TaxTMI 
TaxTMI 
2018 (6) TMI 1591
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....dicate the issues, reference is being made to the facts in ITA No.608/PUN/2014, relating to assessment year 2006-07. 3. The Revenue in ITA No.608/PUN/2014 relating to assessment year 2006-07 has raised the following grounds of appeal:- 1. On the facts and circumstances of this case, the DRP was not correct in dismissing the re-opening of the assessment as not being in accordance with the provisions of the law and terming the same to be invalid. 2. On the facts and circumstances of this case, the DRP was not correct in holding that the reopening was not based on the fact that there was a reason to believe that the income had escaped assessment since no assessment u/s 143(3) was completed in the assessment year under consideration. 3. On the facts and circumstances of this case, the DRP was not correct in observing there was no assessment u/s. 143(3) or 147 of the Act, therefore as section 151(2) was applicable, the notice u/s. 148 was issued after due approval of Jt. Director of Income-tax (International Taxation), Pune as required under section 151(2) of the Act. 4. On the facts and circumstances of the present case, the DRP was not correct in....
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.... to the arguments of both the learned Authorized Representatives after referring to the facts of the case. 8. Though the Registry mentioned that there is delay of 26 days but the Revenue has clarified that there is no delay in filing the present appeal late except the last three days which were closed holidays being Saturday, Sunday and holiday on account of Gudi Padwa and the appeal was filed on 01.04.2014, which was within prescribed limit. We find merit in the explanation offered by the Revenue authority and proceed to decide the present appeals. 9. The issue which is raised by the Revenue is against the order of Dispute Resolution Panel (DRP) in dismissing reopening of assessment as being not in accordance with provisions of law and terming the same to be invalid. The Revenue has raised several grounds of appeal in this regard. The assessee has filed Cross Objections against the issue on merits i.e. against the order of DRP in not deciding the taxability of receipts for Management Service Fees. 10. Briefly, in the facts of the case, the assessee company had filed return of income on 29.11.2006 electronically and submitted the return of income on 11.12.2006, declaring t....
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....ped assessment. The said belief was based on form No.3CEB of Sandvik Asia Pvt. Ltd., the agreement between the assessee and Sandvik Asia Pvt. Ltd. and the assessment orders passed in assessment years 2004-05, 2007-08 and 2008-09. Since the Assessing Officer had reason to believe that Management Service Fees falls within ambit of section 9(1)(vii) of the Act as well as India and Sweden Treaty and was taxable as fees for technical services and since income to the tune of Rs. 5.61 crores had escaped assessment within meaning of provisions of section 147 of the Act, reopening was held to be valid. Thereafter, the issue was decided on merits and it was held that Managerial Services Fees received by the assessee during the year under consideration of Rs. 5.61 crores were taxable in the hands of assessee. 11. The assessee filed objections before the DRP in this regard and it was contended that the Assessing Officer had no reason to believe that income had escaped assessment and also re-assessment proceedings without any fresh material on record could not be sustained. The assessee explained that the details of transaction were disclosed by the assessee company in its form No.3CEB and i....
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.... the Hon'ble Supreme Court in ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (supra). He further pointed out that before the Hon'ble Bombay High Court in Amin's Pathology Laboratory Vs. P.N. Prasad, JCIT (2001) 252 ITR 673 (Bom), the issue was the case of assessment under section 143(3) of the Act, wherein also it was held that mere production of Balance Sheet and Profit and Loss Account would not amount to disclosure. He then referred to the ratio laid down by the Hon'ble High Court of Delhi in Consolidated Photo & Finvest Ltd. Vs. ACIT (2006) 281 ITR 394 (Del), wherein it has been held that re-assessment proceedings under section 147 of the Act were permissible even if the Assessing Officer gathered his reason to believe from the very same record as had been subject matter of completed assessment proceedings. He then made reference to the ratio laid down by the Hon'ble High Court of Delhi in Indu Lata Rangwala Vs. DCIT in W.P. (C) 1393/2002, judgment dated 18.05.2016. He took us through the facts of the case and reference to various decisions including the decision of the Hon'ble Supreme Court in ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (supra), DCIT Vs. Zuari Estat....
