TMI Blog2023 (1) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... such technical knowhow etc. which he himself can use in future without any assistance of the provider and the same should not be anything which vanishes or disappears with its provision by the payee itself. Adverting to the facts of the extant case, we find from the nature of services rendered by the assessee that these are primarily pertaining to Human Resources, Marketing Consultancy services and Training services etc. Obviously, managerial services are not part of Article 12(4) of the DTAA between India-Portuguese. As regards the other services, it can be seen that such services are albeit laced with some technical knowledge and lead to their sharing during the training etc., but do not make available any technical knowledge, know-how, experience, skill etc. to the Indian entities so as to apply it in future without any aid or assistance from the assessee. The conclusion drawn by the AO is not proper because the training simply advances the skill of the recipient-employees but falls short of providing any technical knowledge, experience, skill that enables the employees to apply the technology contained therein . As such, we hold that that decision of the AO in trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 021 passed by the Assessing Officer (AO) u/s.143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) in relation to the assessment year 2016-17. 2. The first issue is against treating a sum of Rs.38,16,447/- received from HR and Marketing Consultancy services and Employee Training services as chargeable to tax in India as fees for technical services (in short FTS ). 3. Pithily put, the facts of the case are that the assessee is a company incorporated in Sweden, which is an investment and IP holding company of Alfa Laval group. A return was filed declaring total receipts of Rs.7,31,79,228/-. During the draft proceedings, the Assessing Officer (AO) observed that the total receipts of the assessee amounted to Rs.8,54,99,826/-. The first receipt, not offered for taxation, that the AO espoused for consideration is a sum of Rs.38,16,447/-, which was from its two Associated Enterprises (AEs) in India, namely, Alfa Laval India Private Limited and Alfa Laval Support Services India Private Limited. On being called upon to explain as to why it should not be considered as FTS and included in the total income, the assessee submitted that the same was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ike project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head Salaries . 7. From the above definition, it is ostensible that managerial services along with technical and consultancy services are also covered within the ambit of FTS. It is not the case of the assessee that the receipt is not taxable under the Act. The assessee has made out a case that the sum is not chargeable to tax in the hue of the DTAA, which is more beneficial than the provisions of the Act and section 90(1) of the Act permits choosing a more beneficial provision. 8. Now we proceed to examine if the amount in question also falls within the definition of the fees for included services under the DTAA. Relevant part of Article 12 of the DTAA with Sweden is as under : 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. Notwithstanding the provisions of paragraph (1) such royalties and fees for technical services may also be taxed in the Contracting State in which they arise, and according to the laws of that State, but if the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OECD, with which India has entered into a DTAA. The relevant part of the term fees for included services has been defined in the Article 12(4) of the DTAA between India and Portuguese, which flows as under : - `For the purposes of this Article fees for included services means payments of any kind, other than those mentioned in Articles 14 and 15 of this Convention, to any person in consideration of the rendering of any technical or consultancy services (including through the provisions of services of technical or other personnel) if such services: . (b) make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or technical design which enables the person acquiring the services to apply the technology contained therein. 10. A careful circumspection of the relevant part of the definition of the expression fees for included services in Article 12 of the DTAA with Portuguese divulges that any consideration, to qualify as fees for included services, must necessarily result into making available technical knowledge, experience or skill etc. to the recipient of the service. The term ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the DTAA read with Article 12(4) of the DTAA between India- Portuguese. This addition is directed to be deleted. 12. The second issue is against the confirmation of addition of Rs.20,84,698/- that the assessee claimed to be reimbursement of expenses. 13. Succinctly, the factual panorama of this issue is that the assessee received a sum of Rs.20.84 lakh from its two Indian entities and claimed the same as Reimbursement of expenses not involving any mark-up over the cost. The AO called upon the assessee to furnish necessary details to establish its case, which the assessee could not, leading to the AO treating the said amount as FTS. Certain additional evidence was filed before the DRP, which was sent to the AO for comments, who again reiterated that the details furnished by the assessee did not satisfy the claim of reimbursement. This resulted in treating Rs.20.84 lakh as FTS thereby swelling the assessee s income pro tanto. 14. We have heard the rival sides and gone through the relevant material on record. The splitting-up of Rs.20.84 lakh is as under :- Particulars Amount (in INR) Alfa Laval India Private Limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Indian entities, who functioned there and were on their Payroll. It was claimed that for administrative convenience, certain amounts were deposited in the employees account, which were recovered from Indian entities as such. Their salary was claimed to have been taxed in entirety in India including the amount under consideration. The AO did not accept the assessee s contention on the ground that no supporting evidence was produced to demonstrate as to how reimbursement of Rs.64.19 lakh was received from the Indian AE and further that it was offered for taxation by these employees as salary in India. The DRP did not provide any succour to the assessee. 19. Having heard the rival submissions and gone through the relevant material on record, it is seen that the assessee has canvassed a case that the amount in question was part of the salary of certain expatriates, who were on payroll of the Indian entities and that this amount was recovered from Indian companies without any mark-up. The assessee also contended that this amount was offered to tax in India by such employees. 20. Explanation 2 to section 9(1)(vii) provides that FTS includes any consideration for rendering mana ..... 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