TMI Blog2018 (6) TMI 1591X X X X Extracts X X X X X X X X Extracts X X X X ..... uent order passed under section 143(3) r.w.s. 147 does not stand. The second aspect of the issue is that while recording reasons for reopening the assessment, the AO had relied on earlier order of Assessing Officer / DRP relating to assessment years 2007-08, 2008-09 and 2004-05 and held that since the issue has been decided against the assessee in earlier years, reasons were being recorded for reopening assessment for the year under appeal also. Once the issue has been decided in favour of assessee in earlier year [2018 (2) TMI 249 - ITAT PUNE], on which reliance was placed by the Assessing Officer while reopening the assessment, then also reasons recorded for reopening of assessment do not stand. Hence, re-assessment proceedings initiated against the assessee are invalid and bad in law. Before parting, we may also refer to the appeal of assessee in [2017 (12) TMI 1684 - ITAT PUNE] relating to assessment year 2010-11, wherein the Tribunal vide order dated 20.12.2017 considered not only the earlier decision of Tribunal in assessee’s own case but also decided the alternate argument of the Revenue that receipts for Management Service Fees are treated in the nature of dividend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present case, the DRP was not correct in observing that there was no material on the basis of which the belief is formed since the material for formation of belief was definite and not vague and fanciful. The re-opening of the assessment was well within the scope of provisions of Income-tax Act and the reasons recorded by the Assessing Officer before issuing notice u/s. 148 are explicit and good enough to make out a fit case for re-opening of the assessment. 5. On the facts and circumstances of the present case, the learned DRP erred in not following the decision of the Hon'ble jurisdictional ITAT, Pune in the case of Cummins Inc. in ITA Nos.73 74/PN/2011 dtd. 8/08/2013 wherein the assessee's contention that the re-assessment proceedings were based on mere change of opinion was rejected, even though the original assessment was completed u/s.143(3), on the ground that there was no application of mind by the AO while deciding important legal issue involved during the original assessment proceedings for A.Ys 2004-05 and 2006-07. 4. The assessee in CO No.20/PUN/2015 relating to assessment year 2006-07 has raised the following grounds of objections:- 1. Without preju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2006, declaring total income at Nil. The Assessing Officer recorded reasons for initiating proceedings under section 147 of the Act on the ground that the assessee had received ₹ 5.61 crores as Management Services Fees, which was evident from form No.3CEB filed by Sandvik Asia Pvt. Ltd. The income was claimed to be exempt by the non-resident assessee company, in view of having no Permanent Establishment (PE) in India and the services being of commercial, managerial, marketing, technical and administrative services, the assessee claimed that the same were not taxable in view of provisions of DTAA between India and Sweden. The Assessing Officer was of the view that the claim of assessee was not correct as the management service fees falls within the ambit of section 9(1)(vii) of the Act as well as India and Sweden Treaty and was taxable as fees for technical services. The Assessing Officer also noted that Management Service Fees received by the assessee in assessment years 2004-05, 2007-08 and 2008-09 have been taxed in the hands of assessee. Consequently, the Assessing Officer was of the view that there was escapement of income under section 147 of the Act and notice under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany in its form No.3CEB and in the Notes to the return which was filed along with return of income. Since no additional information was brought to the notice of Assessing Officer, the assessee in turn, relying on series of decisions argued that re-assessment proceedings were invalid. The DRP held that reopening to be bad in law since the Assessing Officer had not mentioned any material on the basis of which, he formed belief of reopening of assessment. It was further observed that belief was to be formed on the basis of material which would act as a link with reason to believe. It was further observed by the DRP that the material on the basis of which belief was formed, should exist in the recorded reasons and not found externally. In the absence of any material brought on record on the basis of which reasons were recorded, the DRP held it to be a case of re-appraisal of existing facts and it was further held that reopening of assessment without new material was not permissible, even if the original return of income was processed under section 143(1) of the Act and the order was not passed under section 143(3) of the Act. The DRP further held that reliance placed on the ratio lai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (supra), DCIT Vs. Zuari Estate Development Investment Co. Ltd. (2015) 373 ITR 661 (SC) and the Hon ble Bombay High Court in Khubchandani Healthparks (P.) Ltd. Vs. ITO (supra) and pointed out that the Hon ble High Court has laid down the requirements in first proviso to section 147 of the Act and it has been held that where initial return was processed under section 143(1) of the