INCOME TAX ACT, 1961

Section 9(2)(vii) Article 12

Income deemed to accrue and arise under section 9(1)(vii) - Royalty or FTS - IT services -

Assessee company was incorporated in 1907 and headquartered at Goteborg, Sweden. Assessee company had entered into two agreements for providing technology collaboration and technical assistance and service agreement with respect to various management services and such agreements were in force till assessment year 2010-11. Thereafter, the assessee had broken down two agreements into three agreements, i.e., the trademark licence agreement, the technology licence agreement and IT services delivery agreement. The assessee had offered total receipts from both agreements under the head royalty, as per the India-Sweden DTAA. However, subsequently the assessee had revised its return of income and reduced fees received from two subsidiaries, in respect of IT related services, on the ground that it was not in the nature of royalty, as defined under the India-Sweden Tax Treaty and hence, not liable to tax in India. Assessee had entered into agreements with SKF Technologies, in relation to technology License agreement, Trademark License agreement and IT service delivery agreement. AO had discussed the meaning of terms 'industrial, commercial or scientific experience' and had concluded that the services rendered by the assessee, also falls under this category of FTS. DRP confirmed order of AO. Held: Assessee had not brought on record any evidences to prove that there was any significant change in the operational set up in the new agreement. Further, when, the substance of transactions had remained the same, the AO was correct in reference to earlier agreements, while arrived at a conclusion that there is no change in total services rendered by the assessee to its AE, even though, the IT services delivery agreement had been separated from assessment year 2011-12 onwards.The nature of services rendered by the assessee were considered, in light of scope of services mentioned in agreement between the parties, the service rendered by the assessee were 'FTS' as per the provision of section 9(1)(vii) of the Income Tax Act, 1961, as well as per the definition of FTS as per the India-Sweden tax treaty and hence, liable to be taxed in India. Although, the assessee was entitled for MFN benefit, as per the protocol, but, fact remains that services rendered by the assessee, in light of IT services delivery agreement was in the nature of FTS, even under the India-Portugal tax treaty, as well as India-USA tax treaty.

Distinguished:Sanvnick Australia v. DDIT (2013) 141 ITD 598 (Pune-trib) : 2013 TaxPub(DT) 1105 (Pune-Trib) and ITO v. MSK Travels & Tours Ltd. ITA No. 284/Mum/2015 : 2018 TaxPub(DT) 3774 (Kol-Trib).

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2013-14 & 2014-15

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