2019 (10) TMI 1568 - AT - Income Tax

Income accrued in India - fees for technical services/fees for included services ( FIS ) - Scope of make available clause - reimbursements of allocated costs received by the non-resident appellant under the Management Services Agreement - India - USA DTAA - taxing of management services provided by the SABIC Innovative Plastics US LLC to SABIC Innovative Plastics India Pvt. Ltd. - CIT (A) deleted the addition holding that firstly, the category management is missing in definition of FIS and services provided by the appellant being in nature of management services do not fall in definition of FIS - HELD THAT - As documents furnished by the appellant indicating nature of services provided by the appellant. The services provided in present case mostly resemble with those in case of Ernest Young (P) Ltd 2010 (3) TMI 108 - AUTHORITY FOR ADVANCE RULINGS . It appears that most of the services are in nature of management services, though some of the services may be considered to be of technical nature. However, from terms of the service agreement and also from conduct of the parties, it cannot be said that make available requirement has been satisfied. AO has not elaborated on this aspect. As per provisions of Article 12(4) of DTAA, unless make available clause is satisfied, consideration for any consultancy or technical service per se shall not become FTS/FIS. Having gone through the provisions of Article 12(4)(b) and Article 5 of DTAA pertaining to fees for included services and after going through the management service agreement and the clauses thereof, we are of view that the by the management services provided by the assessee cannot be taxed under fee for technical services. All the grounds are treated as adjudicated. Appeal of assessee allowed.

Summary

Issues:
Taxability of reimbursements of allocated costs under Management Services Agreement as fees for technical services or fees for included services under India-US DTAA.

Analysis:
1. The main issue in this case pertains to the taxability of reimbursements of allocated costs received by the non-resident appellant under the Management Services Agreement with an Indian company. The appellant contested that these reimbursements did not contain any income element and hence should not be taxed in India.

2. The Assessing Officer held that the payments for technical or consultancy services would fall under the definition of fees for technical services (FTS) under the India-US treaty if they make available any technical knowledge or skill to the recipient. The AO concluded that these services were taxable under FTS or royalties.

3. The Tribunal examined the Management Services Agreement and relevant provisions of the Income Tax Act and the India-US DTAA. The CIT (A) and the DRP in previous assessments for the appellant had deleted similar additions, emphasizing that the services provided were more in the nature of management services rather than fees for included services (FIS).

4. The Tribunal noted that the 'make available' clause was not satisfied in the present case, as per the provisions of Article 12(4) of the DTAA. The services provided were deemed to be more aligned with management services, and the 'make available' requirement for FTS/FIS was not met.

5. The DRP for a different assessment year also concurred that the 'make available' clause was not satisfied, and the services did not qualify as FIS under the DTAA. The revenue accepted the decisions for previous years, and no appeal was filed.

6. Considering the provisions of the DTAA and the specific clauses of the Management Services Agreement, the Tribunal concluded that the management services provided by the appellant could not be taxed as fees for technical services. As a result, the appeal of the assessee was allowed.

This detailed analysis highlights the key arguments, interpretations of relevant legal provisions, and the precedents set in previous assessments, leading to the ultimate decision in favor of the appellant regarding the taxability of the reimbursements under the Management Services Agreement.