Act and an intimation was sent to the assessee, reopening of such assessment no doubt, requires the Assessing Officer to form reason to believe that income had escaped assessment, but such reasons do not require any fresh tangible material. The learned Departmental Representative for the Revenue thus, pointed out that earlier decision of the Tribunal in different entities of Sandvik Group were not to be relied upon. 14. The learned Authorized Representative for the assessee in reply, pointed out that the assessee was non-resident entity based in Sweden. The assessee had filed return of income for the year under appeal on 28.10.2005. Our attention was drawn to the Notes to the computation of income, wherein the assessee claimed that the receipts were not fees for technical service. He further pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of no change of opinion and it was further held that in case of assessment under section 143(1) of the Act, reason to believe can still be challenged. He then, referred to the decision of the Hon'ble Supreme Court in CIT Vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC), wherein also it was held that reason to believe is necessary thing and the same should have like nexus with tangible material. The learned Authorized Representative for the assessee then placed reliance on the Third Member decision in Telco Dadajee Dhackjee Ltd. Vs. DCIT in ITA No.4613/Mum/2005, relating to assessment year 1998-99, order dated 12.05.2010 for the proposition that in the case of assessment under section 143(1) of the Act, reopening is to be on the basis of material available. Our attention was drawn to para 7, page 6 of the said decision. 15. The learned Authorized Representative for the assessee then pointed out that reliance by the learned Departmental Representative for the Revenue on the decision in Indu Lata Rangwala Vs. DCIT (supra) had to be seen in the facts of the said case, where bad debts of firm were claimed as expenses and also loss on fire. The Assessing Officer reopened the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance on the decision of the Hon ble High Court of Gujarat in Krupesh Ghanshyambhai Thakkar Vs. DCIT (2017) 77 taxmann.com 293 (Guj), which had also taken note of the decision in Indu Lata Rangwala Vs. DCIT (supra) and held otherwise. The learned Authorized Representative for the assessee further pointed out that the learned Departmental Representative for the Revenue had relied on the decision in Amin s Pathology Laboratory Vs. P.N. Prasad, JCIT (supra) which is case of assessment under section 143(3) of the Act and even the decisions of the Hon ble High Court of Gujarat and the Hon ble High Court of Madras are similarly placed. 16. The learned Departmental Representative for the Revenue in rejoinder again referred to the decision of Indu Lata Rangwala Vs. DCIT (supra) and pointed out that correct position of law has been propounded by the Hon ble High Court of Delhi in paras 35.2 and 35.6 and it has been held that reopening of assessment requires reason to believe. He further referred to reliance of the Hon ble High Court of Madras in TANMAC India Vs. DCIT (supra) and the Hon ble High Court of Gujarat in Krupesh Ghanshyambhai Thakkar Vs. DCIT (supra) and pointed out that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7) 291 ITR 500 (SC) to uphold re-assessment proceedings. Similarly, re-assessment proceedings were upheld in assessment years 2007-08 and 2009-10. He further pointed out that identical reasons were recorded for reopening the assessment in the case of Sandvik Systems Development AB, for assessment year 2008-09. He referred to the copy of reasons recorded for reopening of assessment dated 26.07.2013 in the said case, which are placed in Compilation No.II at pages 1 to 3. He also referred to the computation of income where the declaration in respect of receipts from Sandvik Asia Ltd. towards IT Support Services were declared in the Note No.3 and it was reported that the same do not fall within ambit of Royalty / Fees for Technical Services within the meaning of Article 12 of the Tax Treaty read with Protocol thereto. He also referred to Annexure to the audit report in this regard. He further referred to the order of Tribunal in ITA No.464/PUN/2015, relating to assessment year 2008-09, order dated 10.11.2017 and pointed out that the issue was considered at length by the Tribunal and relying on earlier order of Tribunal in the case of DDIT Vs. Sandvik Information Technology AB in ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of appeal No.2 ad 3 were on merits of the issue which would become academic in case the ground of appeal No.1 is decided in favour of assessee. He further pointed out that the issues raised in assessment years 2007-08 and 2009-10 were similar and identical to the issues in assessment year 2008-09. 18. It may be pointed out that while arguing the said appeal on identical issue, the learned Departmental Representative for the Revenue had placed reliance on the orders of DRP/Assessing Officer. The Tribunal thereafter, analyzed the issue and held as under:- 7. