Case Law Details
Faurecia Systems D’echappement Vs ACIT (ITAT Pune)
The issue raised by the assessee challenging the action of AO in holding the income from providing IT support services as taxable for fees for technical services.
ITAT find that in the case of M/s. FAurecia Automotive Holding discussed the identical issue in detail from para 15 and held that the IT support services rendered by the assessee, which are otherwise technical in nature, do not involve any imparting of information concerning technical, industrial, or commercial knowledge to Faurecia, India. Mere rendering of services, cannot be brought within the scope of section 9(1)(vi) of the Act and the receipt thereon under IT support services does not fall within the ambit of section 9(1)(vi) of the Act. Therefore, it clear the IT support services received by the Indian entity from assessee do not involve any imparting of information concerning technical, industrial or commercial knowledge and the receipt cannot be held as fees for technical services. Therefore, following the same ITAT hold that the receipts received by the assessee from Indian entity is not a receipt to be taxed under fees for technical services. The final assessment order passed by the AO is set aside and ITAT direct the AO not to tax the receipt under IT support services as taxable in India in the hands of assessee. Accordingly, issue raised by the assessee is allowed.
FULL TEXT OF THE ITAT JUDGEMENT
These two appeals by the assessee against the separate orders dated 24-10-2019 and 10-10-2019 passed by the AO for assessment years 2015-16 and 2016-17, respectively.
2. Shri Naresh Kumar, the ld. AR submits that the issues raised in both the appeals are similar basing on same identical facts and prayed to take up the facts in ITA No. 2005/PUN/2019 as a lead case. Upon hearing both the parties, we proceed to hear both the appeals together and pass consolidated order for the sake of brevity.
3. We first take up the appeal in ITA No. 2005/PUN/2019 for A.Y. 2015-16.
4. Ground Nos. 1 and 2 are general in nature, hence, require no adjudication.
5. Ground No. 3 raised by the assessee challenging the action of AO in holding the income from providing IT support services as taxable for fees for technical services.
6. The brief facts relating to the issue is that the assessee is tax resident of France and engaged in the computerization of systems, office automation and utilization of personal computers. It helps the Indian entity to equipped (Software, Hardware and Networks) and implementation of systems. The assessee received income of Rs.7,07,19,334/- from IT support cost (Global Information Support Allocation Charges). Apart from this the assessee also received income from royalties of Rs.5,93,90,978/-and Software Maintenance Services of Rs.7,27,69,085/- against which the Dispute Resolution Panel (DRP) considered the same against assessee and no appeal preferred by the assessee before this Tribunal. Therefore, the only issue for our consideration is IT support cost (Global Information Support Allocation Charges).
7. According to AO the payment received by the assessee for IT support cost is in the nature of fees for technical services and within the meaning of section 9(1)(vii) of the Act r.w. Article 13 of the DTAA between India and France and sought explanation from the assessee why said payment is not taxable in India. According to the assessee as per service agreement the assessee rendered support services to Indian entity in relation to information technology support. The said service includes providing assistance to run operations, giving technical support and providing studies for adaptation of information system to meet users needs. By virtue of provisions of Article 13 read with para 7 of the Protocol of India-France tax treaty and services do not make available any technical knowledge, experience, skill, know-how or processes and do not fall within the definition of „Fees for Technical Services”. Further, the assessee contended that the issue of taxability to IT support cost as royalty has been ruled in favour of the assessee by the DRP-3, Mumbai for the A.Ys. 2013-14 and 2014-15. The AO did not accept the submissions of assessee and rejected the same and held the payment of Rs.7,07,19,334/- received by the assessee as IT support cost are in the nature of Fees for Technical Services within the meaning of section 9(1)(vii) of the Act read with Article 13 of DTAA between India and France are taxable in India @ 10%.
8. The ld. AR referred to page 72 of Vol.-1 of paper book and drew our attention the preamble and definitions incorporated in the said agreement and submitted the services received by the Indian entity and payments made to the assessee are same and identical to the facts and circumstances of the earlier years which was confirmed by the DRP-3, Mumbai in assessee‟s favour holding the payments received by the assessee are not within the ambit for Fees for Technical Services. Further, he referred to page 148 of the paper book to show the breakup of services and payments received thereon by the assessee and submitted that it is identical to the payments received in the earlier years. Further, he contended that treaty agreement between India and France under Most Favoured Nation (MFN).
