2017 (8) TMI 1346 - AT - Income Tax

Tribunal upholds decision on invalid assessment reopening & tax treatment under India-Australia DTAA

Dy. Director of Income Tax (International Taxation) -II, Versus Sandvik Australia Ptv Ltd. C/o. Sandvik Asia Limited and vice-versa

Dy. Director of Income Tax (International Taxation) -II, Versus Sandvik Australia Ptv Ltd. C/o. Sandvik Asia Limited and vice-versa - TMI Issues Involved:1. Validity of reopening of assessment under Section 148.2. Taxability of IT support services as Royalty or Fees for Technical Services (FTS).3. Jurisdiction and powers of the Dispute Resolution Panel (DRP).Detailed Analysis:1. Validity of Reopening of Assessment under Section 148:The Revenue contended that the reopening of the assessment was valid under the provisions of the Income Tax Act. The Assessing Officer (AO) issued a notice under Section 148 after observing that the assessee had installed routers, servers, and other devices in India, and received payments for data storage and retrieval services provided to an Indian company. The AO classified these payments as Royalty/FTS under Article 12 of the India-Australia DTAA, leading to the reopening of the assessment.The DRP, however, held that the reopening was invalid, noting that the notice under Section 148 was issued after four years and there was no failure on the part of the assessee to disclose all material facts necessary for the assessment. The DRP relied on the decision in the case of the assessee's affiliate entities, where similar reopening was held invalid. The Tribunal upheld the DRP's decision, stating that the AO had no new tangible material to justify the reopening and that the information was already disclosed by the assessee at the time of filing the return.2. Taxability of IT Support Services as Royalty or Fees for Technical Services (FTS):The assessee argued that the IT support services provided to its Indian subsidiary were neither taxable as Royalty nor as FTS under the India-Australia DTAA. The Tribunal referred to its earlier decision in the assessee's own case for A.Y. 2007-08, where it was held that the services rendered were in the nature of technical services but did not make available any technical knowledge or expertise to the recipient. Therefore, these services were not taxable under Article 12 of the DTAA. The Tribunal reiterated this position, confirming that the IT support services were not taxable as Royalty or FTS.3. Jurisdiction and Powers of the Dispute Resolution Panel (DRP):The Revenue challenged the DRP's power to annul the assessment. The Tribunal referred to the provisions of Section 144C and the judgments of the Bombay High Court in the cases of Vodafone India Services Pvt. Ltd. and Khubchandani Healthparks (P) Ltd., which clarified that the DRP has wide powers to adjudicate objections, including jurisdictional issues, and can confirm, reduce, or enhance the variations proposed in the draft order. The DRP's power to confirm includes the power to annul the variations. The Tribunal upheld the DRP's jurisdiction and its decision to annul the assessment.Conclusion:The Tribunal dismissed the Revenue's appeals and upheld the DRP's decision that the reopening of the assessment was invalid. It also confirmed that the IT support services provided by the assessee were not taxable as Royalty or FTS under the India-Australia DTAA. The Tribunal affirmed the DRP's jurisdiction and powers to adjudicate the objections and annul the assessment.