Leadership training receipts are not chargeable to tax as per Article 12(4)(b) of the DTAA between India and Portuguese, the Pune Bench of the Income Tax Appellate Tribunal (ITAT)has held as above.
Sandvik AB,the assessee is a non-resident company incorporated in Sweden. The return of income was filed declaring total income at Rs.22,34,65,240/-, offering only two receipts to tax, namely, interest received on ECB loan amounting to Rs.2.66 crore and receipt of Fees for Technical Services (FTS’) from Walter Tools India Private Limited amounting to Rs.11.46 lakh, both aggregating to Rs.2.77 crore.
The AO rejected the claim of the assessee and found that the amount was also covered within the scope of Article 12(4) and made an addition of Rs.17.43 crore towards Management Support fees by taking it as fees for technical services.
The assessee has challenged the inclusion of Rs.1,17,61,448/- and Rs.20,46,592/- in its total income received towards Human Resources services and Leadership Seminar and Conference services provided to its Indian entity by treating it as ‘FTS’.
It was evident that there can be no controversy about the applicability of the India-Portuguese DTAA to the assessee from Sweden because of the MFN clause contained in the Protocol to the India-Sweden DTAA. The concern is only to examine if the amounts received by the assessee fall within the relevant clause of the India-Portuguese DTAA.
Article 12 of the India-Portuguese treaty deals with “Royalties and Fees for Included Services. Para 1 of the Article states that “Royalties and Fees for Included Services” arising in India and paid to a resident of Sweden may be taxed in Sweden. Para 4 of Article 12 defines “Fees for Included Services”
From the orders passed by the Tribunal for the earlier years, it turns out that the Leadership training receipt has been specifically held to be not chargeable to tax in the light of Article 12(4)(b) of the DTAA between India and Portuguese.
A Coram of Shri R S Syal, vice president and Shri S S Viswanethra Ravi, judicial member observed that for the year under consideration some is overlapping in the receipts from HR services and Leadership Training and the assesseehave placed on record certain additional evidence which, inter alia, is required to be examined afresh to precisely determine the nature of HR services.
The impugned order was set aside and remitted the matter to the file of the AO by the Tribunal for examining if both receipts are covered under Article 12(4)(b) of the DTAA between India and Portuguese Portuguese for determining their taxability or otherwise.
Shri Nikhil Pathak appeared for the assessee and Shri Shishir Srivastava appeared for the revenue.
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