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is against applicability of provisions of section 147 of the Act. The said section lays down the proposition that in case where there is any escapement of income, which comes to the knowledge of the Assessing Officer on the basis of some tangible material, then the said proceedings could be reopened in order to assess the escapement of income in the hands of assessee. The assessee for the year under consideration had furnished the return of income in time declaring total income at Nil. The Assessing Officer under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2C(1) as per books of account as computed by the assessee having regard to the arm's length price (Rs) (Rs) Clause 12(a) Clause 12(b) Clause 12(c) Clause 12(d) 1 Sandvik Asia Limited Mumbai Pune Road, Dapodi, Pune 411012 Receipt for IT support services 8,072,286 8,072,286 Refer Note 6 to Appendix D 10. The Notes to this effect was also given in Form No.3CEB. The original assessment in the case was completed by issue of intimation under section 143(1) of the Act. The grievance of the Department in this regard is that in the absence of any assessment being completed under section 143(3) of the Act, since no enquiry was made by the Assessing Officer and the income had escaped assessment, hence re-assessment proceedings were correctly initiated in the hands of assessee. However, on the other hand, the case of assessee befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee constitute royalty and fees for technical services, as per sections of the Act as well as Article 12 of the DTAA between India and Sweden. Reference was made to several decisions in this regard and also to the order under section 201(1) and 201(1A) of the Act in the case of Sandvik Asia Pvt. Ltd. for assessment year 2008-09, wherein the Assessing Officer held that the payments received constitute royalty and fees for technical services. After recording aforesaid reasons for reopening the assessment, the Assessing Officer issued notice under section 148 of the Act. The assessee filed letter stating that earlier return of income may be treated as filed in response to the notice under section 148 of the Act. Thereafter, the assessee sought reasons for reopening the assessment and filed objections. The objections filed by the assessee were rejected by the Assessing Officer as there was no assessment under section 143(3)/147 of the Act and the Assessing Officer was satisfied that there was escapement of income on the basis of tangible material before him, then it was fit case for reopening the assessment. The DRP also upheld the action of Assessing Officer, in view of the ratio lai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons recorded in assessment year 2005-06. The Assessing Officer very categorically states that information came to his knowledge during proceedings in assessment year 2005-06 that the assessee had received IT Support fees and Licence fees, which has not been offered to tax. The question which arises before us is whether any tangible material is available with the Assessing Officer to come to finding of escapement of income. The second aspect of the issue is in case no assessment has been completed under section 143(3) of the Act, where there is escapement of income, proceedings can be reopened under section 147/148 of the Act keeping the spirit of provisions which are applied in the present case. The first and foremost for invoking the said provisions is the reason to believe‟ of escapement of income and such reason to believe has to be based on tangible material or otherwise there has to be live link between the reason to believe and escapement of income‟ then only the proceedings under section 147 of the Act can be initiated. The proviso under section 147 of the Act provides that where assessment under section 143(3) of the Act has been made, then no action under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitiated under section 147/148 of the Act. The case of Revenue before the Tribunal was that the Assessing Officer had reason to believe that income of assessee had escaped assessment. The case of assessee was that the said information derived from alleged tangible material for re-assessment proceedings were already furnished by the assessee in form No.3CEB filed along with return of income. The said information is reproduced at page 9 of the order of Tribunal dated 28.12.2016. The Tribunal held that the Assessing Officer can have belief for reopening assessment if there is any tangible material in his possession. The Tribunal further held that in the said case, the Assessing Officer had no new information or tangible material to come to the conclusion that there was escapement of income. The relevant findings of the Tribunal are as under:- 16. In so far contentions of the department that the Assessing Officer did not get opportunity to apply his mind on the documents furnished by assessee as the original assessment was completed u/s.143(1), we do not find any force in the said contentions. The Hon‟ble Delhi High Court in the case of CIT Vs. Orient Craft Ltd. (supra) has h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re intimations were issued earlier under Section 143(1) may well lead to such an unintended mischief. It would be discriminatory too. An interpretation that leads to absurd results or mischief is to be eschewed. 