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....or the assessee here pointed out that assessment proceedings for assessment year 2004-05 were completed under section 143(3) of the Act. The learned Authorized Representative for the assessee pointed out that Tribunal in series of cases has held that in the absence of any tangible material even where the assessment was under section 143(1) of the Act, no re-assessment proceedings were possible. He referred to the decisions in Sandvik System Development AB Vs. DDIT (IT) (2017) 88 taxmann.com 55 (Pune - Trib.), M/s. Sandvik Tooling Sverige AB Vs. DDIT(IT) (supra) and M/s. AB Sandvik Materials Technology Vs. DCIT in ITA No.1719/PUN/2011, relating to assessment year 2008-09, order dated 24.03.2017. The learned Authorized Representative for the assessee then pointed out that first issue which arises is in respect of assessment completed under section 143(1) of the Act. In this regard, he drew our attention to the decision of the Hon'ble Supreme Court in ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (supra), where they had considered the case where assessment was under section 143(1) of the Act and the first aspect which was decided was that it was case of no change of opinion and i....
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....Ltd. Vs. CIT (supra) or Khubchandani Healthparks (P.) Ltd. Vs. ITO (supra) were not applicable has not been spelt out by the Hon'ble High Court of Delhi in Indu Lata Rangwala Vs. DCIT (supra). He further stressed that where return of income holds information then, it cannot be said to be a case of tangible material being available with the Assessing Officer in order to justify the reopening of assessment. The learned Authorized Representative for the assessee then pointed out that with due respect to the decision of the Hon'ble High Court of Delhi in Indu Lata Rangwala Vs. DCIT (supra), the same was per incuriam earlier decision of the Hon'ble High Court of Delhi in Orient Craft Ltd. Vs. CIT (supra). He then refers to the decision of the Hon'ble High Court of Madras in TANMAC India Vs. DCIT (2017) 78 taxmann.com 155 (Mad) and pointed out that the said decision was a decision after the decision of the Hon'ble High Court of Delhi in Indu Lata Rangwala Vs. DCIT (supra) and it has reiterated the view that tangible material is the requirement for reopening the assessment even in cases where an intimation under section 143(1) of the Act was issued. He then placed reliance on the decision....
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..../2016, relating to assessment year 2007-08 & 2009-10, order dated 21.12.2017. The arguments of learned Authorized Representative for the assessee were noted as under:- "5. The learned Authorized Representative for the assessee at the outset pointed out that the assessee has challenged the reopening of assessment proceedings under section 147 of the Act in the absence of any tangible material. He further stated that the Dispute Resolution Panel (DRP) in assessment year 2006-07 in the absence of any tangible material had held that the reopening of assessment was bad in law but because of low tax effect, no appeal has been filed before the Tribunal. He further pointed out that proceedings for assessment year 2008-09 were taken first and hence, the order of authorities below is elaborate. However, he stated that for all the years i.e. starting from assessment years 2006-07 to 2009-10, reasons were recorded on the same date i.e. 26.07.2013 and the proceedings were initiated under section 147 of the Act. In assessment year 2008-09, the DRP had relied on the ratio laid down by the Hon'ble Supreme Court in ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500 (SC)....
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....ion No.II and also the order of Tribunal dated 18.08.2017 in ITA Nos.250 & 251/PUN/2015, relating to assessment year 2008-09, placed at pages 52 to 62 of Compilation No.II and pointed out that the issue is squarely covered in favour of assessee. The learned Authorized Representative for the assessee referring the Compilation No.I took us through the reasons recorded for each of the year starting from assessment year 2006-07 in the case of assessee and pointed out that similar reasons were recorded for each of the year except for the amount received as license fees from Sandvik Asia Ltd., which varied in each of the year. The copy of said reasons for assessment year 2006-07 are placed at pages 1 to 3 of the Compilation No.I, thereafter, for each of the years are also placed in the said Compilation No.I. The learned Authorized Representative for the assessee also referred to Note in the computation of total income and the relevant Annexure to Form No.3CEB. The learned Authorized Representative for the assessee pointed out that the ground of appeal No.1 raised by the assessee was against initiation of re-assessment proceedings under section 147 of the Act and grounds of appeal No.2 ad....
