2022 (5) TMI 1518 - AT - Income Tax

Income accrued in India - Addition on account of management fee - FTS / FIS - inclusion of managerial services within the scope of FTS/ FIS - HELD THAT - As decided in assessee own case 2022 (4) TMI 1062 - ITAT DELHI considering the services provided by the assessee (listed above), in our view, these are not technical services nor do they require any technological knowledge, skill or experience. There is no transfer of technology involved. Everest India is not enabled to apply any technology on its own without recourse to the service provider i.e. the assessee. These services have not resulted in any enduring benefit to Everest India by way of any knowledge which could be applied by it on its own in future without depending on the assessee. These are general managerial services which are received by the assessee on recurring basis. Therefore, the test laid down under Article 12(4)(b), in our considered view, are not satisfied in the present factual scenario. Thus, management fee received by the assessee from Everest India is not taxable as FIS under the provisions of India-USA DTAA. Decided in favour of assessee. Addition on account of subscription to published reports and customized reports - miscellaneous services rendered to third party clients - HELD THAT - As decided in assessee own case 2022 (4) TMI 1062 - ITAT DELHI assessee does not grant the right to use the copyright. Hence, consideration (subscription fee) received by the assessee is not taxable as royalty under the provisions of Article 12(3) of the India-USA DTAA. Similarly in customized research advisory services the assessee is providing only advisory services through emails or presentations. The output of custom research advisory is not provided through subscription mode or data base access mode and, therefore, the question of access to data base does not arise at all. Further there is no transfer of any copy right to the customers - thus considerations received by the assessee towards customized research advisory services are not taxable under the head Royalty. This ground of appeal is allowed. However, in Assessment Year 2014-15, we find that the Assessing Officer has made addition of Rs. 3,85,10,715/- and the ld. CIT(A) having noted that the facts are identical to Assessment Year 2011-12, upheld the addition to the extent of Rs. 3,73,67,894/-. However, CIT(A) has not given any finding to the addition of Rs. 11,42,821/- being sale of published reports and custom data set. Therefore, in the interest of justice and fair play, we restore this issue to the file of the ld. CIT(A) for limited purpose of adjudicating addition - Ground of assessee allowed for statistical purposes.

Summary

Issues Involved:
1. Addition on account of management fee.
2. Addition on account of subscription to published reports and customized reports.

Issue-Wise Detailed Analysis:

1. Addition on account of management fee:

The first common grievance relates to the addition on account of management fee amounting to Rs. 21,43,248/- in A.Y 2013-14 and Rs. 24,90,375/- in A.Y. 2014-15. The CIT(A) confirmed the findings of the Assessing Officer by following the precedent set in Assessment Year 2011-12. The Tribunal referred to its earlier decision in ITA No. 6137/DEL/2015 for Assessment Year 2011-12, where it was held that the assessee rendered management support services listed in Annexure C of the Master Support Services Agreement on an independent and non-exclusive basis. These services were centralized to maintain uniformity and standardize practices across global locations, without any profit element. The Tribunal concluded that managerial services are outside the scope of "Fee for Included Services" (FIS) under Article 12(4) of the India-USA DTAA, supported by the judgment in Steria (supra) and the MOU annexed to the India-USA DTAA. The Tribunal found that the services provided did not involve any transfer of technology or result in any enduring benefit to Everest India. Consequently, the management fee received was not taxable as FIS under the provisions of the India-USA DTAA. Therefore, the Tribunal directed the Assessing Officer to delete the impugned addition.

2. Addition on account of subscription to published reports and customized reports:

The second grievance relates to the addition on account of subscription to published reports and customized reports. The CIT(A) followed the findings of his predecessor given in Assessment Year 2011-12. The Tribunal, in its earlier decision for Assessment Year 2011-12, addressed the issue of miscellaneous services rendered to third-party clients, which comprised access to published research reports and customized research advisory services. The Tribunal found that the published reports were general in nature, compiled from various secondary sources, and accessible to the public through subscription. The ownership and copyright of the subscription material remained with the assessee, and the subscriber only received a non-exclusive, non-transferable right to use the published report. The Tribunal concluded that the subscription fee received was not taxable as royalty under Article 12(3) of the India-USA DTAA. Regarding customized research advisory services, the Tribunal observed that these were advisory services provided through emails or presentations, without any database access or transfer of copyright. Therefore, the considerations received for customized research advisory services were not taxable under the head "Royalty."

In Assessment Year 2014-15, the Assessing Officer made an addition of Rs. 3,85,10,715/-, which the CIT(A) upheld to the extent of Rs. 3,73,67,894/-. However, the CIT(A) did not provide any finding on the addition of Rs. 11,42,821/- for the sale of published reports and custom data sets. The Tribunal restored this issue to the CIT(A) for adjudicating the addition of Rs. 11,42,821/-, while deleting the addition of Rs. 3,73,67,894/- in light of its decision for Assessment Year 2011-12.

Conclusion:
The appeal for ITA No. 6697/DEL/2017 was allowed, and ITA No. 6698/DEL/2017 was allowed in part for statistical purposes. The order was pronounced in the open court on 30.05.2022.