2020 (4) TMI 127 - AT - Income Tax

Appeal allowed: Income not taxable in India as Royalty or FTS.

Sandvik Maching Solutions AB (formerly known as Sandvik Tolling Sverige AB), C/o. Sandvic Asia Private Limted, Mumbai Versus The Asst. Commissioner of Income Tax, (International Taxation), Circle – 2, Pune.

The Tribunal allowed the appeal, ruling that the amounts received were not taxable in India as Royalty or Fees for Technical Services (FTS). The decision ... Income accrued in India - Royalty receipt or FTS - taxability of amount received by the assessee from Sandvik Asia Private Limited in India - HELD THAT:- It is an undisputed fact that during the year under consideration assessee had received fees towards granting user access to software application and for providing IT support from SAPL. Before us, both the parties have admitted that the facts of the case in the year under consideration are identical to that of assessee’s own case in A.Ys 2010-11, 2011-12, 2013-14 and 2014-15 [2019 (5) TMI 939 - ITAT PUNE]. We find that the Co-ordinate Bench of the Tribunal while deciding the issue on identical facts in assessee’s own case in A.Y. 2014-15 held that the payments received by assessee from SAPL cannot be considered to be as Royalty or FTS and not taxable in India. - Decided against revenue. Issues Involved:1. Consideration of ITAT's favorable orders for previous assessment years.2. Taxability of receipts towards service costs for upgradation of CADI CAM and Zeiss application as Royalty.3. Taxability of receipts towards provision of maintenance services for production system (GSS) as Fees for Technical Services (FTS).Issue-wise Detailed Analysis:1. Consideration of ITAT's favorable orders for previous assessment years:The appellant contended that the favorable orders of the Hon'ble ITAT for AYs 2010-11, 2011-12, and 2013-14 regarding the taxability of IT support services should be binding on the Assessing Officer (AO). The appellant prayed for the deletion of the addition made by the AO and confirmed by the Dispute Resolution Panel (DRP).2. Taxability of receipts towards service costs for upgradation of CADI CAM and Zeiss application as Royalty:The appellant argued that the receipts towards service costs for the upgradation of CADI CAM and Zeiss application provided to Sandvik Asia Private Limited (SAPL) should not be taxed as Royalty under Article 12 of the India-Sweden Double Taxation Avoidance Agreement (DTAA). The AO and DRP had considered these receipts as Royalty. The Tribunal noted that in the appellant's own case for AY 2014-15, it was held that payments received for allowing limited access to CAD/CAM were not Royalty but consideration for a copyrighted article. The Tribunal referred to the decision of the Hon'ble Delhi High Court in DIT Vs. Infrasoft Ltd., where it was held that consideration for the use of software was not Royalty under the DTAA. The Tribunal observed that the facts of the current year were identical to those of previous years and followed the earlier Tribunal orders, holding that the receipts could not be considered as Royalty and were not taxable in India.3. Taxability of receipts towards provision of maintenance services for production system (GSS) as Fees for Technical Services (FTS):The appellant contended that the receipts for maintenance services provided for the production system (GSS) should not be taxed as FTS under Article 12 of the India-Sweden DTAA read with the India-Portugal DTAA (via protocol). The Tribunal examined the nature of the services and noted that the payment was for maintenance of existing software, which involved technical knowledge and constituted FTS under Section 9(1)(vii) of the Act. However, under the DTAA, the Tribunal referred to the Protocol with Sweden, which limited the scope of FTS to services that 'make available' technical knowledge, experience, skill, know-how, or processes. The Tribunal concluded that the maintenance services did not 'make available' any technical knowledge to SAPL for future use independently and thus could not be categorized as FTS under the DTAA. The Tribunal followed its earlier decision and held that the receipts were not taxable as FTS in India.Conclusion:The Tribunal allowed the appeal of the assessee, holding that the amounts received from SAPL could not be considered as Royalty or FTS and were not taxable in India. The Tribunal's decision was based on the consistent findings in the appellant's own case for previous assessment years and the interpretation of the DTAA provisions. The appeal was pronounced on 14th February 2020.