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2024 (5) TMI 442 - AT - Income TaxTaxability of income in India - receipts from services rendered to Indian entities - Taxability as Fee for Technical Services (FTS) in terms of Article 12 of India Sweden Double Taxation Avoidance Agreement (DTAA) - assessee is a non-resident corporate entity incorporated in Sweden - HELD THAT - Under Business Application Related Services, the assessee provides access to the business application softwares, which are used for various purposes, such as, inventory management, sales management, data warehousing applications, product design and modeling, human resource management etc. Under the End User Services and Shared Infrastructure, the assessee provides facilities and various services keeping in view the End User requirement, such as, emails, personal computer environment, voice/telephone. Under the voice support, mobile and fixed voice services are provided to connect people in local and global context. Under the IT support services, the assessee operates service desk for all types of IT related issues from end users. Under the Volvo Corporate Network, assessee provides a secured access to Volvo Network, which is prerequisite for use of any business application other IT services provided by the assessee. The assessee also provides Business Consultancy Services in terms of which it renders consultancy services with respect to IT services provided by it. Though, the assessee has claimed that these are standard and routine services, however, fact remains that the assessee has provided managerial, consultancy and technical services. Copies of invoices placed in the paper-book do not provide the description/details of services provided. In the instant case, the AO has examined the nature of receipts in respect of certain services rendered by the assessee to the Indian entities and found them to be FTS. The aforesaid factual position is not disputed even by the assessee. Therefore, it is established on record that the receipts are in respect of certain services rendered by the assessee. If that is the case, it needs to be examined, whether the receipts in relation to services rendered fall within the definition of FTS. AO has done exactly the same. Therefore, the action of the Assessing Officer in characterizing the receipts as FTS cannot be called into question by advancing the theory of rule of consistency. Thus, in our view, the judicial precedents cited before us by learned Senior Counsel would be of no help to the assessee, as, what is essential to determine is, the nature and character of receipts in the instant assessment year and not, what the Assessing Officer has erroneously held in earlier assessment years. Thus, on overall consideration of facts and materials on record, we hold that the payments received by the assessee for providing certain services to the Indian group entities are in the nature of FTS as defined under Article 12(3)(b) of India Sweden DTAA, hence, taxable. Applicability of MFN clause under the Protocol to India Sweden treaty so as to import the restrictive definition of FTS under India Portugal and India Finland DTAAs, in our view, the issue is no more res-integra in view of the ratio laid down in case of Nestle SA 2023 (10) TMI 981 - SUPREME COURT - Ground decided accordingly.
Issues Involved:
1. Validity of the assessment order u/s 143(3) read with section 144C of the Income-tax Act, 1961. 2. Taxability of Rs. 114,31,40,765/- as Fee for Technical Services (FTS) under Article 12 of India - Sweden DTAA. 3. Levy of interest amounting to Rs. 10,00,990/-. 4. Non-grant of TDS credit on the interest issued u/s 244A of the Act. Summary: 1. Validity of the Assessment Order: The assessee challenged the validity of the assessment order stating it was barred by limitation u/s 153(1) of the Act. Additionally, the assessee questioned the validity of DRP's direction in absence of proper Document Identification Number (DIN). However, these legal issues were not adjudicated at this stage and were kept open as per the instructions of the assessee's counsel. 2. Taxability of Rs. 114,31,40,765/- as FTS: The main issue was whether the amount received by the assessee, a non-resident corporate entity from Sweden, for providing IT services to Indian entities should be taxed as Fee for Technical Services (FTS) under Article 12 of India - Sweden DTAA. The Assessing Officer (AO) and DRP concluded that the services provided, including Business Application related Services, End User Services, and Business Consultancy, fell within the ambit of FTS under Article 12(3) of the DTAA. The assessee contended that these were routine services and invoked the Most Favoured Nation (MFN) clause to apply the more restrictive definition of FTS from India - Finland and India - Portugal DTAAs. However, the Supreme Court's decision in AO vs. M/s Nestle SA negated the applicability of the MFN clause. The tribunal upheld the AO's view that the payments received were indeed FTS under Article 12(3)(b) of the DTAA. The rule of consistency was also dismissed, allowing the AO to re-characterize the receipts as FTS in the current assessment year. 3. Levy of Interest: The assessee raised the issue of levy of interest amounting to Rs. 10,00,990/-. The tribunal directed the AO to verify the assessee's claim and decide in accordance with the law after providing a reasonable opportunity of being heard. 4. Non-grant of TDS Credit: The assessee claimed non-grant of TDS credit on the interest issued u/s 244A of the Act. The tribunal directed the AO to factually verify the claim and decide in accordance with the law. Conclusion: The appeal was partly allowed for statistical purposes, with specific directions to the AO on the issues of levy of interest and non-grant of TDS credit. The tribunal pronounced the order in open court on 7th May, 2024.
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