VOLVO INFORMATION TECHNOLOGY AB,SWEDEN V. DCIT CIRCLE INTL. TAXATION 3(1)(1), NEW DELHI

MA 351/DEL/2024

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The case involves Volvo Information Technology AB Sweden, a non-resident company, which filed a Miscellaneous Application under Section 254(2) of the Income Tax Act, 1961, against an order affirming that payments received by the company from its Indian entities were in the nature of Fees for Technical Services (FTS) and thus taxable in India. The Tribunal's earlier decision was based on the interpretation of Article 12(3)(b) of the India-Sweden Double Tax Avoidance Agreement (DTAA). The company argued that the Tribunal had erred in law and fact, and sought rectification of the order. However, the Tribunal dismissed the application, stating that it did not find any apparent mistake in the original order that warranted rectification under the provisions of the Act.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 783501 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 06-11-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2020-2021
• Appeal Filed On: 27-09-2024
• Other Referred Cases: AO vs. M/s Nestle SA, Engineering Analysis Centre of Excellence Private Limited vs. CIT, CIT vs. Kotak Securities Ltd, T.S. Balram, ITO v. Volkart Bros.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Rectification of order; Double taxation relief

Judgement Text

"1 MA No. 351/Del/2024 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “D”: NEW DELHI BEFORE Ms. MADHUMITA ROY, JUDICIAL MEMBER AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER M.A. No. 351/Del/2024 ( In ITA No. 2169/DEL/2023) Asstt. Yrs: 2020-21 Volvo Information Technology AB Sweden 5, Goteborg Gothenburg, Sweden PAN: AADCV 2382 G Vs DCIT, Circle Intl. Taxation 3(1)(1), New Delhi. APPLICANT RESPONDENT Assessee represented by Shri Ajay Vohra, Adv.; Ms. Somiya Jain, CA Department represented by Shri E.V. Bhaskar, Sr. DR Date of hearing 26.09.2025 Date of pronouncement 06.11.2025 O R D E R PER Ms. MADHUMITA ROY, JM: The instant Misc. application under Section 254(2) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') has been preferred by the assessee, seeking recall of the Tribunal’s order dated 07.05.2024 passed in ITA No. 2169/Del/2023 for Assessment Year 2020-21 on the pretext that impugned order passed by the Tribunal suffers from errors of facts and law. For the sake of clarity the misc. application moved by the assessee is reproduced as under” “Re: Application under section 254(2) of the Income Tax Act, 1961 ('the Act') for rectification of mistakes apparent from record in order dated 07.05.2024 Printed from counselvise.com 2 MA No. 351/Del/2024 It is respectfully submitted as under: The captioned appeal filed by the applicant was disposed off by the Hon'ble Bench vide order dated 07.05.2024 whereby the order of the assessing officer was affirmed holding that the payments received by the applicant are in nature of fees for technical services ('FTS') in terms of Article 12(3)(b) of India-Sweden DTAA and are, therefore, taxable in India. Certain errors of facts and law apparent from record have unfortunately crept in, which have vitiated the conclusion arrived at by the Hon'ble Tribunal, rectification of which is prayed for as under: Re: Grounds of Appeal Nos. 6 to 8 Brief facts: The applicant is a non-resident company and a tax resident of Sweden. The applicant is a part of the Volvo Group, and is engaged in providing IT support to the Volvo group entities, including entities in India. During the year under consideration, the applicant had provided the following IT support facilities to the Volvo Indian entities (refer page 2-6 of AO Order; page 135 of PB) S.No. Particulars Amount (in Rs.) 1 Business Application/software license 80,15,71,843 2. End User Service and Shared infrastructure 12,02,03,490 3. Network Services (Volvo Corporate Network -'VCN') 6,31,08,840 4. Business Consultancy Services 1,32,21,993 5. Support to IT Division of various entities for local services 14,58,61,882 Total 114,31,40,765 It was pointed out before the Hon'ble Tribunal that although the applicant had claimed before the lower authorities that the IT support facilities/ services rendered did not \"make available\" any technical knowledge, skill, etc., to the recipient entity and were, therefore, not taxable in India in terms Printed from counselvise.com 3 MA No. 351/Del/2024 of Most Favoured Nation (MFN) clause incorporated in the India Sweden DTAA vide Protocol thereto, the said issue stood concluded against the assessee in view of the decision dated 19.10.2023 of the Hon'ble Supreme Court in the case of AO vs. M/s Nestle SA, [Civil Appeal No. 1420 of 2023] reported in 458 ITR 756. (noted by the Hon'ble Tribunal in para 9 of the Appellate order). Without prejudice to the aforesaid, it was submitted before the Hon'ble Tribunal that payments received for the following IT facilities could not, by any reasonable interpretation, be classified as FTS for the reasons detailed below: (1) Business Application/Software License: The applicant provided the Volvo group companies access to a suite of applications from various devices through an interface called \"FAROS\", which is just like a web browser. Attention was drawn to pages 80-88 and 89-112 of PB to highlight the user guide for FAROS and sample emails demonstrating how users access business application through the automated IT system. Key features of these business applications are as under: a. Used for various purposes such as inventory management, sales management, data warehousing applications, product design and