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....computation of income filed along with return of income, copy of which is placed at page 13 of Compilation No.1, wherein it was reported as under:- "3. Further, STSA has also received license fees aggregating to Rs. 8,072,285 from SAL. These being payments received for use of a copyrighted article, do not fall within the ambit of royalty under Article 12 of the Tax Treaty. This is a limited user right granted by STSA and doesn‟t involve exploitation of the rights embedded in the copyright. Accordingly, in the absence of permanent establishment of STSA in India, such payments are not considered as taxable in India." 9. The Auditor in the audit report in Form No.3CEB had also reported in respect of said receipts which is placed at page 14 of Compilation No.I, which read as under:- Sr. No. Name and address of the associated enterprise with whom the international transaction has been entered into Description of such mutual agreement or arrangement Amount paid/received or payable / receivable in the transaction - Method used for determining the arm's length price (See section 92C(1) as per books of account as computed by the assessee havi....
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....the assessment on the ground that it was noticed from the submissions made during the assessment for assessment year 2005-06 that the assessee had received IT support fees of Rs. 1.94 crores and licence fees of Rs. 3,10,396/- from Sandvik Asia Pvt. Ltd. in assessment year 2008-09, but the same were not offered for tax. The reasons mentioned that for assessment year 2005-06, the Assessing Officer had concluded that receipts under the head „IT Support Fees‟ received by the assessee from Sandvik Asia Pvt. Ltd., were in the nature of royalty and fees for technical services and taxable as per Article 12 of DTAA of India and Sweden as well as section 9(1)(vi) & 9(1)(vii) of the Act. The Assessing Officer further holds that on examination of nature of payments made to the assessee as per agreement dated 01.04.2002, it could be concluded that the payments received by the assessee constitute royalty and fees for technical services, as per sections of the Act as well as Article 12 of the DTAA between India and Sweden. Reference was made to several decisions in this regard and also to the order under section 201(1) and 201(1A) of the Act in the case of Sandvik Asia Pvt. Ltd. for a....
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....ard was placed on the ratio laid down by the Hon‟ble High Court of Delhi in Orient Craft Ltd. Vs. CIT (supra), hence reopening in the case of three sister concerns was held to be invalid. The Revenue did file an appeal before the Tribunal in this regard and the appeal was dismissed for low tax effect. Similarly, in assessment year 2006-07, same issue was raised and the DRP decided the issue in favour of assessee in the absence of any fresh material and the appeal of Revenue was dismissed for low tax effect. In assessment year 2007-08, though the issue of reopening under section 148 of the Act was decided against the assessee, but since the issue on merits was decided in favour of assessee, no appeal was filed by the assessee or the Revenue. 11. Now, coming to the appeal in assessment year 2008-09. The Assessing Officer recorded reasons for reopening assessment on the basis of reasons recorded in assessment year 2005-06. The Assessing Officer very categorically states that information came to his knowledge during proceedings in assessment year 2005-06 that the assessee had received IT Support fees and Licence fees, which has not been offered to tax. The question which....
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....ssment years 2005-06 and 2008-09 are same. Though the appeal of assessee before the Tribunal in assessment year 2005-06 was dismissed for low tax effect along with appeal of another sister concern, which was also reopened by the Assessing Officer on identical reasons to believe‟ however, in the case of third entity against which proceedings under section 147 of the Act were recorded, the matter travelled to the Tribunal and the Tribunal in DDIT (IT) Vs. Sandvik Information Technology AB, in ITA No.128/PUN/2014 along with CO No.10/PUN/2015, relating to assessment year 2005-06, order dated 28.12.2016 had considered the re-assessment proceedings on the basis of details furnished by Sandvik Asia Pvt. Ltd., one of the group concerns. As per information, payments were made on account of IT Support services which information was treated as tangible material by the Assessing Officer and proceedings were initiated under section 147/148 of the Act. The case of Revenue before the Tribunal was that the Assessing Officer had reason to believe that income of assessee had escaped assessment. The case of assessee was that the said information derived from alleged tangible material for re-ass....