13. The Tribunal also took note of the contention of the Department that where the original assessment was completed under section 143(1) of the Act, then the Assessing Officer does not get opportunity to apply the mind and relied upon the Hon‟ble Bombay High Court in Khubchandani Healthparks (P.) Ltd. Vs. ITO reported in 68 taxmann.com 91 (Bom.), which was also in relation to assessment being completed by issue of intimation under section 143(1) of the Act and thereafter, issue of notice under section 148 of the Act. The Hon‟ble Bombay High Court also considered the ratio laid down by the Apex Court in ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra). The relevant observations of the Tribunal in this regard are as under:- 16. In so far contentions of the department that the Assessing Officer did not get opportunity to apply his mind on the documents furnished by assessee as the original assessment was completed u/s.143(1), we do not find any forc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion reason to believe in cases where assessments were framed earlier under Section 143(3) and cases where mere intimations were issued earlier under Section 143(1) may well lead to such an unintended mischief. It would be discriminatory too. An interpretation that leads to absurd results or mischief is to be eschewed. 17. The Hon‟ble Bombay High Court in the case of Khubchandani Healthparks (P) Ltd. Vs. ITO (supra) has reiterated that notice issued u/s.148 would be without jurisdiction for absence of reason to believe‟ that income has escaped assessment even in case where assessment has been completed earlier by intimation u/s.143(1) of the Act. The Hon‟ble High Court while holding so, considered the decisions rendered by the Hon‟ble Apex Court in the case of CIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. reported as 291 ITR 500 and CIT Vs. Zuari Estate Development investment Co. Ltd. (supra). The relevant extract of the judgment rendered in the case of Khubchandani Healthparks (P) Ltd. Vs. ITO (supra) reads as under : 3. On hearing the parties, we find that the Apex Court in Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence, are not sustainable. Accordingly ground No.1 to 3 raised by Department in appeal are dismissed. 14. In the facts of the present case also the assessee in the computation of total income, copy of which is placed at page 2 of the Paper Book, had in the Note given a declaration in respect of such receipts and had pointed out that the same do not fall within ambit of royalty or fees for technical services. The relevant Note reads as under:- Note: 1. Sandvik Systems Development AB ( SSDAD‟) is a non-resident company incorporated in Sweden. SSDAB does not have any office (or any other establishment) in India. It is a tax resident of Sweden under the Double Taxation Avoidance Agreement between India and Sweden ( Tax treaty‟). 2. SSDAB provides IT support services to Sandvik AB Group companies all over the world, including Sandvik Asia Limited ( SAL‟) and Walter Tools India Private Limited ( Walter India‟) in India. 3. During the year ended 31 March 2008, SSDAB has charged ₹ 19,414,642 to SAL and ₹ 310,396 to Walter India towards the aforesaid IT support services. The receipts towards such IT support services rendered by SSDAB d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 147 of the Act. The reason to believe escapement of income should have a live link. There is no merit in the stand of authorities below that in the present case, where the assessment order was passed under section 143(1) of the Act, then the Assessing Officer had no action to look at or to consider the same. Under the provisions of the Act, it is incumbent upon the Assessing Officer to come to finding on the basis of tangible material to establish his case of reason to believe of escapement of income; in the absence of which, re-assessment proceedings are invalid and bad in law. Accordingly, we hold so and cancel the same. The consequent order passed under section 143(3) r.w.s. 147 of the Act also does not stand. Thus, the ground of appeal No.1 raised by the assessee is allowed and the balance grounds of appeal become academic in nature. 12. We find that issue raised in the present appeal is identical to the issue before the Tribunal and following the same parity of reasoning as in the case of sister concern of the assessee, we hold that in the absence of any tangible material establishing escapement of income in the hands of assessee, the Assessing Officer has erred i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment has been completed by intimation under section 143(1) of the Act, there can be no question of change of opinion. This is the first finding of the Hon ble Apex Court in both the decisions which has been referred by the Hon ble Bombay High Court in Khubchandani Healthparks (P.) Ltd. Vs. ITO (supra). Then, the Hon ble High Court goes on to observe that the Hon ble Apex Court in DCIT Vs. Zuari Estate Development Investment Co. Ltd. (supra) has not dealt with the issue whether before invoking provisions of section 148 of the Act, the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment, where the original assessment was completed by intimation under section 143(1) of the Act. The Hon ble High Court further observed that the Revenue was trying to infer that because Hon ble Apex Court in DCIT Vs. Zuari Estate Development Investment Co. Ltd. (supra) had set aside the order on this count and restored the issue to be decided on merits by the Tribunal, it must be inferred that the Hon ble Apex Court had come to the conclusion that reason to believe was not necessary for issuing re-assessment notices where regular assessment was completed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra) has not been disturbed by the Apex Court in Zuari Estate Development and Investment Co. Ltd. (Supra). In fact, the Supreme Court in Zuari Estate Development and Investment Co. Ltd. (Supra) makes a specific reference to its decision in Rajesh Jhaveri Stock Brokers P. Ltd. (Supra) to hold that where the assessment has been completed by Intimation under Section 143(1) of the Act, there can be no question of change of opinion. 