modelling, human resource management etc. Examples of these applications include SAP ERP and other ERP solutions, Probuilder, ATIA V5 (VCE), RF- SMART, KABA for SAP HR. b. They are being provided by way of a mechanized system which is controlled by the server located in Sweden. c. Volvo entities do not have an option to get access to any application directly from a third party. Any application which is required by an entity to carry on its functions is made available to it only through FAROS. d. The source code behind any of the applications offered to the group entities is not accessible to them. The entities get pre-formatted applications suited to cater to the business needs of the Volvo group. Printed from counselvise.com 4 MA No. 351/Del/2024 e. None of the entity has the authority to customize/modify/ design the source code of the applications. Volvo group entities are basically provided with a bundled facility to access the information processed by a suite of applications and do not have access to or they cannot manage or control the underlying cloud infrastructure, including the networks, servers, operating systems, storage or individual application capabilities. f. The Intellectual Property in the said applications are used by the applicant itself and not by Volvo Indian entities. g. The Volvo group companies make payment to the applicant for mere use of uniform applications designed for Volvo group entities globally. In view of the nature of the IT facility described, it was argued that since the receipts in question pertain merely to the grant of access to use a copyrighted article ie, software, without the transfer of any rights in the software or source code, the same cannot be treated as FTS in terms of the provisions of the India-Sweden DTAA. It was further argued that the receipt is not taxable as royalty either, in accordance with the law laid down by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited vs. CIT: 432 ITR 471 (SC). (2) End User services and shared infrastructure Apart from granting license to use business applications (software), the applicant also provided the Volvo Indian entities with computer equipment(s) of limited value, telephone subscriptions to connect people in local and global context and standard IT support purely incidental and ancillary to provision of software licenses and equipment. Having regard to the aforesaid nature of the IT facilities, being ancillary to the provision of software licenses and equipments, it was argued that payments received under the said head also did not qualify as FTS. Reliance in this regard was placed on the decision of the Hon'ble Supreme Court in the case of CIT vs. Kotak Securities Ltd: 383 ITR 1 (SC). (3) Volvo Corporate Network Printed from counselvise.com 5 MA No. 351/Del/2024 The applicant, at its headquarters in Sweden, maintains server network which is a pre-requisite for use of any business application or other IT services provided by the applicant. This VCN is a common network for all Volvo group companies and is owned/managed by the applicant in Sweden/ outside India. Volvo group entities are given access to the facility of VCN through Local Area Network (LAN)/ Wide Area Network (WAN) lines provided by various internet service providers. Having regard to the aforesaid, it was argued that providing access to use of a corporate network developed and maintained outside India (in Sweden) does not constitute technical services that would qualify as FTS. (5) Support to IT Division of various entities for local services During the year under consideration, the applicant received payment from Volvo Indian entities towards maintenance and upgradation of business applications/ software licenses provided by the applicant through FAROS, which include the following (refer page 124 of PB and page 5 of AO order): a. Server cost for operation of business applications, hardware expenses (storage, backup equipment), software (operating system, Oracle, supervision), personnel, service agreements, disaster recovery, and Terminal Servers dedicated to Business Applications; b. Business application support to users; c. Solution management activities connected to application runtime. [Activities such as manage and collaborate with key users, gather business requirements; etc]; d. Maintenance of Business Applications [Activities such as application administration; corrective maintenance, solution of tickets coming out of the incident/problem process; preventive maintenance; adaptive maintenance, investigation & verification; knowledge administration and license management]; Printed from counselvise.com 6 MA No. 351/Del/2024 e. User Support in relation of business application; f. Standard automated functions which are needed by all computer users in the Group. Eg Microsoft Office and Windows; g. Business related roles and assignments Having regard to the aforesaid nature of the IT facilities, being ancillary to the provision of software licenses/ business applications, it was argued that payments received under the said head also did not qualify as FTS. Reliance in this regard was placed on the decision of the Hon'ble Supreme Court in the case of CIT vs. Kotak Securities Ltd (supra). To summarize, that out of the aggregate receipts of Rs.114.31 crores, receipts of Rs.112.99,18,772 (Rs.112.99 crores) could not, by any stretch of imagination be construed to be in nature of FTS. The Hon'ble Tribunal has dismissed the appeal filed by the Applicant recording reasons vide paras 14 to 19 of the Appellate order, holding that the entire receipts were in the nature of FTS liable to tax in India. In para 14 of the Appellate order, the Hon'ble Tribunal has recorded the nature of support/ facilities rendered by the Applicant to group entities as under: 1. Business Application Related Services whereunder the assessee provides access to the business application softwares, which are used for various purposes, such as, inventory management, sales management, data warehousing applications, product design and modeling, human resource management etc. 2. Under the End User Services and Shared Infrastructure, the assessee provides facilities and various services keeping in view the End User requirement, such as, emails, personal computer environment, voice/telephone. Under the voice support, mobile and fixed voice services are provided to connect people in local and global context. 