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2013 (4) TMI 643 - AT - Income TaxRoyalty / FTS back-up services and IT support services for solving IT related problems - DTAA - Assessee is a non-resident company incorporated in Australia and appeal is on following grounds (i) IT support services rendered by the Appellant are in the nature of Royalty/FTS within the meaning of article 12 of the India-Australia treaty and/or Section 9(1)(vii) of the Income Tax Act, 1961. (ii) services rendered by the Appellant fall within the ambit of Royalty/FTS and making an addition by treating such IT support services as chargeable to tax in India. Held that - In the present case, the assessee has not made available any technical knowledge or expertise to the recipient Indian company. In our opinion, the assessee has only provided the back-up services and IT support services for solving IT related problems to its Indian subsidiary. Hence, unless and until the services are not made available, same cannot be taxable in India. We, therefore hold that the services rendered by assessee company to its Indian group companies, though are in the nature of technical services, but is not covered in para (3)(g) to Article 12 of the India Australia Treaty and hence, the same is not taxable in India. We also hold that the amount received by the assessee cannot be treated as a Royalty even under the normal provisions of I.T. Act. But under the normal provision of the I.T. Act the same constitute consideration for rendering the technical services covered u/s.9(1)(vii) of the I.T. Act. Accordingly, Ground No. 1 is allowed and issue is decided in favour of the assessee. The assessee has taken alternative Ground by way of Ground No. 2. As we have decided the issue in favour of the assessee, the alternate Ground does not survive. In the result, the assessee s appeal is allowed.
Issues Involved:
1. Whether the IT support services rendered by the appellant are in the nature of Royalty/Fees for Technical Services (FTS) under Article 12 of the India-Australia DTAA and/or Section 9(1)(vii) of the Income Tax Act, 1961. 2. Whether the payment received by the appellant for IT support services is chargeable to tax in India. Issue-Wise Detailed Analysis: 1. Nature of IT Support Services as Royalty/FTS: The appellant questioned the Assessing Officer's (AO) decision to treat the payment received from M/s. Sandvik Asia Ltd. as taxable under the definition of Royalty/FTS. The AO concluded that the services provided by the appellant, including Help Desk, administrative, and maintenance IT support, fell within the ambit of Royalty/FTS under Article 12 of the India-Australia DTAA and Section 9(1)(vii) of the Income Tax Act. The AO noted that the appellant provided IT infrastructure and charged for these services, which were considered technical services. The Dispute Resolution Panel (DRP) upheld the AO's view, stating that the services rendered resulted in the transfer of technical knowledge and were taxable under Article 12 of the DTAA. 2. Chargeability of Payment to Tax in India: The appellant argued that the services rendered did not make available any technical knowledge, skill, know-how, or process to the Indian affiliates, and thus, the payment should not be taxable under the DTAA. The appellant emphasized that the services were limited to IT support and did not involve imparting technical know-how. The appellant relied on the decision in CIT v. De Beers India Minerals (P.) Ltd., which clarified that for services to be taxable, they must make available technical knowledge to the recipient. Judgment Analysis: 1. Nature of IT Support Services as Royalty/FTS: The Tribunal examined the agreement between the appellant and Sandvik Asia Ltd., noting that the services provided included IT support and advisory services, user administration, networking services, and data center services. The Tribunal found that the services did not involve imparting technical know-how or making available technical knowledge to the Indian affiliates. The Tribunal referred to the decision in De Beers India Minerals (P.) Ltd., which explained that for services to be considered as making available technical knowledge, the recipient must be able to apply the technology independently. The Tribunal concluded that the appellant's services did not meet this criterion and thus did not fall under the definition of Royalty/FTS in Article 12 of the DTAA. 2. Chargeability of Payment to Tax in India: The Tribunal held that the payments received by the appellant for IT support services were not taxable in India under the DTAA, as the services did not make available any technical knowledge to the Indian affiliates. The Tribunal also noted that under the normal provisions of the Income Tax Act, the payments would be considered as fees for technical services under Section 9(1)(vii), but the DTAA provisions took precedence. Consequently, the Tribunal allowed the appellant's appeal and ruled that the payments were not taxable in India. Conclusion: The Tribunal concluded that the IT support services rendered by the appellant did not constitute Royalty/FTS under Article 12 of the India-Australia DTAA, as they did not make available technical knowledge to the Indian affiliates. Therefore, the payments received were not chargeable to tax in India. The appellant's appeal was allowed, and the alternative ground raised by the appellant was rendered moot.
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