4. We further find that the Apex Court in Zuari Estate Development and Investment Co. Ltd. (Supra) has not dealt with the issue whether before invoking Section 148 of the Act, the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment, where the original assessment has been completed by Intimation under Section 143(1) of the Act. The Revenue is trying to infer that because the Apex Court in Zuari Estate Development and Investment Co. Ltd. (Supra) has set aside the order of this Court and restored the issue to be decided on merits by the Tribunal, it must be inferred that the Apex Court had come to the conclusion that reason to believe was not necessary for issuing reassessment Notices where the regular assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. It was also clarified by the Hon ble High Court that the Hon ble Apex Court in ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) had laid down the law on the point that even in cases where intimation under section 143(1) of the Act was issued sine qua non to issue reopening notice is reason to believe that income chargeable to tax has escaped assessment. In case of absence of reason to believe even where assessment was earlier completed by issue of intimation under section 143(1) of the Act, it was open to the petitioner to challenge notice issued under section 148 of the Act. Such proposition has been laid down by the Hon ble High Court vide its judgment dated 10.02.2016. 21. Similar is the proposition which has been laid down by the Mumbai Bench of Tribunal in Third Member decision in Telco Dadajee Dhackjee Ltd. Vs. DCIT (supra), wherein the argument was that if no opinion was formed by the Assessing Officer when return was merely processed under section 143(1) of the Act by issuing notice under section 148 of the Act, he could not be said to have changed his opinion. The Third Member held that so far so good and further held that but it needed to be remembered that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t order passed under section 143(3) of the Act, wherein the reopening was upheld holding it to be not a case of change of opinion on the part of Assessing Officer, since he had not opined in respect of an item representing unpaid purchases. Reliance placed upon by the learned Departmental Representative for the Revenue on the said case is misplaced since the issue before us is not case of change of opinion but case of reason to believe for escapement of income and the absence of tangible material. 24. Similarly, reliance on the decision of the Hon ble High Court of Delhi in Consolidated Photo Finvest Ltd. Vs. ACIT (supra) is also in respect of completed assessment, wherein no doubt the reason to believe was found from the very same record as was available during assessment. The decision is dated 17.01.2006. The decision of Apex Court in the case of ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) is prior to the ratio laid down by the Hon'ble Supreme Court in DCIT Vs. Zuari Estate Development Investment Co. Ltd. (2015) 63 taxmann.com 177 (SC) and is dated 17.04.2015. The Hon'ble Supreme Court has elaborated on the aspect of change of opinion and reason to belie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reopening the assessment, review would take place. One must treat the concept of change of opinion‟ as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is tangible material‟ to come to the conclusion that there is escapement of income from assessment. Reasons must have a link with the formation of the belief. 12. If the assessing officer, after issuing intimation u/s section 143(1) does not to issue a notice u/s 143(2) of the Act to initiate proceedings for scrutiny of the return of income, the obvious conclusion is that he does not consider it necessary or expedient to do so, the inference being that the Return of Income filed in order. It is this opinion that cannot be arbitrarily changed by the assessing officer, to re-assess income on the basis of stale material, already on record. If we thus keep in the mind the above fundamental requirement of section 147, it would be apparent that the exercise undertaken by the Revenue in this case is not one of re-assessment, but of review. The reasons make it abundantly clear that the re-assessment is sought to be ini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which it has been understood by the courts. The assumption of the Revenue that somehow the words reason to believe‟ have to be understood in a liberal manner where the finality of an intimation under section 143(1) is sought to be disturbed is erroneous and misconceived. As pointed out earlier, there is no warrant for such an assumption because of the language employed in section 147; it makes no distinction between an order passed under section 143(3) and the intimation issued under section 