3. Under the Volvo Corporate Network, assessee provides a secured access to Volvo Network, which is prerequisite for use of any business application other IT services provided by the assessee, 4. Under the IT support services, the assessee operates service desk for all types of IT related issues from end users. Printed from counselvise.com 7 MA No. 351/Del/2024 5. The assessee also provides Business Consultancy Services in terms of which it renders consultancy services with respect to IT services provided by it. It has been noted by the Hon'ble Tribunal in para 19 of the Appellate order that \"the nature of receipts in respect of certain services rendered by the assessee to the Indian entities\" were examined by the assessing officer who \"found them to be FTS\" and further that \"the aforesaid factual position is not disputed even by the assessee\". It is respectfully submitted that the Applicant did not make any such admission before the lower authorities; moreover the aforesaid concession by the Applicant before the Hon'ble Tribunal was made qua the payments made for Business Consultancy Services only. Insofar as the response in relation to services (1) to (3) and (5) supra, there was no concession by the Applicant and the Applicant had reiterated its stand all along that such IT facilities only provided access to standard, customised, off the shelf software/ IT facilities and were not in the nature of FTS and that the very same services had in the past been treated by the assessing officer as royalty, which treatment was reversed by the Hon'ble Tribunal in appeals for earlier years. The position in law is well settled that access to standardised, off the shelf software cannot be regarded as royalty, much less as FTS, in view of the decision of the Hon'ble Supreme Court in the case of Engineering Analysis (supra). Furthermore, payment received for providing the Indian group entities with (i) computer equipment(s) of limited value, (ii) telephone subscriptions to connect people in local and global context; (iii) standard IT support purely incidental and ancillary to provision of software licenses and equipment; and (iv) access to the facility of VCN through Local Area Network (LAN)/ Wide Area Network (WAN) lines provided by various internet service providers being in the nature of standard automated facility, cannot be considered as FTS, as held by the Hon'ble Supreme Court in the case of Kotak Securities (supra). The Hon'ble Tribunal has, with utmost respect, without appreciating the concession of the Applicant was limited to Business consultancy services and without appreciating the nature of services described at items (1) to (3) Printed from counselvise.com 8 MA No. 351/Del/2024 and (5) supra, rejected the submissions holding in paras 16 and 17 of the Appellate order as under: \"16. As could be seen, the definition of FTS under the treaty covers any kind of payment for rendering of any managerial, technical or consultancy services including provision of services by technical or other personnel. Thus, the definition of FTS under Article 12(3)(b) is wide enough to cover all kinds of payments made towards managerial, technical or consultancy services. It is fairly well settled that rules of interpretation of statute will not apply while interpreting treaty provisions. The treaty provisions are to be interpreted based on the language used in the treaty. If we go by the language used in Article 12(3)(b) of the treaty, one cannot escape the conclusion that the payments received by the assessee are in the nature of FTS. Though, we respectfully agree with the ratio laid down by Hon'ble Supreme Court in case of CIT Vs. Kotak Securities Ltd. (supra), however, any attempt to equate the services rendered by the assessee to the services rendered by the Bombay Stock Exchange (BSE) would amount to over simplifving the issue. The facts on record clearly reveal that the services rendered by the assessee are more complex in nature compared to the services rendered by BSE, as considered in case of CIT Vs. Kotak Securities Ltd. (supra). 17. In any case of the matter, the issue before us is whether the receipts qualify as FTS in terms of Article 12(3)(b) of India Sweden DTAA. In our view, the definition of FTS under the aforesaid Article is wide enough to cover the amounts received by the assessee towards various services provided to Indian group entities.\" The decision rendered by the Hon'ble Tribunal qua payments received for (1) Business Application/Software License; (2) End User services and shared infrastructure; (3) Volvo Corporate Network and (5) Support to IT division of Volvo Indian entities for local services, is contrary to the law declared by the apex Court in the cases of Engineering Analysis (supra) and Kotak Securities (supra) and, therefore, constitutes mistake apparent from record requiring rectification thereof. It is accordingly prayed that findings rendered for ground Nos. 6, 7 and 8 may be modified to the aforesaid extent to exclude payments aggregating to Rs. 112.99 crores from the ambit of FTS liable to tax in India/the order may Printed from counselvise.com 9 MA No. 351/Del/2024 be recalled for fresh hearing in the matter with respect to the aforesaid grounds. 