Case Law Details
Sandvik AB Vs DCIT (ITAT pune)
Explore the tax implications as Sandvik AB challenges the characterization of Training fees, testing DTAA provisions, and its application in the ITAT Pune decision.
We find that the assessee characterized the receipt of Training fee as a consideration for `managerial’ services within the overall ambit of Article 12 and the Revenue also accepted the same as falling under that Article but as `consultancy or technical’ service. We have held supra that the Training fee received by the assessee does not fall within the purview of Article 12 of the DTAA with Portuguese inasmuch as it is neither fees for managerial services on one hand nor consultancy or technical services on the other. Thus, the taxability of the same is required to be tested within the meaning of Article 7 read with Article 5 of the DTAA. Since such an exercise of examining the case under Article 7 has not been undertaken by the AO, we would have ordinarily remitted the matter to the AO for its de novo adjudication.
However, it is noted that the assessee received total sum of Rs. 41.82 crore from its associated enterprises including a sum of Rs.22,43,630/- from SAPL towards Training charges under consideration. Return of income was filed showing Interest received on ECB loan and interest of income-tax refund. All other receipts by the assessee from its AEs, such as, Management services fees of Rs.26.28 crore; IT Support services fee of Rs.8.83 crore were not offered for taxation on the ground that it did not have any permanent establishment in India. The AO on page 17 of the draft order has taken note of this aspect of the matter. At the end of para 11, he has categorically noted that “In view of the above discussion, the contention of the assessee that the provisions of Article 7 of taxing the business receipts in India do not apply as the company does not have a PE in India and consequently the profits from receipts from SAPL cannot be taxed as `Business Income’ is acceptable”. Since the AO has himself accepted that the assessee did not have any PE in India, the amount of Training fee will also escape tax net as it cannot be taxed as “Business profit” under Article 7 in the absence of there being any PE in India in terms of Article 5.
FULL TEXT OF THE ORDER OF ITAT PUNE
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