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....intimation was issued earlier under Section 143(1). It would in effect place an assessee in whose case the return was processed under Section 143(1) in a more vulnerable position than an assessee in whose case there was a full-fledged scrutiny assessment made under Section 143(3). Whether the return is put to scrutiny or is accepted without demur is not a matter which is within the control of assessee; he has no choice in the matter. The other consequence, which is somewhat graver, would be that the entire rigorous procedure involved in reopening an assessment and the burden of proving valid reasons to believe could be circumvented by first accepting the return under Section 143(1) and thereafter issue notices to reopen the assessment. An interpretation which makes a distinction between the meaning and content of the expression "reason to believe" in cases where assessments were framed earlier under Section 143(3) and cases where mere intimations were issued earlier under Section 143(1) may well lead to such an unintended mischief. It would be discriminatory too. An interpretation that leads to absurd results or mischief is to be eschewed." 13. The Tribunal also took note ....
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....rpretation of the expression when it is applied to the reopening of an assessment earlier made under Section 143(3) cannot apply where only an intimation was issued earlier under Section 143(1). It would in effect place an assessee in whose case the return was processed under Section 143(1) in a more vulnerable position than an assessee in whose case there was a full-fledged scrutiny assessment made under Section 143(3). Whether the return is put to scrutiny or is accepted without demur is not a matter which is within the control of assessee; he has no choice in the matter. The other consequence, which is somewhat graver, would be that the entire rigorous procedure involved in reopening an assessment and the burden of proving valid reasons to believe could be circumvented by first accepting the return under Section 143(1) and thereafter issue notices to reopen the assessment. An interpretation which makes a distinction between the meaning and content of the expression "reason to believe" in cases where assessments were framed earlier under Section 143(3) and cases where mere intimations were issued earlier under Section 143(1) may well lead to such an unintended mischief. It would ....
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....urt in Zuari Estate Development and Investment Co. Ltd. (Supra) has set aside the order of this Court and restored the issue to be decided on merits by the Tribunal, it must be inferred that the Apex Court had come to the conclusion that reason to believe was not necessary for issuing reassessment Notices where the regular assessment was completed under Section 143(1) of the Act. As rightly pointed out by Mr. Pardiwalla, it can equally be inferred that the Apex Court in the above case had come to the conclusion that there is reason to believe that income had escaped assessment and consequently restored the issue to the Tribunal to decide the reassessment proceedings on merits." 18. Thus, in view of the facts of the present case and the case laws discussed above we hold that the Assessing Officer had no tangible material to justify his "reason to believe" that income has escaped assessment. The reassessment proceedings initiated by the Assessing Officer u/s.147 are without jurisdiction and hence, are not sustainable. Accordingly ground No.1 to 3 raised by Department in appeal are dismissed." 14. In the facts of the present case also the assessee in the comput....
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....T support services 19,414,642 19,414,642 Refer Note 7 to Appendix C 2 Walter Tools India Private Limited, Mumbai-Pune Road, Dapodi, Pune-411012 Receipt for IT support services 310,396 310,396 Refer Note 7 to Appendix C 16. In view of the above said declarations made by the assessee which has also been considered by the Pune Bench of Tribunal in sister concern of the assessee i.e. Sandvik Information Technology AB, though for assessment year 2005-06, we hold that in the absence of any tangible material establishing escapement of income in the hands of assessee, there is no merit in the exercise of invoking of re-assessment proceedings under section 147 of the Act. The reason to believe escapement of income should have a live link. There is no merit in the stand of authorities below that in the present case, where the assessment order was passed under section 143(1) of the Act, then the Assessing Officer had no action to look at or to consider the same. Under the provisions of the Act, it is incumbent upon the Assessing Officer to come to finding on the basis of tangible material to establish his case of reason to believe of escapement of income; i....
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.... 143(3) of the Act. The findings of the Hon'ble Bombay High Court in Khubchandani Healthparks (P.) Ltd. Vs. ITO (supra) were reproduced, wherein the Hon'ble High Court had referred to the ratio laid down in ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) and also the decision of the Hon'ble Apex Court in DCIT Vs. Zuari Estate Development & Investment Co. Ltd. (supra) and Zuari Estate Development Co. Ltd. & Investment Co. (P.) Ltd. Vs. JR. Kanekar, DCIT (2004) 271 ITR 269 (Bom). In both the cases, assessment was completed by way of intimation under section 143(1) of the Act and it was observed that in both the cases, the Hon'ble Apex Court reiterated that where the assessment has been completed by intimation under section 143(1) of the Act, there can be no question of change of opinion. This is the first finding of the Hon'ble Apex Court in both the decisions which has been referred by the Hon'ble Bombay High Court in Khubchandani Healthparks (P.) Ltd. Vs. ITO (supra). Then, the Hon'ble High Court goes on to observe that the Hon'ble Apex Court in DCIT Vs. Zuari Estate Development & Investment Co. Ltd. (supra) has not dealt with the issue whether before invoking provisions....
