2012 (6) TMI 476 - AT - Income Tax

Reimbursement of expenses - Article 7 read with Article 5 of Indo-UK DTAA Held that - it is an undisputed position that the payment for technical services, which is sought to be brought to tax in the hands of the assessee, is in the nature of reimbursement of technical expenses to the head office. - fee for provision of marketing and management services rendered outside India not subjected to tax in India holding that the same constituted business profit not attributable to PE in India. - Decided in favor of assessee. Reimbursement of lease line charges - held that - reimbursement of lease line charges received by the assessee from WNS India was not chargeable to tax in India. - Decided in favor of assessee. Whether reimbursement of expenses taxable as fees for technical services under 13 of the Indo-UK tax treaty - assessee-company had incurred various expenses on the employees of WNS India on their visits abroad - amount in question was received by the assessee on account of reimbursement of expenses actually incurred by it on behalf of WNS India Held that - exact nature of expenses and services was not ascertainable in the absence of relevant details filed by the assessee. it is necessary to ascertain the exact nature of expenses incurred by the assessee and services rendered, for which the amount in question is claimed to be received as reimbursement in order to decide the issue relating to its taxability in India. Matter remanded to Assessing Officer. assessee s appeal allowed for statistical purposes DTAA between India and UK - article 7 of the India UK treaty - income deemed to accrue or arisen in India - assessee-company took over the assets, liabilities and business of M/s Town and Country Assistances Ltd. including the BPO contracts Held that - transfer or assignment of the said contracts not being the capital assets situated in India did not give rise to any income which was deemed to accrue or arisen in India. assessee-company had a service PE in India as a result of marketing and management services rendered to WNS India through the deputation of personnel in India and the said PE going by its very nature having no involvement either in the acquisition of BPO contracts or assignment/transfer thereof to WNS India, the sale consideration received by the assessee outside India for assignment or transfer of BPO contracts from (sic-to) WNS India cannot be treated as income attributable to the service PE of the assessee-company in India so as to bring the same to tax in India even as per article 7 of the India UK treaty. In favor of assessee

Issues Involved:
1. Taxability of marketing and management fees under the India-UK DTAA.
2. Classification of reimbursement of lease line charges as royalty.
3. Interest under sections 234B and 234C.
4. Taxability of reimbursement of expenses as fees for technical services.
5. Taxability of income from the sale of customer contracts.

Detailed Analysis:

1. Taxability of Marketing and Management Fees under the India-UK DTAA:
The Revenue's appeal challenged the CIT(A)'s decision that the assessee's marketing and management fees were not "Fees for Technical Service" under Article 13(4)(c) of the India-UK DTAA but should be treated as 'Business Profit' under Article 7 read with Article 5. The assessee, a UK-based company, provided services to WNS India, an Indian company. The AO held that the fees were chargeable to tax in India as "fees for included services" (FIS) under Article 13. However, the CIT(A) and the Tribunal found that the services did not make available technical knowledge to WNS India, thus not qualifying as FIS under Article 13. The Tribunal upheld the CIT(A)'s order, treating the fees as business profit not attributable to the PE in India.

2. Classification of Reimbursement of Lease Line Charges as Royalty:
The Revenue contended that the reimbursement of lease line charges amounting to Rs. 2,93,29,869 should be classified as royalty under Article 13 of the India-US DTAA. The assessee argued that these were merely reimbursements for telecom services used to transmit data outside India. The CIT(A) agreed with the assessee, stating that the payments were for a telecommunications facility and did not constitute royalty. This decision was upheld by the Tribunal, referencing similar cases where such payments were not treated as royalty.

3. Interest Under Sections 234B and 234C:
The CIT(A) deleted the interest charged under sections 234B and 234C, which was upheld by the Tribunal. The Tribunal cited the Bombay High Court decision in DIT (International Taxation) v. NGC Network Asia LLC, which held that when tax is deductible at source from the entire income, there is no liability to pay advance tax, and thus, no interest under sections 234B and 234C.

4. Taxability of Reimbursement of Expenses as Fees for Technical Services:
The assessee's appeal challenged the CIT(A)'s decision that reimbursement of expenses amounting to Rs. 1,61,52,807 was taxable as fees for technical services under Article 13 of the Indo-UK tax treaty. The CIT(A) upheld the AO's decision due to the lack of detailed evidence from the assessee. The Tribunal remanded the issue back to the AO for a fresh decision after verifying the relevant details, following the precedent set in the case of WNS North America Inc.

5. Taxability of Income from the Sale of Customer Contracts:
The assessee received Rs. 14,05,77,522 from the sale of customer contracts to WNS India. The AO treated 10% of this amount as business income attributable to the service PE in India. The CIT(A) upheld this view. However, the Tribunal found that the contracts were capital assets situated outside India, and their transfer did not give rise to income deemed to accrue in India. The Tribunal concluded that the service PE in India was related to marketing and management services, not the acquisition or assignment of BPO contracts. Thus, the sale consideration was not attributable to the service PE in India and was not taxable in India. The Tribunal deleted the addition made by the AO and confirmed by the CIT(A).

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, providing a detailed analysis and application of the relevant provisions of the India-UK DTAA and the Income-tax Act. The key determinations included the non-taxability of marketing and management fees as FIS, the classification of lease line charge reimbursements, the non-applicability of interest under sections 234B and 234C, and the non-taxability of income from the sale of customer contracts.

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