2023 (3) TMI 165 - AT - Income Tax

Income deemed to accrue or arise in India - treating the receipt of fees for business support services as Fees for technical services ('FTS') as per Article 12 of the tax treaty between India and Netherlands - Whether services are managerial in nature and hence do not fall within the definition of FTS? - HELD THAT - From the nature of services rendered, it is very much evident that they are mostly in the nature of managerial services. Reading of Article-12 (5) of India-Netherlands DTAA reveals that it does not include managerial services within FTS. Therefore, the payment received by the assessee cannot be treated as FTS under India-Netherlands DTAA. Even, assuming for the sake of argument that payment received for certain kind of services is in the nature of FTS, however, the make available condition needs to be satisfied. Neither the Assessing Officer nor learned DRP have established on record that by rendering the services, the assessee has made available technical knowledge, know-how, skill etc. to the recipient of services, which would have enabled the recipient of such services to utilize it independently without the aid and assistance of the assessee. Thus, in our view, the make available condition is not satisfied. Therefore, the payment received cannot be treated as FTS under Article-12(5) of India Netherlands DTAA. Hence, we are inclined to delete the addition made by the Assessing Officer. Decided in favour of assessee.

Summary

Issues:
Challenge to final assessment order under Section 144C read with section 143(3) of the Income-Tax Act, 1961; Nature of amount received for providing business support services as fees for technical services (FTS) under Article 12(5) of the India-Netherlands Double Taxation Avoidance Agreement (DTAA).

Analysis:
The appeal was filed challenging the assessment order for the assessment year 2014-15. The main issue was whether the amount received by the assessee for providing business support services should be considered as fees for technical services (FTS) under Article 12(5) of the India-Netherlands DTAA, making it taxable in India. The assessee, a non-resident corporate entity from the Netherlands, had filed its return of income declaring Rs.47,05,135 for the year. The Assessing Officer contended that the payment for services provided by the assessee qualified as FTS under the Act and the DTAA, bringing it under the tax purview. The assessee argued that the services were managerial, not technical or consultancy, and thus not FTS under the DTAA.

The Assessing Officer noted that the services provided by the assessee included various aspects such as engineering, financial administration, HR, IT, management, legal, tax, and quality management services. The tribunal observed that these services were predominantly managerial in nature, which Article 12(5) of the India-Netherlands DTAA does not classify as FTS. Even if some services could be considered technical, the "make available" condition was not met, as there was no evidence that the recipient could use the knowledge independently without the assessee's aid. Therefore, the tribunal concluded that the payment received could not be treated as FTS under the DTAA, leading to the deletion of the addition made by the Assessing Officer.

In conclusion, the tribunal allowed the appeal, emphasizing that the nature of services provided by the assessee was primarily managerial and did not meet the criteria for FTS under the India-Netherlands DTAA. The decision was based on the lack of evidence for the "make available" condition, resulting in the deletion of the tax addition imposed by the Assessing Officer.