2021 (2) TMI 993 - AAR - Income Tax

Maintainability of Advance ruling application u/s 245R - amount received by the Applicant from DSP India for rendering business support services under Service Level Agreement and for providing information technology support services under IT Support Service Agreement - Revenue has submitted that the application may not be admitted for the reason that the questions raised in the application was already pending before the Income Tax Authority - whether the services rendered under 2013 agreement were pending before the Assessing Officer in the assessment proceeding for A. Y. 2016-17 - HELD THAT - The issue can be said to be pending before the Income Tax Authority only when the return is selected for scrutiny to examine the change of stand by the assessee or where such change of opinion is examined by the Income Tax Authority and a considered view regarding such change of opinion is taken after such examination. When examined on these parameters, the matter can't be said to be pending before the Income Tax authority because the return for AY 2016-17 was not selected for scrutiny to examine any change of stand in the manner of offering of any particular income. We do not find that return for A. Y. 2016-17 was selected to examine any change of stand by the appellant. Therefore, we do not find any pendency in respect of the questions raised in the present application before the Income Tax Authority. Further, as the Applicant had already offered the amount for services rendered as Royalty/FTS in the return for AY 2016-17 there was no occasion for the AO to examine this change of stand. Therefore, we have no hesitation to hold that the change of opinion on the part of the Applicant in the present application did not render the issues pending in the AY 2016-17. The change of stand by the appellant is to be examined on the merits and this exercise can be undertaken in the course of merit hearing only. The Hon'ble Delhi High Court has held in the case of Hyosung Corporation 2016 (2) TMI 575 - DELHI HIGH COURT that a notice under section 143(2) merely asking for certain information from assessee issued prior to filing of application before AAR will not constitute bar in terms of clause (i) to proviso to section 245R(2), on AAR entertaining and allowing the application - The same principle applies in respect of the notice issued u/s 142(1) of the Act. As already discussed earlier the specific question in respect of the nature of services rendered under the agreement or about the taxability of receipt of the services did not form part of any of the questionnaire or notices. Therefore, such notices issued prior to filing of the application cannot be a bar in terms of clause (i) to proviso to Section 245R(2) of the Act, for admitting the application. Department as well as the Applicant have relied upon a number of other judicial precedence, which are not found relevant considering the peculiar facts of the case as discussed above. The limited issue to decide the admission of this application is the issue of pendency and those decisions are not found relevant for this issue. Therefore, we do not deem it necessary to refer to those judicial pronouncements as referred by both the parties. Thus the issues involved in the questions raised in the application filed before us was not pending before the Income-tax Authority and the bar in terms of clause (i) of Proviso to Section 245R(2) is not found attracted. Therefore, the application is admitted under section 245R(2) of the Act.

Issues Involved:
1. Whether the amount received by the Applicant for rendering business support services qualifies as Fees for Technical Services (FTS) or Royalty under Article 12 of the India-Netherlands DTAA.
2. If not FTS or Royalty, whether such receipt is chargeable to tax in India given the Applicant does not have a Permanent Establishment (PE) in India.
3. Whether the amount received for providing IT support services qualifies as FTS or Royalty under Article 12 of the India-Netherlands DTAA.
4. If not FTS or Royalty, whether such receipt is chargeable to tax in India given the Applicant does not have a PE in India.
5. Whether the payments received by the Applicant are subject to deduction of tax at source under section 195 of the Act, and if yes, the applicable rate of tax.

Issue-wise Detailed Analysis:

1. Business Support Services as FTS or Royalty:
The Applicant sought to determine if the payments received under the Service Level Agreement for business support services qualify as Fees for Technical Services (FTS) or Royalty under Article 12 of the India-Netherlands DTAA. The Revenue argued that the Applicant had previously treated similar receipts as FTS and paid taxes accordingly. The Applicant contended that the services rendered under the new agreements effective from 01/04/2017 included additional services not covered under the previous agreements, thus necessitating a fresh determination.

2. Taxability in Absence of PE:
If the business support services do not qualify as FTS or Royalty, the Applicant questioned whether such receipts are chargeable to tax in India, considering it does not have a Permanent Establishment (PE) in India as per Article 5 of the India-Netherlands DTAA. The Revenue's position was that the nature of services rendered under the new agreements was identical to those under the previous agreements, which were taxed as FTS.

3. IT Support Services as FTS or Royalty:
Similar to the business support services, the Applicant sought clarification on whether the payments received for IT support services under the IT Support Service Agreement qualify as FTS or Royalty under Article 12 of the India-Netherlands DTAA. The Revenue maintained that the Applicant had consistently treated such receipts as FTS in previous years and paid taxes accordingly.

4. Taxability in Absence of PE for IT Services:
If the IT support services do not qualify as FTS or Royalty, the Applicant questioned whether such receipts are chargeable to tax in India, considering it does not have a PE in India. The Revenue argued that the services provided under the new agreements were essentially the same as those under the previous agreements, which were taxed as FTS.

5. Deduction of Tax at Source:
The Applicant sought to determine whether the payments received under the new agreements are subject to deduction of tax at source under section 195 of the Act, and if so, the applicable rate of tax. The Revenue's position was that the Applicant had consistently treated similar receipts as FTS and paid taxes accordingly in previous years.

Pendency of Issues:
The Revenue objected to the admission of the application, arguing that the issues raised were already pending before the Income Tax Authority due to the ongoing scrutiny for A.Y. 2016-17. The Applicant countered that the questions pertained to agreements effective from 01/04/2017, making A.Y. 2018-19 the relevant year for examination. The Authority concluded that the scrutiny for A.Y. 2016-17 was limited to reconciling receipts and tax credits and did not involve examining the nature of services under the new agreements. Therefore, the issues raised in the application were not pending before the Income Tax Authority.

Conclusion:
The Authority held that the issues involved in the questions raised by the Applicant were not pending before the Income Tax Authority. Consequently, the application was admitted under section 245R(2) of the Act. The date of hearing will be communicated in due course.

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