2. In support of the averments made in the misc. application the assessee has also filed ‘short synopsis’, as reproduced below: “SHORT SYNOPSIS “The impugned order dated 07.05.2024 passed by the Hon'ble Tribunal, it is respectfully submitted. suffers from errors of facts and law, apparent from record, rectification of which is prayed for, as under: 1. The Tribunal, at the outset, failed to appreciate that the assessing officer had, in the final assessment order dated 27.06.2023, treated the payments received from Volvo Indian Entities as \"Fees for Technical Services' ('FTS') for being ancillary to payment of royalty for the brand VolvO, the assessing officer has nowhere recorded his finding on how the routine technical services provided by the Applicant passes the test of being either 'managerial\" or \"technical or 'consultancy' in nature to qualify as FTS in terms of Article 12 of the India-Sweden Double Tax Avoidance Agreement ('DTAA'). 2 The Tribunal, in para 19 of the impugned order, noted that \"the nature of receipts in respect of certain services rendered by the assexsee to the Indian entities\" were examined by the assessing officer who \"found them to be FTS\" and further that \"the aforesaid factual position is not disputed even by the assessee\" the Tribunal, it is respectfully submitted, failed to appreciate that the Applicant did not make any such admission before the lower authorities, moreover the argument of the Applicant before the Tribunal does not record any such concession either. In respect of all other payments for Business Application/Software License; End User services and shared infrastructure; Volvo Corporate Network; and Support to IT division of Volvo Indian entities for local services, the Applicant had reiterated its stand all along that such IT facilities only provided access to standard, customised, off the shelf software/ IT facilities and were not in the nature of FTS and that the very same services had in the Printed from counselvise.com 10 MA No. 351/Del/2024 past been treated by the assessing officer as royalty, which treatment was reversed by the Hon'ble Tribunal in appeals for earlier years. 3. The Tribunal, it is respectfully submitted, erred in not appreciating that out of total payments aggregating to Rs.114.31 crores received from Volvo Indian Entities, payments to the extent of Rs.112.99 crores made for grant of access to copyrighted software licenses, equipment, access to corporate network allowing the customers to use the software licenses and IT support services, could, by no stretch of imagination, qualify as FTS in view of the nature of services admittedly recorded by the Tribunal in Para 14 of the impugned order. 4. The Tribunal, it is submitted, failed to consider the binding judgment of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited vs. CIT: 432 ITR 471 (SC) and the orders passed by the Tribunal in applicant's own case for AY 2014-15 and 2015-16 which, it is submitted, constitutes a mistake apparent from record warranting the Tribunal to exercise powers of rectification bestowed upon it under section 254(2) of the Act [refer ACIT vs. Saurashtra Kutch Stock Exchange Lid. 305 ITR 227: Honda Siel Power Products Ltd. v CIT:295 ITR 466(SC)] At this juncture, attention is invited to the celebrated decision of the Hon'ble Apex Court in the case of Distributors (Baroda) Pvt Ltd vs. Union of India [1985] 155 ITR 120 wherein the Court has held that to perpetuate an error is no heroism. The findings of the Court are reproduced as under. \"To perpetuate an error is no heroism To rectify it is the compulsion of the judicial conscience. A judge ought to be wise enough to know that he is fallible and, therefore, even ready to learn: great and honest enough to discard all mere pride of opinion and follow truth wherever it may lead and courageous enough to acknowledge his errors.” In view of the aforesaid, it is respectfully prayed that the MA filed by the Applicant deserves be allowed.” 3. We have heard the rival submissions made by the respective parties and perused the materials available on record. Undisputedly, under Section 254(2) of the Act only a mistake which is apparent from the record and does not require a long drawn process of reasoning can be rectified. No mistake much less apparent Printed from counselvise.com 11 MA No. 351/Del/2024 on record in the order of the Tribunal has been pointed out on behalf of the assessee that can be rectified under Section 254(2) of the Act. In fact under the guise of instant application the assessee wants the Tribunal to review its own order which is not permissible under Section 254(2) of the Act. Accordingly, in our considered opinion, the instant application moved by the assessee is devoid of any force and is liable to be dismissed accordingly. Ordered accordingly. In arriving at our conclusion we are fortified by the ratio of decision of the Hon’ble Supreme Court in the case of T.S. Balram, ITO v. Volkart Bros. (1971) 82 ITR 50 (SC). 4. Assessee’s misc. application M.A. No. 351/Del/2024 is dismissed accordingly. Order pronounced in open court on 06.11.2025. Sd/- Sd/- (NAVEEN CHANDRA) (MS. MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 06.11.2025. *MP* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI Printed from counselvise.com "