2022 (11) TMI 1342 - AT - Income Tax

Income taxable in India - Royalty receipts - receipts on account of I.T. support services and management services - HELD THAT - As decided in assessee own case 2022 (6) TMI 1382 - ITAT PUNE extant payment received by the assessee can neither be considered as royalty u/s 9(1)(vi) of the Act nor as fees for technical services and therefore, the same cannot be included in the total income of the assessee. As in assessee s own case, Pune Tribunal has given relief to the assessee on this very issue in A.Y. 2011-12 as well as in A.Y. 2017-18. The ld. CIT DR could not produce any materials/evidences on record to suggest any deviance from the facts situation. Therefore, following our order in assessee s own case (supra) on the same parity of reasoning these grounds of the assessee are allowed.

Summary

Issues Involved:
1. Taxability of receipts from IT Support Services and Management Services as Fees from Technical Services (FTS).
2. Taxability of receipts from IT Support Services and Management Services as Royalty.
3. Legality of penalty proceedings under section 270A of the Income-tax Act, 1961.

Detailed Analysis:

1. Taxability of Receipts from IT Support Services and Management Services as Fees from Technical Services (FTS):

The appellant contended that the receipts from IT Support Services and Management Services are not taxable as FTS under the provisions of Section 9(1)(vii) of the Income-tax Act, 1961, and the Double Taxation Avoidance Agreement (DTAA) between India and France. The appellant argued that the services rendered do not "make available" technical knowledge, experience, skill, or know-how to the recipient, which is a requirement under the India-UK DTAA, which should be read in conjunction with the India-France DTAA due to the Most Favoured Nation (MFN) clause.

The assessment order observed that the services provided by the appellant were managerial, technical, and consultancy in nature, thus falling under the definition of FTS as per Article 13(4) of the India-France DTAA. The Dispute Resolution Panel (DRP) upheld this view, stating that the receipts are taxable as FTS under the DTAA.

However, the ITAT Pune, referencing previous decisions in the appellant's own case for earlier assessment years, concluded that the services rendered did not "make available" any technical knowledge, experience, skill, or know-how to the Indian entity. Consequently, the receipts could not be taxed as FTS under the India-France DTAA when read with the India-UK DTAA.

2. Taxability of Receipts from IT Support Services and Management Services as Royalty:

The appellant also contended that the receipts should not be treated as Royalty under Section 9(1)(vi) of the Income-tax Act, 1961, and the DTAA between India and France. The assessment order stated that the appellant shared information concerning commercial/industrial experience with the associated enterprise (AE), which was used by the AE's personnel to perform various functions. This sharing of information was considered as imparting technical knowledge, thus falling under the definition of Royalty as per Article 13(3) of the India-France DTAA.

The DRP upheld this view, treating the receipts as Royalty. However, the ITAT Pune, referencing previous decisions in the appellant's own case, held that the services rendered did not involve the transfer of any right, property, or information concerning technical, industrial, or commercial knowledge. Therefore, the receipts could not be taxed as Royalty under Section 9(1)(vi) of the Act or the DTAA.

3. Legality of Penalty Proceedings under Section 270A:

The appellant argued that the initiation of penalty proceedings under Section 270A of the Income-tax Act, 1961, was erroneous as the additions made by the Assessing Officer (AO) were not in accordance with the law. The appellant contended that there was a mere difference of opinion regarding the taxability of income, which should not attract penalty.

The ITAT Pune noted that the penalty proceedings are consequential and should be addressed based on the final determination of the taxability of the receipts. Given that the ITAT decided in favor of the appellant on the taxability issues, the penalty proceedings would also be impacted accordingly.

Conclusion:

The ITAT Pune allowed the appeal, holding that the receipts from IT Support Services and Management Services could neither be taxed as Royalty nor as Fees for Technical Services under the relevant provisions of the Income-tax Act, 1961, and the DTAA between India and France. Consequently, the penalty proceedings under Section 270A were also deemed not applicable. The decision was pronounced in the open court on 1st November 2022.