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.... again reproduced hereunder:- "3. On hearing the parties, we find that the Apex Court in Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers P. Ltd. 291 ITR 500, had an occasion to deal with identical facts, namely reopening Notices issued under Section 148 of the Act where assessment is completed earlier by Intimation under Section 143(1) of the Act. In the above case, the Apex Court held that a Notice for reopening an assessment under Section 148 of the Act could only be justified if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. This decision of the Supreme Court in Rajesh Jhaveri Stock Brokers P. Ltd. (Supra) has not been disturbed by the Apex Court in Zuari Estate Development and Investment Co. Ltd. (Supra). In fact, the Supreme Court in Zuari Estate Development and Investment Co. Ltd. (Supra) makes a specific reference to its decision in Rajesh Jhaveri Stock Brokers P. Ltd. (Supra) to hold that where the assessment has been completed by Intimation under Section 143(1) of the Act, there can be no question of change of opinion. 4. We further find that the Apex Court in Zuari Estate Developmen....
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....believe that income chargeable to tax has escaped assessment. In the above view, it is open for the petitioner to challenge a notice issued under Section 148 of the Act as being without jurisdiction for absence of reason to believe even in case where the Assessment has been completed earlier by Intimation under Section 143(1) of the Act." 20. The Hon'ble Bombay High Court which is the jurisdictional High Court in Khubchandani Healthparks (P.) Ltd. Vs. ITO (supra) while deciding the issue of case where assessment was completed by way of intimation issued under section 143(1) of the Act had held that the Assessing Officer must have reason to believe that income chargeable to tax had escaped assessment. It was also clarified by the Hon'ble High Court that the Hon'ble Apex Court in ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) had laid down the law on the point that even in cases where intimation under section 143(1) of the Act was issued sine qua non to issue reopening notice is reason to believe that income chargeable to tax has escaped assessment. In case of absence of reason to believe even where assessment was earlier completed by issue of intimation under section 143(....
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....d under section 143(3) of the Act or where intimation is issued under section 143(1) of the Act and for reason to believe of escapement of income, tangible material should be available with the Assessing Officer to come to such a finding. In the absence of the same, the Assessing Officer cannot be said to have exercised jurisdiction within framework of law and re-assessment proceedings initiated in such cases held to be invalid in law. 23. The learned Departmental Representative for the Revenue has placed reliance on the ratio laid down by the Hon'ble Bombay High Court in Amin's Pathology Laboratory Vs. P.N. Prasad, JCIT (supra). It may be noted that the said decision was in respect of assessment order passed under section 143(3) of the Act, wherein the reopening was upheld holding it to be not a case of change of opinion on the part of Assessing Officer, since he had not opined in respect of an item representing unpaid purchases. Reliance placed upon by the learned Departmental Representative for the Revenue on the said case is misplaced since the issue before us is not case of change of opinion but case of reason to believe for escapement of income and the absence of tangible ....
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....e‟ in section 147 relates to such other new or tangible material as may have come to the knowledge of the assessing officer pursuant to the original proceedings for assessment. The Supreme Court in CIT Vs. Kelvinator of India (320 ITR 561) states thus in the context of the „belief‟ that should form the basis for a re-assessment; "We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review, he has the power to reassess. But reassessment has to be based on fulfillment of certain pre-conditions and if the concept of „change of opinion‟ is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of „change of opinion‟ as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is „tangible material‟ to come to the conclusion that there is escapement of income from assessment. Reasons must have a link with the formation of the belief." 12. If the....
