2022 (6) TMI 1382 - AT - Income Tax

Income deemed to accrue or arise in India - income from Information Technology Support Services and income from Management Services - royalty or Fees for Technical Services (FTS) - HELD THAT - As relying on assessee's own case 2019 (7) TMI 402 - ITAT PUNE Extant payment received by the assessee can neither be considered as royalty u/s 9(1)(vi) of the Act nor as fees for technical services and therefore, the same cannot be included in the total income of the assessee. Grounds No. 1 and 2 of the assessee's appeal are allowed.

Issues Involved:
1. Classification of income from Information Technology Support Services and Management Services as royalty or Fees for Technical Services (FTS).
2. Remittance of Ground No. 3 to the Assessing Officer (AO) for proper determination.
3. Dismissal of Ground No. 4 as not pressed.
4. Penalty proceedings being consequential in nature.

Detailed Analysis:

1. Classification of Income from Information Technology Support Services and Management Services:
The primary issue pertains to whether the income from Information Technology Support Services and Management Services should be classified as royalty or Fees for Technical Services (FTS). The Dispute Resolution Panel (DRP) had considered these incomes as both royalty and FTS. However, the assessee argued that these incomes are neither royalty nor FTS, citing a precedent from the Pune Tribunal in ITA No. 784/PUN/2015 for A.Y. 2011-12, where similar issues were resolved in favor of the assessee.

The Tribunal examined the nature of services rendered by the assessee, which included a wide range of managerial and technical services such as General Management, Sales and Marketing, Accounting, Human Resources, and IT support. The Tribunal found that these services did not involve imparting technical knowledge or know-how that could be used independently by Faurecia India in the future. Therefore, the services did not qualify as royalty under Section 9(1)(vi) of the Income-tax Act, 1961, or as FTS under Section 9(1)(vii) of the Act.

Moreover, the Tribunal referred to the Double Taxation Avoidance Agreement (DTAA) between India and France, and the Protocol with the UK, which limited the scope of FTS to services that "make available" technical knowledge, experience, skill, or know-how. Since the services provided did not meet this criterion, they could not be classified as FTS under the DTAA. Consequently, the Tribunal ruled that the income could not be included in the total income of the assessee as either royalty or FTS.

2. Remittance of Ground No. 3 to the Assessing Officer:
The assessee requested that Ground No. 3 be remitted to the AO for proper determination as per law, applying the principles of natural justice. The Tribunal accepted this request and remitted Ground No. 3 back to the AO for adjudication in compliance with the principles of natural justice.

3. Dismissal of Ground No. 4:
The assessee's counsel submitted that they were not pressing Ground No. 4. Consequently, the Tribunal dismissed Ground No. 4 as not pressed.

4. Penalty Proceedings:
Ground No. 5 related to penalty proceedings, which the Tribunal noted were consequential in nature. The Tribunal did not provide a detailed analysis on this ground, as it would follow the outcome of the main issues.

Conclusion:
The Tribunal allowed the appeal of the assessee on Grounds No. 1 and 2, remitted Ground No. 3 to the AO for proper determination, dismissed Ground No. 4 as not pressed, and noted that Ground No. 5 was consequential. The order was pronounced in the open Court on June 9, 2022.

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