Tribunal grants appeals, directs deletion of 'fees for technical services' additions. 'Royalty' issue remitted for reassessment.

The Tribunal partly allowed the appeals for both assessment years, directing the AO to delete the additions related to 'fees for technical services' for installation services and product inspection charges. The issue of 'Royalty' for CAD/CAM software was remitted back to the AO for reassessment due to insufficient details provided by the assessee. The Tribunal stressed the significance of the 'make available' test under the DTAA and the necessity for a thorough evaluation of software modifications and terms of use.

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Issues Involved:
1. Taxability of receipts for repairs and maintenance services as 'Fees for Technical Services' (FTS) under the DTAA between India and Sweden.
2. Taxability of receipts towards the use of CAD/CAM software and IT support as 'Royalty' under the DTAA between India and Sweden.
3. Taxability of product inspection charges as 'Fees for Technical Services' (FTS) under the DTAA between India and Sweden.

Detailed Analysis:

1. Taxability of Receipts for Repairs and Maintenance Services as 'Fees for Technical Services' (FTS):

The assessee received payments from an Indian associate for installation services, upgradation of operating systems, and service costs for specific machinery. The Assessing Officer (AO) categorized these payments as 'Fees for Technical Services' (FTS) under Article 12 of the DTAA between India and Sweden. The assessee argued that these services were inextricably linked to the sale of machinery and did not 'make available' any technical knowledge, skill, or process to the Indian associate, thus failing the 'make available' test required under the DTAA. The Tribunal referenced the case of Sandvik Australia Pty. Ltd. and the High Court of Karnataka's interpretation in M/s. De Beers India Minerals Pvt. Ltd., concluding that the services did not 'make available' technical knowledge or skills to the recipient. Therefore, the Tribunal directed the AO to delete the addition of Rs. 25,92,070/- made on account of 'fees for technical services' for installation services.

2. Taxability of Receipts Towards Use of CAD/CAM Software and IT Support as 'Royalty':

The assessee provided limited user rights for CAD/CAM software to its Indian associate and charged a support fee based on the number of users. The AO treated these payments as 'Royalty' under Article 12 of the DTAA. The assessee contended that the payments were for IT support services and did not involve exploitation of any right or copyright, thus not qualifying as 'Royalty'. The Tribunal cited the decision in Sandvik Australia Pty. Ltd., which held that IT support services do not constitute 'Royalty' or 'FTS' under the DTAA. However, the Tribunal noted that the details of modifications to the software were not provided to the AO or DRP. Consequently, the Tribunal remitted the issue back to the AO for reassessment, directing the assessee to furnish details of modifications and terms of use.

3. Taxability of Product Inspection Charges as 'Fees for Technical Services' (FTS):

For the assessment year 2009-10, the assessee contested the addition of Rs. 3,97,875/- for product inspection charges, arguing that these charges did not meet the 'make available' test for FTS under the DTAA. The Tribunal, referencing its earlier decision in Sandvik Australia Pty. Ltd., agreed that the product inspection services did not 'make available' technical knowledge or skills to the Indian associate. Therefore, the Tribunal allowed this ground of appeal, directing the AO to delete the addition.

Conclusion:

The Tribunal partly allowed the appeals for both assessment years. It directed the AO to delete the additions related to 'fees for technical services' for installation services and product inspection charges, while remitting the issue of 'Royalty' for CAD/CAM software back to the AO for reassessment. The Tribunal emphasized the importance of the 'make available' test under the DTAA and the need for detailed evaluation of the modifications and terms of software use.

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