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....he Division Bench holds thus: "This judgment, contrary to what the Revenue would have us believe, does not give a carte blanche to the Assessing Officer to disturb the finality of the intimation under section 143(1) at his whims and caprice; he must have reason to believe within the meaning of the section." 15..... 16..... 17. A decision of the Delhi High Court in the case of CIT Vs Orient Craft Limited (354 ITR 536) had occasion to consider a similar question and the Division Bench, at Page 546, holds as follows; "Having regard to the judicial interpretation placed upon the expression reason to believe‟, and the continued use of that expression right from 1948 till date, we have to understand the meaning of the expression in exactly the same manner in which it has been understood by the courts. The assumption of the Revenue that somehow the words „reason to believe‟ have to be understood in a liberal manner where the finality of an intimation under section 143(1) is sought to be disturbed is erroneous and misconceived. As pointed out earlier, there is no warrant for such an assumption because of the language empl....
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....our conclusion on the aspect of assumption of jurisdiction, we do not see any need to go into the merits of the case and refrain from answering the substantial question of law relating to the same. No costs." 26. The Hon'ble High Court of Madras has referred to earlier decision of Hon'ble High Court of Delhi in the case of Orient Craft Ltd. Vs. CIT (supra) and also to the decision of the Hon'ble Supreme Court in CIT Vs. Kelvinator of India Ltd. (supra) and also in ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (supra). 27. Further, the Hon'ble High Court of Gujarat in Krupesh Ghanshyambhai Thakkar Vs. DCIT (supra) has laid down similar proposition and it has been observed that since the Assessing Officer wanted to have roving enquiry as he has no material, the impugned action of opening of assessment could not be sustained. The Hon'ble High Court of Gujarat had also referred to the decision of Hon'ble High Court of Delhi in Indu Lata Rangwala Vs. DCIT (supra), wherein it was observed as under: "11. At the outset, it is required to be noted that by the impugned notice, the assessment for AY 2009-2010 is sought to be reopened in exercise of power under Section 147 ....
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....to reopen the assessment, we are of the opinion that under the guise of reopening of the assessment, the Assessing Officer wants to have a roving inquiry; as observed hereinabove. Even as per the Assessing Officer in the reasons recorded has specifically mentioned that for the purpose of verification/deep verification of the claim, it is necessary to reopen the assessment. Under the circumstances, it cannot be said that the Assessing Officer had any tangible material to form an opinion that the income chargeable to tax has escaped the assessment. Under the circumstances, the impugned action of reopening of the assessment in exercise of power under Section 148 of the I.T Act for the reasons recorded hereinabove cannot be sustained. 14. Resultantly, both these writ petitions succeed. Impugned Notice issued by the Assessing Officer under Section 148 of the Income-tax Act, 1961 in each case is hereby quashed and set-aside." 28. In view of the decision of jurisdictional High Court in Khubchandani Healthparks (P.) Ltd. Vs. ITO (supra) and the decision of Hon'ble High Court of Madras in TANMAC India Vs. DCIT (supra) and Hon'ble High Court of Gujarat in Krupesh Ghanshyambhai Th....
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.... in Sweden. The assessee company was engaged in cemented carbide and high speed cutting tools and cutting tool systems for metal working and was in possession of extensive know-how regarding the manufacture, marketing and sale of such products as well as of patent and trademark rights. The assessee had entered into Service Agreement dated 08.11.2002 with a group company in India i.e. Sandvik Asia Limited, Pune (SAL) for rendering various management services. In lieu thereof, the assessee received fees for management services rendered to SAL pursuant to the said contract. SAL had been issued a "Zero Tax Withholding Order", as per more beneficial provisions of India-Sweden Tax Treaty, on the basis that the income was not chargeable to tax in India. The assessee company thereafter, filed return of income declaring total income at Nil for the captioned assessment year. However, the Assessing Officer was of the view that the assessee had received management service fees of Rs. 4,85,82,800/- from Sandvik Asia Limited, Pune. The Assessing Officer was of the view that the said management service fees of Rs. 4.85 crores is to be assessed in the hands of assessee, rejecting the claim of the ....
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...., the order of Assessing Officer was upheld since the DRP had upheld the order of TPO / AO in assessment year 2007-08. 7. The assessee is in appeal against the aforesaid order of CIT(A) and both the learned Authorized Representatives have put forward their contentions. 8. We find that identical issue arose before the Tribunal in assessee‟s own case in assessment year 2007-08 and the Tribunal held on the principle of most favoured nation clause, that the payment received by the assessee company from its Indian subsidiaries could not be brought to tax. The relevant findings of the Tribunal are in paras 8 to 12, which read as under:- "8. We have heard the rival submissions of the parties and have also considered the written submissions and the precedents and decisions relied on by both the parties. The assessee is tax resident of Sweden. It is claimed that that it does not have a permanent place of business in India (PE). The dispute is in respect of the payment of Rs. 5.9 Crores received by the assessee company from its Indian subsidies i.e. Sandvik Asia Pvt. Ltd. (SAPL) and WTIPL. The claim of the assessee is that the assessee received the said payme....