143(1). Therefore, it is not permissible to adopt different standards while interpreting the words reason to believe‟ vis- -vis section 143(1) and section 143(3). We are unable to appreciate what permits the Revenue to assume that somehow the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of an assessment earlier made under section 143(3) cannot apply where only an intimation was issued earlier under section 143(1). It would in effect place an assessee in whose case the return was processed under section 143(1) in a more vulnerable position than an assessee in whose case there was a full-fledged scrutiny o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Gujarat had also referred to the decision of Hon ble High Court of Delhi in Indu Lata Rangwala Vs. DCIT (supra), wherein it was observed as under: 11. At the outset, it is required to be noted that by the impugned notice, the assessment for AY 2009-2010 is sought to be reopened in exercise of power under Section 147 of the I.T Act. The reasons recorded to reopen the assessment are already produced hereinabove. Thus, as per the reasons recorded, the notice has been issued and assessment is sought to be reopened for deep verification of the claims. Even in the order disposing of the objections, it has been specifically stated that to verify whether all the criteria are met by the said transaction of ₹ 50 lakhs routed through the group and also to verify the claim of having recorded these transactions in the regular books of account, notice under Section 148 has been issued. Even with respect to investment in shares of M/s. Rushil Decor, it has been submitted that whether the investment in shares of M/s. Rushil Decor were acquired from the capital of the assessee and the same is duly recorded in the books of account, needs to be verified and for that purpose, the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in each case is hereby quashed and set-aside. 28. In view of the decision of jurisdictional High Court in Khubchandani Healthparks (P.) Ltd. Vs. ITO (supra) and the decision of Hon ble High Court of Madras in TANMAC India Vs. DCIT (supra) and Hon ble High Court of Gujarat in Krupesh Ghanshyambhai Thakkar Vs. DCIT (supra) and also the principle laid down by the Hon'ble Supreme Court in ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (supra), we find reliance placed by the learned Departmental Representative for the Revenue on the decision of non-jurisdictional High Court, where view has been expressed by jurisdictional High Court is against judicial propriety and is case of judicial indiscipline. The Pune Bench of Tribunal on identical facts had decided the issue in turn relying on the decision of jurisdictional High Court in Khubchandani Healthparks (P.) Ltd. Vs. ITO (supra) and the same has not been reversed by higher Forum, cannot be brushed aside. The insistence of the learned Departmental Representative for the Revenue on later decision of the Hon ble High Court of Delhi, where though earlier decisions are referred but not distinguished, is against judicial discipline es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer was of the view that the assessee had received management service fees of ₹ 4,85,82,800/- from Sandvik Asia Limited, Pune. The Assessing Officer was of the view that the said management service fees of ₹ 4.85 crores is to be assessed in the hands of assessee, rejecting the claim of the assessee that the said services were not taxable in India. The Assessing Officer was of the view that on joint reading of management services agreement and the definition of fees for technical services given in the DTAA with Sweden, it was apparent that the amount received by the assessee as per the said agreement with SAL was clearly in the nature of fees for technical services and therefore, was taxable in India. Another aspect noted by the Assessing Officer was whether the nature of services rendered by the assessee to SAL makes available‟ any technical knowledge, experience, skills, know-how, etc. After considering the issue at length and taking note of the clauses of agreement and the correspondence between the parties, the Assessing Officer held that the amount was received by the assessee company for providing services as per the management services agreement dated 08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt place of business in India (PE). The dispute is in respect of the payment of ₹ 5.9 Crores received by the assessee company from its Indian subsidies i.e. Sandvik Asia Pvt. Ltd. (SAPL) and WTIPL. The claim of the assessee is that the assessee received the said payment from its Indian subsidies for rendering the services which are in the nature of commercial, management, marketing and production services. The nature of the services as per the agreement are already mentioned here-in-above. In this case there is no dispute about the legal position that the amount received by the assessee from its Indian subsidies is taxable in India under normal provisions of Act more particularly u/s. 9(1)(vii) r.w.s. 5(2) of the Income-tax Act. The main plank of the argument of the Ld. Counsel is that when the assessee is covered by the beneficial clauses in the treaty entered into as per the provisions of Sec. 90 (2) of the Income-tax Act then even if the assessee‟s income is taxable in the normal provisions still he can claim the exemption from the tax as per the clauses applicable in the treaty. 