2017 (12) TMI 1684 - AT - Income Tax

Taxability of receipts for management services - fees for Technical Services ( FTS ) - India Portuguese Treaty - Most Favoured Nation clause - HELD THAT - The Tribunal in 2016 (3) TMI 964 - ITAT PUNE vide para 8 in assessment year 2004-05 referring to earlier order in assessment year 2007-08 2014 (12) TMI 388 - ITAT PUNE discussing the principle of Most Favoured Nation clause vis- -vis payment received by the assessee company from its Indian subsidiaries held that the same could not be brought to tax. 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 assessee is allowed. Taxability as dividend - Treaty between India and Sweden - HELD THAT - The Tribunal in the case of payer i.e. Sandvik Asia Pvt. Ltd. in 2017 (6) TMI 1290 - ITAT PUNE relating to assessment year 2005-06 vide order dated 14.06.2017 held that management fees paid to Sandvik AB Sweden i.e. the assessee before us was income on account of rendering of management services and could not be treated as dividend. Following the same parity of reasoning we dismiss the alternative stand of the DRP/Assessing Officer in taxing the management service charges in the hands of assessee. Taxability of receipt of affiliate company as receipt of the assessee - HELD THAT - we direct the Assessing Officer to verify the invoices raised in this regard and tax the amount in the hands of correct recipient i.e. the assessee or its affiliate company. Undoubtedly reasonable opportunity of being heard would be granted to the assessee in this regard. Taxability of receipts for induction and leadership training provided by the assessee as taxable in India as Royalty / FTS - HELD THAT - The services provided by the assessee are governed by India-Portuguese Treaty and consequently applying the principle of Most Favoured Nation clause the payments received by the assessee company from its Indian subsidiary could not be brought to tax in the hands of assessee.

Issues involved:
1. Taxability of management service charges received by the assessee from its Indian affiliates.
2. Alternative treatment of management service charges as dividends under the Tax Treaty between India and Sweden.
3. Determination of management service receipts ignoring credit notes issued by the appellant.
4. Taxation of receipts of an affiliate company as the assessee's income.
5. Taxability of receipts for induction and leadership training provided by the assessee.

Issue 1: Taxability of management service charges:
The appellant contested the taxability of management service charges received from Indian affiliates, arguing they were not Fees for Technical Services (FTS) under the India-Sweden Tax Treaty. The Assessing Officer taxed the charges as FTS, but the Tribunal, citing earlier orders, held that the charges were not taxable due to the Most Favoured Nation clause. The Tribunal found the charges were not taxable in the hands of the assessee, a Non-Resident Company incorporated in Sweden.

Issue 2: Treatment of management service charges as dividends:
The Dispute Resolution Panel considered treating the charges as dividends under the Tax Treaty between India and Sweden. However, the Tribunal dismissed this alternative stand, citing a previous case involving Sandvik Asia Pvt. Ltd., where similar charges were not treated as dividends. The Tribunal allowed the appeal on this ground as well.

Issue 3: Determination of management service receipts:
The appellant disputed the determination of management service receipts, arguing for consideration of credit notes issued. The Tribunal directed the Assessing Officer to examine this issue, verify invoices, and tax the amount in the hands of the correct recipient, either the assessee or its affiliate company.

Issue 4: Taxation of affiliate company receipts:
The appellant challenged the taxation of receipts amounting to &8377; 29,81,376 as its income, claiming they belonged to an affiliate company. The Tribunal directed the Assessing Officer to verify this claim and tax the amount in the hands of the correct recipient, allowing the appeal on this ground.

Issue 5: Taxability of induction and leadership training receipts:
The Taxing Officer included receipts for induction and leadership training as taxable under Royalty/FTS. The appellant argued for non-taxability under the India-Portuguese Treaty, invoking the Most Favoured Nation clause. The Tribunal held that these receipts, governed by the treaty, were not taxable in the hands of the assessee, allowing the appeal on this ground.

In conclusion, the Tribunal allowed the appellant's appeal on all issues, holding that the management service charges, affiliate company receipts, and training receipts were not taxable in the hands of the assessee.

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