as MA No. 75 & 76/Mum/2022 Assessment Years: 2013-14 & 2014-15 9 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-Sweden treaty and hence, liable to be taxed in India. (Emphasis Supplied) 7.5 It is apparent from the above that the Tribunal has examined the scope of the services and the terms and conditions of the agreements before returning the findings. What have been projected by the Learned Authorised Representative for the Assessee to be mistakes apparent on record are, in our view, factual findings returned by the Tribunal after examining the scope of services rendered by the Assessee as well as the substance of the relevant agreements which include the agreements Technology Collaboration Agreement & Technical Assistance Agreement, dated 14.04.1998 relevant till Assessment Year 2010-11 and Technology License Agreement, Trademark License Agreement, and IT Service Delivery Agreements the agreements relevant for the year under consideration. Therefore, we are not inclined to accept the contention of the Learned Authorised Representative for the Assessee that the findings returned by the Tribunal that the Assessee has broken down two agreements into three agreements is a mistake arising from oversight/inadvertence. The conscious finding returned by the Tribunal after examining the scope of the agreements, as is evident on perusal of the Order as a whole, cannot be regarded as mistakes apparent on record. It was also contended on behalf of the Assessee that the Tribunal had inadvertently overlooked the Chart - „Actual Position : AB SKF – Chart Showing changes in agreement entered into with India AEs over the years‟ handed over at the time of hearing of appeal as well as the IT Service Delivery Agreement between the AEs and SKF Sverige, possibly, on account of time gap between the substantial hearing and the pronouncement of order. During the course of hearing of the present application, we had sifted through the appeal records, and had communicated to the Learned MA No. 75 & 76/Mum/2022 Assessment Years: 2013-14 & 2014-15 10 Authorised Representative for the Assessee that the aforesaid chart and the agreements were on record. On perusal of the record, we are not inclined to accept the contention of the Ld. Authorised Representative for the Assessee that it is apparent that the aforesaid documents were not considered by the Tribunal. Before us, the Learned Authorised Representative for the Assessee had also contended that the Assessee had stepped into the shoes of SKF Sverige and this has not been considered by the Tribunal. We note that there is no reference of the aforesaid agreement and/or submission in the in the assessment order, or the order passed by the DRP. In our view nothing turns on the alleged mistake apparent on record highlighted by the Assessee since the Tribunal had returned the finding after examining the scope of services as per the agreements and not merely on the basis of number of agreements. In any case, the mistake, if any, by the Tribunal is not apparent from the record. 8. The Learned Authorised Representative for the Assessee had also contended that the Tribunal had inadvertently overlooked paragraph 7 of the Technology Collaboration and Technical Assistance Agreement (placed at page 83 of the paper-book) which clearly provided that all the technical improvements were to be transmitted by way of documents and therefore, the finding returned by the Tribunal that the IT Infrastructure was meant for transmission of technology/up-gradation constitutes a mistake apparent on record. We do not find any merit in the aforesaid contention. The Technology Collaboration and Technical Assistance Agreement, dated 14.04.1998, relied upon by the Learned Authorised Representative for the Assessee was not applicable for the assessment year(s) before us. The same was considered by the Tribunal for determination of the scope of services and any change therein. MA No. 75 & 76/Mum/2022 Assessment Years: 2013-14 & 2014-15 11 Admittedly, there is no corresponding clause in the Technology License Agreement relevant for the assessment year before us. Therefore, there is no mistake at all in the order passed by the Tribunal. 9. In view of our findings in paragraph 7 to 8 above, the contention advanced on behalf of the Assessee that the finding returned by the Tribunal that royalty agreement could not be effectively implemented unless it was integrated with IT Support Agreement constituted a mistake apparent on record is also rejected. 10. We also reject the contention of the Assessee that the finding by the Tribunal that receipts from services rendered under the IT Services Delivery Agreement would be taxable as Fee for Technical Services constitutes mistake apparent on record. The Tribunal has, in paragraph 17 of the order, observed that merely because third party services cost constitutes 80% of the receipts for IT services would not change the nature of the receipt from Fee for Technical Services. Thus, rejecting the contention of the Assessee that 80% of the receipts should not be taxed in India. The considered view taken by the Tribunal, in our view, cannot be put into the category of a mistake apparent from record. Accordingly, the judicial precedents relied upon by the Ld. Authorised Representative for the Assessee do not advance the case of the Assessee. 11. In our view, the findings returned by the Tribunal may form be subjected matter of appellate review in terms of Section 260A of the Act, however, the same clearly falls outside the purview of the provisions of Section 254(2) of the Act. The power under Section 254(2) of the Act can be exercised for correction of mistakes apparent from the record and does not extend to reviewing of the earlier order. The issues agitated in the present application have MA No. 75 & 76/Mum/2022 Assessment Years: 2013-14 & 2014-15 12 been examined and deliberated upon by the Tribunal, before arriving at a conclusion on merits. In case the contentions advanced on behalf of the Assessee/Applicant are accepted the same would lead to review and/or substitution of the original order passed by the Tribunal whereas Section 254(2) of the Act merely envisages amendment of the original order of the Tribunal. Thus, in our view, the Assessee is seeking review of the entire order passed by the Tribunal which is not permissible in law. Accordingly, the present miscellaneous application is dismissed. MA No. 76/MUM/2022 (arising out of ITA No.7366/MUM/2018) for the Assessment Year 2014-15 12. The facts and issues involved in this miscellaneous application are identical to the facts and issues already considered in MA No. 75/Mum/2022 for the Assessment Year 2013-14. Therefore, for reasons given in MA No. 76/Mum/2022, we dismiss the miscellaneous application filed by the Assessee. In result, the present miscellaneous applications filed by the Assessee are dismissed. Order pronounced on 11.10.2022. Sd/- Sd/- (M. Balaganesh Accountant Member (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 11.10.2022 Alindra, PS MA No. 75 & 76/Mum/2022 Assessment Years: 2013-14 & 2014-15 13 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Assessee 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदिकरण, म ुंबई / ITAT, Mumbai