8.1 Ld. Counsel argues that the above payment received by the assessee company is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuguese treaty on principle of MFN clause? The India entered into DTAA with the Sweden which was notified vide notification no. GR 705/E dated 17.12.1997. Article 12 of the India-Sweden DTAA provides the mode of taxation of the royalties and fees for technical services whether the same are to be taxed in the source country or in the residence country. The definition of the fees for technical services (FTS) is given in Article 12(3)(b) of the Act. It is true that it is a very conservative definition and there is no condition that the technical services should be made available. The India also entered into the treaty with Portuguese republic which was notified vide notification no. GR F42/E dated 16th June, 2000. In the said Treaty, mode of taxation of the fees for technical services (FTS) between two countries is also provided in the Article 12 but instead of fees for technical services the expression used is fees for included technical services . As per the Article 12(4) fees for included services means payment of fees of any kind other than those mentioned in article 14 and 15 of the said treaty, to any person in consideration of the rendering of any technical or consultancy serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under sub-paragraph (3)(b); or (iii) royalties referred to in sub-paragraph (3)(f) that relate to equipment mentioned in sub-paragraph (3)(b); 10 per cent of the gross amount of the royalties; and (b) in the case of other royalties : (i) during the first 5 years of income for which this Agreement has effect : (a) where the payer is the Government or a political sub-division of that State or a public sector company: 15 per cent of the gross amount of the royalties; and (b) in all other cases: 20 per cent of the gross amount of the royalties; and (ii) during all subsequent years of income: 15 per cent of the gross amount of the royalties. 3. The term royalties in this Article means payments or credits, whether periodical or not, and however described or computed, to the extent to which they are made as consideration for : (a) the use of, or the right to use, any copyright, patent, design or model, plan, secret formula or process, trade mark or other like property or right; (b) the use of, or the right to use, any industrial, commercial or scientific equipment; (c) the supply of scientific, technical, industrial or commercial knowledge or informati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case may be, shall apply. 5. Royalties shall be deemed to arise in a Contracting State when the payer is that State itself or a political sub-division or local authority of that State or a person who is a resident of that State for the purposes of its tax. Where, however, the person paying the royalties, whether the person is a resident of one of the Contracting States or not, has in one of the Contracting States or outside both Contracting States a permanent establishment or fixed base in connection with which the liability to pay the royalties was incurred, and the royalties are borne by the permanent establishment or fixed base, then the royalties shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. 6. Where, owing to a special relationship between the payer and the person beneficially entitled to the royalties, or between both of them, and some other person, the amount of the royalties paid or credited, having regard to what they are paid or credited for, exceeds the amount which might have been expected to have been agreed upon by the payer and the person so entitled in the absence of such relationship, the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the technical services rendered by them the said assessee had paid consideration. The Assessing Officer applied Article 12 of the Indo-Netherlands Treaty and held that the same was taxable in the hands of the Netherlands Company. As the wordings of Article 12 in the Indo-Netherlands Treaty are analogous to Article 12 of the India Australia Treaty, as expression make available‟ is also used while determining fiscal jurisdiction of the contracting state, the Hon'ble High Court explained the meaning of the expression make available‟ which was appearing in the Indo-Netherlands Treaty, the Lordships explained the expression as under: 13. Under the Act if the consideration paid for rendering technical services constitute income by way of fees for technical services, it is taxable. However, Article 12 of the aforesaid India-Netherlands Treaty defines fees for technical services for the purpose of Article 12 which deals with royalties and fees for technical services. The fees for technical services means the payment of any amount to any person in consideration for rendering of any technical services only, if such services make available technical knowledge, expert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the person who received service is enabled to apply the technology. The service provider in order to render technical services uses technical knowledge, experience, skill, know how or processes. To attract the tax liability, that technical knowledge, experience, skill, know how or process which is used by service provider to render technical service should also be made available