9. Shri T. Vijaya Reddy, the ld. DR submits that it is necessary to see what is the nature of services and nowhere services rendered by the assessee brought on record by the assessee. The ld. DR referred to page 4 of the final assessment order and drew our attention to the terms of operations and submitted that the assessee helps Indian entity to run the IT operations which includes the organization, management of the IT infrastructure and of the applications available on IT infrastructure, upgrade of current applications from project phase to delivery production. He argued that the term run is very important as it is to run the operations which includes training the people to impart knowledge. According to him the assessee is making available the services to enable the local people to run the operations in the absence of computer which means the services rendered by the assessee to its Indian entity is in the technical nature and payments received thereon is to be considered as Fees for Technical Services. He referred to page 56 of the final assessment order and submitted the meaning of make available the technology will be considered made available when the person who received service is enabled to apply the technology. He submitted that the technology helping the operations by training the local people and the service provider i.e. the assessee whether the recipient is enabled to use the technology which the service provider had used i.e. running the operations by training and importing knowledge to local people.
10. Having heard both the parties and considering the submissions of ld. AR and ld. DR. We note that the facts relating to the issue arose before us by the assessee are similar and identical to the earlier years i.e. A.Ys. 2013-14 and 2014-15 where the AO did not tax the receipt as fees for technical services.
11. We note that the DRP’s order for A.Y. 2013-14 is placed on record from pages 1 to 26 of paper book wherein the DRP discussed the issue from page 12 and observed that the IT support services rendered by the assessee are in the nature of providing services lime organization and management of daily operations of IT infrastructure and the applications available in the infrastructure, changes and evolutions of applications available, upgrade of current applications from project phase to delivery production, local IT support to users on site to order, change or upgrade PC or local applications, central support with help desk and adapting the information systems to meet user’s needs. The DRP was of the opinion that though these services require application of technical knowledge or experience or skill for rendering them, the recipient only receives the output of the services and in no way gets equipped with such technical knowledge or experience or skill to carry out such activities by itself in future without recourse to the assessee and the receipts arising out of such services provided by the assessee does not fall under the ambit of Fees for Technical services as defined in the treaty and directed the AO to not to tax receipt from IT support services either Royalty or Fees for Technical Services. Following the directions of DRP vide its order dated 29-12-2016 the AO passed final assessment order on 07-02-2017 wherein we note that as submitted by the ld. AR that the receipt from IT support services is neither tax under royalty nor as fees for technical services. As discussed above, we find that the AO did not tax the receipts from IT support services for subsequent year A.Y. 2014-15.
12. The ld. AR placed on record service agreement entered into Faurecia Systems D’echappement and Faurecia Emissions Control Technologies Center India Private Limited and submitted an identical issue arose between Faurecia Systems D’echappement and Faurecia Emissions Control Technologies Center India Private Limited which are sister concerns of the assessee. The Tribunal vide its order dated 08-07-2019 for A.Y. 2011-12 and referred to para 15.2 and submitted that the Tribunal held in favour of assessee. On perusal of the said order, we find that this Tribunal in the case of M/s. FAurecia Automotive Holding discussed the identical issue in detail from para 15 and held that the IT support services rendered by the assessee, which are otherwise technical in nature, do not involve any imparting of information concerning technical, industrial, or commercial knowledge to Faurecia, India. Mere rendering of services, cannot be brought within the scope of section 9(1)(vi) of the Act and the receipt thereon under IT support services does not fall within the ambit of section 9(1)(vi) of the Act. Therefore, it clear the IT support services received by the Indian entity from assessee do not involve any imparting of information concerning technical, industrial or commercial knowledge and the receipt cannot be held as fees for technical services. Therefore, following the same we hold that the receipts received by the assessee from Indian entity is not a receipt to be taxed under fees for technical services. The final assessment order passed by the AO is set aside and we direct the AO not to tax the receipt under IT support services as taxable in India in the hands of assessee. Accordingly, ground No. 3 raised by the assessee is allowed.
13. Ground No. 4 raised by the assessee praying to direct the AO for re-verification of credit of tax deducted at source.
14. After hearing both the parties we are of the opinion that the AO did not grant credit of tax deducted at source of Rs.17,91,034/- and in view of submissions of ld. AR and ld. DR, we deem it proper to remand the issue to the file of AO for re-verification of issue raised before us and pass order in accordance with law. The assessee is liberty to file all the evidences in support of its claim. Accordingly, ground No. 4 raised by the assessee is allowed for statistical purpose.
15. In the result, the appeal of assessee is allowed.
16. Both the sides are unanimous in stating that the facts and the grounds of appeal raised in ITA No. 2006/PUN/2019 is identical to the grounds raised in ITA No. 2005/PUN/2019. Thus, in view of the fact that the issues in the appeal is identical and is arising from same set of facts the findings given by us while adjudicating the appeal in ITA No. 2005/PUN/2019 would mutatis mutandis apply to the appeal in ITA No. 2006/PUN/2019, as well. Accordingly, the appeal of assessee is allowed.
17. To sum up, both the appeals of assessee are allowed. Order pronounced in the open court on 28th February, 2020.
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