2022 (2) TMI 1185 - AT - Income Tax

Income earned as taxable in India - Services fall within the meaning of 'make available' under the tax treaty - Business support services provided/rendered by the Appellant - fees for technical services as per the India - Belgium tax treaty (read with India- Portugal tax treaty) - Whether services fall within the meaning of 'make available' under the tax treaty? - HELD THAT - On perusal of the services clearly show that these are routine in nature and definitely do not make available experience, know-how to the recipient MIPL. In fact, the DRP itself has accepted at Para 6.2 of its order that as per the service agreement, the services provided by the assessee are in the nature of routine support services which are not very complex in nature. Considering the protocol to the India Belgium Tax treaty, tax treaty between India and Portugal has to be considered for most favourable nation clause. Under the India Portugal Trade Tax Treaty, fees for included services is defined as consideration for rendering of any technical or consultancy services if such services are ancillary and subsidiary to the application or enjoyment of the right, property or information of which royalty payment, as defined under Article 12(b) is received or make available technical knowledge, experience, skill, know how or processes or consist of the development and transfer of a technical plan or technical design which enables the person acquiring the services to apply the technology contained therein. Services received by MIPL do not make available technology, skill know how etc and such services cannot be considered to be in the nature of managerial, technical or consultancy in nature. Considering the facts of the case in light of the service agreement, we are of the considered view that the business support services rendered by the assessee from Belgium do not qualify the test of make available under the tax treat. Therefore, we direct the Assessing Officer to delete the impugned addition. Ground Nos. 2, 3 and 4 are accordingly allowed. Charging of surcharge and cess on the gross treaty rate - HELD THAT - We are of the considered view that when tax rate is prescribed under DTAA, education cess is not leviable. Our view is fortified by the decision of the co-ordinate bench in the case of MFAR Hotels Ltd. 2013 (4) TMI 339 - ITAT COCHIN which has been followed by this Tribunal in the case of JC Decaux SA 2020 (3) TMI 1075 - ITAT DELHI . Following the decision of the co-ordinate benches, we direct the Assessing Officer to apply DTAA rate without applying surcharge and cess. This ground is accordingly allowed.

Summary

Issues:
1. Assessment of business support services as fees for technical services under tax treaties.
2. Taxability of income earned by the assessee in India.
3. Calculation of tax demand including surcharge and cess on gross treaty rate.

Analysis:

Issue 1: Assessment of business support services as fees for technical services under tax treaties
The appellant, a tax resident of Belgium, provided business support services to an Indian entity. The Assessing Officer considered the group management fees received by the appellant as fees for technical services (FTS) under the India-Belgium tax treaty and Section 9(1)(vii) of the Income-tax Act, 1961. The appellant argued that the services did not make available technology, skill, know-how, as required by the tax treaties. The Tribunal analyzed the service agreement and concluded that the services provided were routine in nature and did not meet the criteria for FTS under the tax treaties. Therefore, the addition of group management fees as FTS was deleted.

Issue 2: Taxability of income earned by the assessee in India
The Assessing Officer had treated the entire income earned by the assessee as taxable in India, denying the refund claimed. The appellant contended that the services provided were routine business support services and did not make available knowledge, experience, or know-how to the recipient. The Tribunal agreed with the appellant, stating that the services did not qualify as technical, managerial, or consultancy services under the tax treaties. Consequently, the Tribunal directed the Assessing Officer to delete the addition of the income earned by the assessee in India.

Issue 3: Calculation of tax demand including surcharge and cess on gross treaty rate
The Tribunal held that when the tax rate is prescribed under a Double Taxation Avoidance Agreement (DTAA), education cess is not leviable. Citing precedent cases, the Tribunal directed the Assessing Officer to apply the DTAA rate without including surcharge and cess. As a result, the Tribunal allowed the appeal of the assessee in this regard.

In conclusion, the Tribunal ruled in favor of the assessee, holding that the business support services provided did not qualify as fees for technical services under the tax treaties, the income earned in India was not taxable, and surcharge and cess should not be levied on the gross treaty rate.