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....to the assessee more particularly in the context of the protocol attached to the India and Sweden treaty. There is condition for beginning to tax the fees for technical services (FTS) in the DTAA between India and Portuguese i.e make available and if said condition is not fulfilled in source Country FTS cannot be taxed. The assessee is to be given the benefit of the India-Portuguese treaty on principle of MFN clause which is well recognized in international taxation. He submits that the identical issue has come for the consideration by the ITAT, Pune in the case of Sandvik Australia Pty. Ltd. Vs. D.D.I -International Tax-II, Pune in ITA No. 93/PN/2011 and the assessee‟s case is squarely covered on the interpretation of a expression-"make available". Per contra, the Ld. DR relied on the written submissions. 9. In this case the only issue to be considered by us is whether the assessee can be given benefit of India-Portuguese treaty on principle of MFN clause? The India entered into DTAA with the Sweden which was notified vide notification no. GR 705/E dated 17.12.1997. Article 12 of the India-Sweden DTAA provides the mode of taxation of the royalties and fees for techn....
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.... or consists of development and data of technical plan or technical design. In view of the above rendered by the assessee company to its Indian affiliates are in the nature of FTS or royalties and same is taxable in India. We reproduce herein under the relevant part of Article 12: ARTICLE XII - Royalties - 1. Royalties arising in one of the Contracting States, being royalties to which a resident of the other Contracting State is beneficially entitled, may be taxed in that other State. 2. Such royalties may also be taxed in the Contracting State in which they arise, and according to the law of that State, but the tax so charged shall not exceed: (a) in the case of : (i) royalties referred to in sub-paragraph (3)(b) ; (ii) payments or credits for services referred to in sub-paragraph (3)(d), subject to sub-paragraphs (3)(h) to (l), that are ancillary and subsidiary to the application or enjoyment of equipment for which payments or credits are made under sub-paragraph (3)(b); or (iii) royalties referred to in sub-paragraph (3)(f) that relate to equipment mentioned in sub-paragraph (3)(b); 10 per cent of the gross amo....
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....the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic; (j) for teaching in or by an educational institution; (k) for services for the personal use of the individual or individuals making the payments or credits; or (l) to an employee of the person making the payments or credits or to any individual or firm of individuals (other than a company) for professional services as defined in Article 14. 4. The provisions of paragraphs (1) and (2) shall not apply if the person beneficially entitled to the royalties, being a resident of one of the Contracting States, carries on business in the other Contracting State, in which the royalties arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the property, right or services in respect of which the royalties are paid or credited are effectively connected with such permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 14, as the case may be, shall apply. 5. Royaltie....
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....rring technical knowledge or technology to another. It is different than the mere obligation of the person rendering the services of that persons own technical knowledge or technology in performance of the services. The technology will be considered as made available when the person receiving the services is able to apply the technology by himself. 14. The expression „make available‟ has come for consideration before the Hon'ble High Court of Karnataka in the case of M/s.De Beers India Minerals Pvt. Ltd. (supra). In the said case, the Treaty between India and Netherlands was for the consideration of their Lordships. The assessee in that appeal was a providing company engaged in the business of prospecting and mining for diamonds and other minerals. They have been granted licences (Reconnaissance Permits) by the State Government of Karnataka, Andhra Pradesh and Chhattisgarh. During the early stage, various techniques were employed for the purpose of carrying out geophysical survey, the assessee entered into agreement with M/s.Fugro Elbocon B.V. Netherlands, who had a team of experts specialised in air borne geophysical services for clients. For the technical....
