2022 (12) TMI 1402 - AT - Income Tax

Income deemed to accrue or arise in India - amount received by the assessee for providing management support services - scope of services performed under the MSA Master Service Agreement - Fee for Technical Services (FTS) - India-Belgium Double Taxation Avoidance Agreement (DTAA) - Assessee is a non-resident corporate entity incorporated under the laws of Belgium - HELD THAT - The scope of services to be rendered under the agreement certainly does not indicate that they are anything other than managerial services as it aids and assists the customer for performing its day to day business activity. Commissioner (Appeals) has partly accepted assessee s claim and allowed benefit of 50% of the amount received to be fee for managerial services, that too, purely on estimate. This, in our view is without any basis. Once the assessee was able to demonstrate that the amount received is in the nature of managerial services, it cannot be treated as FTS in view of the restrictive meaning of FTS under Article 13(4) of India-UK tax treaty, which specifically excludes managerial services. As regards the applicability of MFN clause and the restrictive provision of India-UK tax treaty, in our view, there cannot be any dispute as the Assessing Officer has accepted the legal position. Whether 50% of the amount received can be treated as FTS under India- UK DTAA? - Article 13(4)(c) of India-UK tax treaty says that if in course of rendering services the service provider makes available technical, knowledge, experience, skill, knowhow, or processes etc then it can be regards as FTS. The expression make available has not been defined either under the treaty provisions or under the Act. The expression make available has been judicially interpreted in various decisions. As per the ratio laid down make available would mean imparting of technical knowledge, skill, knowhow, etc. which enables the recipient of service to apply such technical knowledge, experience, skill, knowhow etc. independently in exclusion of the owner of such technical knowledge, experience, skill, knowhow etc. In the facts of the present appeal, admittedly, except some general observations of the Departmental Authorities that the assessee has made available technical knowledge, skill, experience, knowhow, etc. there is no material on record to demonstrate such fact. The make available condition of Article 13(4)(c) of India-UK tax treaty has not been satisfied. In any case of the matter, attribution of 50% of the receipts to the alleged consultancy services is purely on estimate and without any reasonable basis. Thus delete the addition sustained by learned Commissioner (Appeals). Appeal of assessee allowed.

Issues Involved:
- Whether the amount received by the assessee for providing management support services can be treated as Fee for Technical Services (FTS) under the India-Belgium Double Taxation Avoidance Agreement (DTAA).

Issue-wise Detailed Analysis:

1. Nature of Services Provided:
The primary issue is whether the amount received by the assessee for providing management support services is in the nature of FTS. The assessee, a non-resident corporate entity incorporated under the laws of Belgium, provided management support services to its Indian subsidiary. These services included administration, management, marketing, and sales. The assessee argued that these services are managerial in nature and thus not taxable in India under the India-Belgium DTAA.

2. Applicability of India-Belgium DTAA and MFN Clause:
The assessee contended that under Article 12(3)(b) of the India-Belgium tax treaty, FTS includes managerial, technical, or consultancy services and is chargeable to tax at 10%. However, the MFN clause in the protocol to the India-Belgium tax treaty allows for a more restricted scope of FTS if a subsequent treaty with an OECD member state provides for it. The assessee argued that under the India-UK tax treaty, managerial services are excluded from the definition of FTS, and thus this more restricted scope should apply.

3. Assessing Officer's Decision:
The Assessing Officer rejected the assessee's contention, holding that the amount received is taxable under Section 9(1)(vii) of the Act as FTS and also under the India-Belgium tax treaty read with the India-UK DTAA. The officer applied a tax rate of 15% on a gross basis.

4. Commissioner (Appeals) Decision:
The Commissioner (Appeals) observed that the services rendered under the Master Service Agreement (MSA) included logistics, planning, and business development, which are more in the nature of consultancy services rather than purely managerial. The Commissioner also noted that these services made available some skills to the recipient, thus qualifying as consultancy services. However, the Commissioner attributed only 50% of the receipts to consultancy services due to the lack of segmental details of costs.

5. Assessee's Argument:
The assessee reiterated that the services are managerial and not consultancy services. Even if considered consultancy services, the assessee argued that the services did not "make available" technical knowledge, experience, skill, or knowhow to the recipient, a necessary condition under Article 13(4)(c) of the India-UK tax treaty for the services to qualify as FTS.

6. Departmental Representative's Argument:
The Departmental Representative argued that some services rendered were indeed consultancy services and made available technical knowledge, experience, skill, or knowhow to the recipient, thus satisfying the "make available" condition.

7. Tribunal's Analysis:
The Tribunal examined the scope of services under the MSA and found that they were primarily managerial, aiding the customer in day-to-day business activities. The Tribunal noted that the Commissioner (Appeals) had accepted the assessee's claim partially without a reasonable basis for attributing 50% of the receipts to consultancy services. The Tribunal also highlighted that there was no material evidence to demonstrate that the assessee made available technical knowledge, skill, or knowhow to the recipient.

8. Conclusion:
The Tribunal concluded that the services provided were managerial and not consultancy services. Even if considered consultancy services, they did not meet the "make available" condition under Article 13(4)(c) of the India-UK tax treaty. Therefore, the amount received by the assessee could not be treated as FTS, and the addition sustained by the Commissioner (Appeals) was deleted.

Judgment:
The appeal was allowed, and the addition sustained by the Commissioner (Appeals) was deleted. The order was pronounced in the open court on 28/12/2022.

← Previous Next →