2018 (9) TMI 1811 - AT - Income Tax

Management fees receipt from subsidiary company in India - Holding subsidiary company relation - income accrued in India - payment was a managerial service vs fee for included services - exemption under the article 12 of DTAA between India and US - assessee contends that it is a managerial service, but the authorities below have observed from the service agreement that the technical knowledge was made available to the holding company, which was used and utilized by the Indian Company for its benefit - HELD THAT - As per Article 12(4) of the DTAA, it is clear and absolute that the payment that the company has received was fee for included services . To claim that the said payment was a managerial service, the assessee has not furnished any detailed, the nature of services that are included under managerial services along with details invoices. In view of the above and to give one more opportunity, we remit the matter back to the file of the Assessing Officer to consider the submissions, if any, and decide the issue in accordance with law after allowing an opportunity of being heard to the assessee. Beyond the scope of Article 12 of the DTAA and in violation of the said article, in which taxing clauses were absolutely given, nothing is provided under section 90(2) of the Act to ignore the DTAA and consider to allow any claim of the assessee. Thus, the alternative plea raised by the assessee stands dismissed. - Decided partly in favour of assessee for statistical purposes.

Summary

Issues:
1. Treatment of management fee as "fee for included services"
2. Application of section 90(2) of the Income Tax Act, 1961

Analysis:

Issue 1: Treatment of management fee as "fee for included services"
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) confirming the assessment treating the management fee as "fee for included services." The assessee contended that the payment did not fall within the definition of "fee for included services" and should not be taxable in India under section 90(2) of the Act. The Assessing Officer had treated the amount as "fee for included services" and brought it to tax. The Tribunal noted that the non-resident company had made available technical knowledge, experience, skill, knowhow, etc., to its subsidiary in India, which was utilized for its benefit. The service agreement indicated the provision of technical knowledge, and assistance on research and development was considered as making available technical knowledge. The Tribunal remitted the matter back to the Assessing Officer to consider the submissions and decide the issue accordingly.

Issue 2: Application of section 90(2) of the Income Tax Act, 1961
The assessee had raised an alternative plea that the payment should not be taxable in India based on section 90(2) of the Act. However, the Tribunal dismissed this plea, stating that nothing in section 90(2) allowed ignoring the Double Taxation Avoidance Agreement (DTAA) and considering any claim of the assessee. The Tribunal emphasized that the DTAA's provisions regarding taxing clauses were absolute, and section 90(2) did not provide for any deviation from the DTAA.

In conclusion, the appeal was partly allowed for statistical purposes, and the Tribunal directed the Assessing Officer to reconsider the issue of taxation of the management fee as "fee for included services" in accordance with law. The alternative plea based on section 90(2) was dismissed as it did not provide grounds to ignore the DTAA.