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2020 (12) TMI 259 - AT - Income TaxIncome accrued in India - income attributable to the PE - India-Sweden Tax Treaty - offshore supply of train control and signaling equipment to DMRC under Contract BS02 - HELD THAT - As decided in own case 2020 (10) TMI 1205 - ITAT DELHI intermediary services rendered by the appellant do not make available any technical knowledge, skill etc to BTIN and BTIN is not a equipped to apply technology contained in services rendered by the appellant. Therefore, the intermediary services provided by the appellant to BTIN do not tantamount to FTS and accordingly, shall not be taxable in India. TPO has examined the international transactions and has accepted the same to be at ALP, we do not find any merit the additions made by the DRP. We accordingly, direct the Assessing Officer to delete the addition of income attributable to PE On identical facts and in view of the order of the Co-ordinate Bench on the issue being in favour of the assessee in assessee s own case in Assessment Year 2011-12, we are in agreement with the contentions of the Ld. AR. However, the only thing remaining to be verified is whether there was no secondment of any employee to India for the contract BS-02. The AO/TPO is directed to verify the same and if no such secondment of any employee is there, the AO/TPO is to delete the addition with respect to PE. The AO/TPO shll allow adequate opportunity to the assessee in this regard.
Issues Involved:
1. Taxability of payments for intermediary services as Fees for Technical Services (FTS). 2. Existence of a Permanent Establishment (PE) of the assessee in India. Issue-wise Detailed Analysis: 1. Taxability of Payments for Intermediary Services as Fees for Technical Services (FTS): Summary of Facts and Arguments: - The assessee, a non-resident company incorporated in Sweden, engaged in manufacturing train control and signaling systems, rendered intermediary services like marketing, sales, business development, project management, and customer services, receiving fees amounting to ?1,44,09,831/-. - The Assessing Officer (AO) sought to tax these revenues in India as FTS, arguing that the services rendered by the assessee did not make available any technical knowledge, skill, etc., to BTIN. - The assessee contended that the services did not meet the 'make available' criteria under Article 12 of the India-Sweden Double Taxation Avoidance Agreement (DTAA) and thus should not be taxed as FTS. Tribunal's Findings: - The Tribunal referred to its earlier decision for Assessment Year 2011-12, where it held that intermediary services rendered by the assessee did not make available any technical knowledge or skill to BTIN. - It emphasized that for services to be classified as FTS, they must result in the recipient being able to apply the technology independently in the future. - The Tribunal reiterated that merely providing services requiring technical knowledge does not suffice; the recipient must be enabled to apply the technology. - Accordingly, the Tribunal upheld the CIT(A)'s decision that the payments for intermediary services could not be taxed as FTS, dismissing the Department's appeal. 2. Existence of a Permanent Establishment (PE) of the Assessee in India: Summary of Facts and Arguments: - The AO held that BTIN constituted a PE of the assessee in India under Article 5(1) of the India-Sweden DTAA, attributing ?27,30,829/- to the PE. - The assessee argued that BTIN was an independent entity, and the offshore supply of equipment to DMRC was not taxable in India as the title transfer and payments occurred outside India. - The CIT(A) upheld the AO's decision, relying on the directions of the DRP for AY 2011-12, which found BTIN to be a PE of the assessee. Tribunal's Findings: - The Tribunal noted that the issue of PE was addressed in its decision for AY 2011-12, where it concluded that the supplies made under the BS-02 agreement were offshore supplies and not taxable in India. - It highlighted that the MOU between the assessee and BTIN clearly bifurcated their scope of work, with BTIN responsible for onshore activities and the assessee for offshore supplies. - The Tribunal found that the assessee did not have a place of business in India, and all business activities related to offshore supplies were conducted outside India. - The Tribunal directed the AO/TPO to verify whether any employees were seconded to India for the contract BS-02. If no such secondment occurred, the addition with respect to PE should be deleted. - Consequently, the Tribunal allowed the assessee's appeal for statistical purposes, directing further verification by the AO/TPO. Final Outcome: - The Department's appeal was dismissed. - The assessee's appeal was allowed for statistical purposes, pending verification of employee secondment by the AO/TPO. Order Pronouncement: - The order was pronounced on 27/11/2020.
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