2023 (4) TMI 472 - AT - Income Tax

Appellate tribunal rules in favor of appellant, finding IT services not taxable as Royalty or Technical Fees.

Faurecia Automotive Holdings Versus The Asstt. C.I.T. (International Taxation) Circle 1, Pune

The appellate tribunal partially allowed the appeal, dismissing certain grounds not pressed by the appellant. It concluded that the receipts from ... Income taxable in India - royalty or FTS - Income from providing Information Technology ('IT') Support Services and Management Services - whether the receipts of assessee can be termed as royalty or FTS? - HELD THAT:- As perused the lead order on this issue whether the receipts of assessee can be termed as royalty or FTS which is addressed in A.Y. 2011-12 in assessee”s own case [2019 (7) TMI 402 - ITAT PUNE] and therein the nature of services rendered by the assessee to Faurecia India has been mentioned and it is in terms of service agreement dated 3-1-2011. The same agreement continues even for the present assessment year before us. We have also perused the termination clause where the agreement continues until and unless either of the parties wishes to terminate the agreement. Therefore, the genesis of entire transaction relating to the services is based on the same service agreement dated 3-1-2011. The Tribunal has given relief to the assessee for A.Y. 2011-12. Similarly, in assessee”s own case for A.Y. 2012-13 [2019 (7) TMI 534 - ITAT PUNE] following the earlier order of the Tribunal for A.Y. 2011-12 [2019 (7) TMI 402 - ITAT PUNE] the appeal of the Revenue was dismissed. Thus such income is neither royalty nor FTS and therefore, not taxable either within the Act or within DTAA. D.R has not submitted any documents/evidences on record to suggest something contrary to the facts already on record - Decided in favour of assessee. Issues involved:1. Assessment order time barred2. Income from providing Information Technology (&39;IT&39;) Support Services and Management Services considered taxable as Fees from Technical Services (&39;FTS&39;)3. Income from providing IT Support Services and Management Services considered taxable as Royalty4. Receipts from reimbursement of salary cost of expat considered taxable as FTS5. Penalty proceedings are bad in lawAssessment order time barred: The appeal challenged the assessment order issued beyond the time limit as prescribed under section 153 of the Income-tax Act, 1961. The appellant contended that the order was time-barred based on the facts and circumstances of the case and in law.Income from providing Information Technology Support Services and Management Services considered taxable as Fees from Technical Services (FTS): The dispute revolved around the treatment of income from IT Support services and Management Services as taxable under FTS provisions of Section 9(1)(vii) of the Act and the Double Taxation Avoidance Agreement (DTAA) between India and France. The appellant argued that the receipts should not be considered as FTS, citing beneficial provisions of the India-France tax DTAA read with India-UK DTAA.Income from providing IT Support Services and Management Services considered taxable as Royalty: The issue involved the classification of income from IT Support services and Management Services as taxable under the Royalty provisions of Section 9(1)(vi) of the Act and the DTAA between India and France. The appellant contested the treatment of these receipts as Royalty, emphasizing legal and factual errors in the assessment.Receipts from reimbursement of salary cost of expat considered taxable as FTS: The appellant disputed the taxability of receipts from the reimbursement of the salary cost of an expatriate employee as FTS under Section 9(1)(vii) of the Act and the DTAA between India and France. The appellant argued that the reimbursements were expenses at cost and not income, hence not chargeable to tax in India.Penalty proceedings are bad in law: The appellant challenged the initiation of penalty proceedings under section 270A of the Act, alleging errors in assessing under-reported income. The appellant argued that the additions made by the assessing officer were not in accordance with the law, and there was a mere difference of opinion regarding taxability, not warranting penalty proceedings.Judgment Summary: The appellate tribunal partially allowed the appeal, dismissing certain grounds not pressed by the appellant. The tribunal examined the nature of the receipts in question, considering past decisions and the terms of the service agreement between the appellant and its associated enterprise. It noted consistency in favor of the appellant in previous cases and found no contrary evidence submitted by the respondent. The tribunal concluded that the receipts were neither royalty nor FTS, aligning with previous rulings in the appellant's favor. The tribunal deemed the penalty proceedings premature and allowed the grounds related to taxability in favor of the appellant.