to the recipient of the services, so that the recipient also acquires technical knowledge, experience, skill, know how or processes so as to render such technical Services. Once all such technology is made available it is open to the recipient of the service to make use of the said technology. The tax is not dependent on the use of the technology by the recipient. The recipient after receiving of technology may use or may not use the technology. It has no bearing on the taxability aspect is concerned. When the technical service is provided, that technical service is to be made use of by the recipient of the service in further conduct of his business. Merely because his business is dependent on the technical service which he receives from the service provider, it does not follow that he is making use o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame subject matter has been given more favourable treatment by way of a definition or mode of tax then the parties can claim the benefit on the recognized principle of MFN clause. In his introduction to Double Taxation Conventions (Third Edition) Klaus Vogel has explained the role of the protocol and its role in interpreting the treaty. The same has been considered by the ITAT, Calcutta in the case of DCIT V. ITC Ltd., 76 TTJ 323. 11.2 In the case of Maruti Udyog Ltd., Vs. ADIT reported in (2010) 37 DTR 85 (Delhi) explaining the scope of the protocol it is held as under : 11.1 It is settled position in law that protocol is an indispensable part of the treaty with the same binding force as the main clauses therein, as protocol is an integral part of the treaty and its binding force is equal to that of the principal treaty. The provisions of the aforesaid DTAA are, therefore, required to be read with the protocol clauses and are subject to the provisions contained in such protocol. Examined in the light of DTAAs between India and UK, USA and Switzerland, we find that in the case before us the assessee had not purchased any property from UTAC France. Therefore, none of the fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Supreme Court in Union of India vs. Azadi Bachao Andolan (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC) at p. 751 that An important principle which needs to be kept in mind in the interpretation of the provisions of an international treaty, including one for double taxation relief, is that treaties are negotiated and entered into at a political level and have several considerations as their bases . So the argument of the Revenue that the protocol cannot be relied on to understand the scope of taxation cannot be accepted. 12. So far as the present case before us is concerned, on the basis of the protocol to the DTAA between the India and Sweden the assessee can claim the benefit of the conditions imposed for bringing to tax the fees for technical services in the treaty between the India and Portuguese. We, therefore, hold that on the principle of the most favoured nation (MFN) clauses the payment of ₹ 5.93 Crores received by the assessee company from its Indian subsidies cannot be brought to tax. We, therefore, allow the grounds taken by the assessee on the above reasons. 9. The Tribunal further in assessment year 2008-09 vide order dated 22.05.2015 follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tself in earlier years i.e. starting from assessment year 2007-08. The Tribunal in ITA No.1720/PN/2011, relating to assessment year 2007-08, vide order dated 28.11.2014, thereafter vide ITA No.47/PN/2013, relating to assessment year 2008-09, vide order dated 22.05.2015 and lastly in assessment year 2004-05 in ITA No.745/PN/2014, vide order dated 19.02.2016 has deliberated upon the issue elaborately. 7. Briefly, in the facts of the case, the assessee was Non Resident Company which was incorporated in Sweden. The assessee was providing various management services to group company in India i.e. Sandvik Asia Pvt. Ltd., Pune. In view thereof, the assessee was receiving service charges pursuant to Service Agreement entered into between the parties. Sandvik Asia Pvt. Ltd. had Zero Tax Holding order, as per more beneficial provisions of India Sweden Tax Treaty, on the basis of which the said income was not chargeable to tax in India. The assessee company consequent thereto, filed the return of income declaring Nil income for the captioned assessment year. However, the Assessing Officer was of the view that management services received by the assessee at ₹ 18.94 crores were to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said concern that the same could not be treated as dividend. 11. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the orders of authorities below. 12. We find no merit in the orders of authorities below that alternatively the receipts for management services be treated in the nature of dividend and taxed under Article 10 to the Tax Treaty between India and Sweden as well as under section 9(1)(iv) of the Act. The Tribunal in the case of payer i.e. Sandvik Asia Pvt. Ltd. in ITA No.1750/PUN/2013 with Cross Appeal in ITA No.1804/PUN/2013, 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. The ground of appeal No.2 raised by the assessee is thus, allowed. 33. Following the same parity of reasoning, we decide the issue on alternate plea also in favour of assessee and allow the cla ..... 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