2012 (3) TMI 630 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee has a service Permanent Establishment (PE) in India under the India-USA DTAA.
2. Taxability of marketing and management fees as Fees for Technical Services (FTS) under the India-USA DTAA.
3. Taxability of reimbursement of lease line charges as 'Royalty' under the India-USA DTAA.
4. Liability for interest u/s 234B and 234C of the Income Tax Act.
5. Taxability of reimbursement of expenses as Fees for Included Services (FIS) under the India-USA DTAA.

Summary:

1. Service Permanent Establishment (PE) in India:
The assessee, a US company, provided marketing and management services to WNS India. The CIT(A) directed that the assessee had a service PE in India u/s Article 5(2)(l) of the India-USA DTAA due to the presence of its employees in India. The Tribunal upheld this view, confirming that the marketing and management fees attributable to the service PE should be taxed as business profits under Article 7 read with Article 5 of the India-USA DTAA.

2. Taxability of Marketing and Management Fees:
The CIT(A) held that the marketing and management fees received by the assessee did not qualify as FIS under Article 12(4)(b) of the India-USA DTAA. The Tribunal upheld this decision, referencing a similar case where it was determined that the services did not make available technical knowledge, experience, skill, know-how, or processes to WNS India. Consequently, the fees for services rendered outside India were not taxable in India, and the fees for services rendered in India were attributable to the service PE and taxable as business profits.

3. Reimbursement of Lease Line Charges:
The CIT(A) ruled that the reimbursement of lease line charges by WNS India to the assessee was not taxable as 'Royalty' under Article 12 of the India-USA DTAA. The Tribunal upheld this decision, noting that the arrangement did not involve the use of, or right to use, any industrial, commercial, or scientific equipment, and was merely a reimbursement of actual costs without any income element.

4. Interest u/s 234B and 234C:
The CIT(A) found that the assessee, being a non-resident, had its entire income subject to TDS u/s 195 of the Act, and thus was not liable to pay advance tax. Consequently, the interest u/s 234B and 234C was not applicable. The Tribunal upheld this view, referencing the decision in the case of NGC Network Asia LLC.

5. Reimbursement of Expenses:
The CIT(A) upheld the AO's view that reimbursements of expenses incurred by the assessee on behalf of WNS India were taxable as FIS under Article 12(4) of the India-USA DTAA. The Tribunal remanded the issue back to the CIT(A) for fresh consideration, directing verification of the exact nature of expenses and services rendered.

Conclusion:
The appeals by the revenue were dismissed, and the appeals by the assessee were allowed for statistical purposes.