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2019 (10) TMI 431 - AT - Income TaxIncome accrued in India - GSA receipts treated as 'fees for included services' as per Article 12 of the tax treaty between India and USA - HELD THAT - We find that the expression making available is very much important to decide in which contracting state the amount received for rendering the services relating to the technical know-how is to be taxed. The expression make available is used in the context of supplying or transferring technical knowledge or technology to another. It is different than the mere obligation of the person rendering the services of that persons own technical knowledge or technology in performance of the services. The technology will be considered as made available when the person receiving the services is able to apply the technology by himself. We hold that the assessing officer erred in taxing the service agreement receipt as fee for included services as per Article 12(4) of India USA DTAA for such services in absence of clause in the service agreement that the recipient would be able to perform these services of its own without any further assistance of the assessee. - Decided in favour of assessee
Issues Involved:
1. Classification of GSA receipts as 'fees for included services' under Article 12 of the India-US Tax Treaty. 2. Apportionment and non-taxability of certain portions of the GSA receipts. 3. Computation of interest under Section 244A of the Income Tax Act. Detailed Analysis: 1. Classification of GSA Receipts as 'Fees for Included Services': The primary issue was whether the GSA receipts amounting to ?189,243,151 should be treated as 'fees for included services' (FIS) under Article 12 of the India-US Tax Treaty. The Assessing Officer (AO) initially classified these receipts as royalty under Section 9(1)(vi) and Article 12 of the India-US Tax Treaty. Upon appeal, the CIT(A) confirmed this classification. The Tribunal, however, examined the service agreement and the nature of services provided, which included business strategy development, management coordination, IT policy development, and market research. The Tribunal noted that these services did not involve the transfer of technical knowledge or skills that would enable the Indian entities to perform these tasks independently in the future. Citing the Karnataka High Court's decision in CIT vs. De Beers India Minerals (P) Ltd., the Tribunal emphasized that for a service to be classified as FIS, it must make technical knowledge available to the recipient. Since the services provided did not meet this criterion, the Tribunal ruled that the receipts should not be classified as FIS under Article 12(4) of the India-US Tax Treaty. 2. Apportionment and Non-Taxability of Certain Portions of the GSA Receipts: The assessee argued that even if the receipts were considered as FIS, some portions of the total receipts should be treated as non-taxable because they did not make available any technical knowledge, experience, or skill. The Tribunal, however, did not find it necessary to address this issue separately since it had already ruled that the entire receipt should not be classified as FIS under Article 12(4) of the India-US Tax Treaty. Therefore, the question of apportionment and non-taxability of certain portions of the receipts became moot. 3. Computation of Interest under Section 244A: The assessee also raised an issue regarding the computation of interest under Section 244A of the Income Tax Act. This ground was deemed consequential by the Tribunal. Since the primary issue was resolved in favor of the assessee, the Tribunal directed the AO to recompute the interest as per the law. Conclusion: The Tribunal allowed the appeals for all three assessment years (2004-05, 2005-06, and 2006-07). It ruled that the GSA receipts should not be classified as 'fees for included services' under Article 12(4) of the India-US Tax Treaty, thereby overturning the decisions of the lower authorities. The issue of apportionment and non-taxability of certain portions of the receipts was rendered moot. The Tribunal also directed the AO to recompute the interest under Section 244A as per the law.
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