2023 (3) TMI 1485 - AT - Income Tax

Taxability of income in India - Services under FIS or FTS - services provided by the group entities or holding company to its subsidiaries as administrative support services - HELD THAT - The assessee provides the administrative and day to day management services to the JIPL, this fact is confirmed by the observation and relevant material placed before us that the Indian entity JIPL does not have any support team and administrative set up to carry out the business independently. All the support services are provided by the intra-group entities and particularly, the administrative and day to day management services are provided by the assessee. The Ld.CIT(A) has confused with the two schedules viz., Schedule A and Schedule B and came to wrong conclusion by observing the bill copies submitted before him for reimbursement of certain charges for which the assessee has outsourced certain services for the whole group and whatever the services are utilized by the assesse are alone charged to the JIPL. Therefore, in our considered view, the services provided by the assessee in order to support and provide the administrative and day to day management services to the JIPL are in the nature of group support services. These services are not to fall under the category of FIS or FTS. Thus services provided by the group entities or holding company to its subsidiaries as support services to run their business effectively will not be considered as FTS or FIS under the treaty and these services does not amount to make available technical or skill or expertise while providing these services. Decided in favour of assessee. Reimbursement of expenses - AO noticed third party invoices which are for the services rendered to JIPL and the assessee has reimbursed the same without their being any mark up - These expenses are clearly certain services required by the JIPL and we have already indicated in the previous paragraph that the JIPL does have any administrative office, all the necessity day to day managements are controlled thru the Holding Company. Accordingly, the assessee arranged the various services and all these services are utilized by JIPL and these expenses were reimbursed by JIPL to the assessee and also it is brought to our notice that these are reimbursed by JIPL without any mark up, it is settled position that reimbursement of expenses at cost is not taxable as fees for technical services since there is no element of income attached to the transaction. Further the services provided by the third party through the holding company do not allow the make available any technical knowledge, skill, know how or processes to the JIPL or to the assessee within the meaning of Article 12 of Treaty between India US. Therefore, even in this count, the reimbursement of expenses outside the tax net in the source country. Accordingly, the grounds raised by the assessee are allowed.

Issues Involved:
1. Addition of administrative support charges as fees for technical services.
2. Addition of reimbursement of expenses as fees for technical services.
3. Interest under section 234A and 234B.
4. Penalty proceedings under sections 271(1)(c) and 271BA.

Summary of Judgment:

1. Addition of Administrative Support Charges as Fees for Technical Services:
The assessee contested the addition of Rs. 71,42,948 received for rendering administrative support services to Jefferies India Private Limited (JIPL) as 'fees for technical services' under section 9(1)(vii) of the Income Tax Act and Article 12 of the India-US DTAA. The Tribunal observed that the services provided were routine administrative support and did not make available any technical knowledge, experience, skill, know-how, or processes to JIPL. The Tribunal relied on various judicial precedents and concluded that these services do not fall under the category of Fees for Included Services (FIS) or Fees for Technical Services (FTS) as per the India-US DTAA. Consequently, the Tribunal allowed the grounds raised by the assessee, holding that the administrative support services are not taxable in India.

2. Addition of Reimbursement of Expenses as Fees for Technical Services:
The assessee also contested the addition of Rs. 2,30,99,178 as income in the hands of the assessee under section 2(24)(iva) of the Act, claiming it as reimbursement of expenses. The Tribunal observed that these reimbursements were for expenses incurred towards third-party services like Bloomberg Finance, Dow Jones, and others, which were reimbursed at cost without any markup. The Tribunal held that reimbursement of expenses at cost is not taxable as fees for technical services since there is no element of income. The Tribunal further noted that these services did not make available any technical knowledge, skill, know-how, or processes to JIPL or the assessee. Therefore, the Tribunal allowed the grounds raised by the assessee, holding that the reimbursement of expenses is not taxable.

3. Interest under Section 234A and 234B:
The Tribunal dismissed the grounds related to the levy of interest under sections 234A and 234B as consequential in nature.

4. Penalty Proceedings under Sections 271(1)(c) and 271BA:
The Tribunal dismissed the grounds related to the initiation of penalty proceedings under sections 271(1)(c) and 271BA as premature.

Conclusion:
The appeals filed by the assessee were partly allowed, with the Tribunal ruling in favor of the assessee on the issues of administrative support charges and reimbursement of expenses, while dismissing the grounds related to interest and penalty proceedings.

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