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....India Netherlands Treaty, but virtue of Protocol in the agreement, Clause (iv)(2) reads as under: "If after the signature of this convention under any Convention or Agreement between India and third State which is a member of the OECD India should limit its taxation at source on dividends, interests, royalties, fees for technical services or payments for the use of equipment to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of income, then as from the date on which the relevant Indian Convention or Agreement enters into force the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this Convention." 14. Therefore the Clause in Singapore agreement which explicitly makes it clear the meaning of the word „make available‟, the said clause has to be applied, and to be read into this agreement also. Therefore, it follows that for attracting the liability to pay tax not only the services should be of technical in nature, but it should be made available to the person receiving the technical services. The technology will be consider....
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.... In respect of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties and fees for technical services) if under any Convention. Agreement or Protocol between India and a third State which is a member of the OECD, India limits its taxation at source on dividends, interest, royalties, or fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of income, the same rate or scope as provided for in that Convention, Agreement or Protocol on the said items of income shall also apply under this Convention." 11.1 An MFN clause refers to a situation wherein two non-resident tax payers are given impartial treatment by the concerned country. In DTAAs, MFN clause find place when countries are reluctant to forego their right to tax some elements of the income. An MFN clause can direct more favourable treatment available in other treaties only in regard to the same subject matter, the same category of matter or the same clause of the matter. The protocol attached to the treaty take care of a situation where in cases either of the contracting states enter into a bilateral agreement into the natu....
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.... to the assessee company by the non-resident managers of the GDR issue within the meaning of art. 13(4)(c) of the DTAA. Likewise, decisions in the cases of Skycell Communications Ltd. (supra) and NQA Quality Systems Registrar Ltd. (supra) are distinguishable on facts, hence, are not applicable to the facts of the assessee‟s case." 11.3 It is also worthwhile to refer to the ruling given in the case of Authority for Advanced Ruling (AAA) in the case of Poonavala Aviations reported in 343 ITR 381 though it is having persuasive value which reads as under : "16. In his introduction to Double Taxation Conventions (Third Edition), Klaus Vogel, has clarified the role of a protocol and its role in interpreting a treaty. He says, "Protocols and in some cases other completing documents are frequently attached to treaties. Such documents elaborate and complete the text of a treaty, sometimes even altering the text. Legally they are a part of the treaty, and their binding force is equal to that of the principal treaty text. When applying a tax treaty, therefore, it is necessary carefully to examine these additional documents". A protocol is said to be a treaty by i....
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....ing Officer had relied on earlier order of Assessing Officer / DRP relating to assessment years 2007-08, 2008-09 and 2004-05 and held that since the issue has been decided against the assessee in earlier years, reasons were being recorded for reopening assessment for the year under appeal also. Once the issue has been decided in favour of assessee in earlier year, on which reliance was placed by the Assessing Officer while reopening the assessment, then also reasons recorded for reopening of assessment do not stand. Hence, re-assessment proceedings initiated against the assessee are invalid and bad in law. 32. Before parting, we may also refer to the appeal of assessee in ITA No.384/PUN/2015, relating to assessment year 2010-11, wherein the Tribunal vide order dated 20.12.2017 considered not only the earlier decision of Tribunal in assessee's own case but also decided the alternate argument of the Revenue that receipts for Management Service Fees are treated in the nature of dividend and taxed under clause 10 of the Tax Treaty between India and Sweden as well as under section 9(1)(iv) of the Act. The relevant findings of the Tribunal are as under:- "6. We have heard the ri....
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....t was held that the receipt of Rs. 18,94,69,420/- received by the assessee from its Indian subsidiaries could not be brought to tax in its hands. The relevant findings of the Tribunal are reproduced under paras 8 and 0 at pages 5 to 14 of the order of Tribunal datd 19.02.2016. We are making reference to the aforesaid findings of the Tribunal but for the sake of brevity, we are not reproducing the same. Consequently, we allow the claim of assessee and hold that the receipts for management services provided to the Indian affiliates amounting to Rs. 18.94 crores are not to be taxed in the hands of assessee. The ground of appeal No.1 raised by the assessee is thus, allowed. 8. Now, coming to the second issue which is raised vide ground of appeal No.2 which is alternative to the ground of appeal No.1. 9. The Dispute Resolution Panel (DRP) / Assessing Officer had in the alternate held that the receipts for management services of Rs. 18.94 crores be treated in the nature of dividends and taxable under Article 10 of the Tax Treaty between India and Sweden as well as under section 9(1)(iv) of the Act. 10. The learned Authorized Representative for the assessee poin....