2023 (5) TMI 1221 - AT - Income Tax

Addition on account of services rendered by the assessee to its AE in India - fees for the services rendered by the assessee from outside India to BTPL - whether FTS under the provisions of Article 13(4)(c) of the India-UK DTAA? - Satisfaction of make available clause - HELD THAT - It is an undisputed fact that the assessee is a tax resident of UK and therefore has opted to be governed by the provisions of India-UK DTAA being more beneficial to it under the provisions of section 90 of the Act. Services provided by the assessee includes administrative services, accounting services, legal services and other support services that are ancillary to the functioning of corporate management function of BTPL. These services are thus essentially in the nature of managerial services which are in our considered view outside the scope of the meaning of FTS under Article 13(4) of the India-UK DTAA. A mere provision of service may require technical knowledge by service provider but that would not per se mean that such technical knowledge has been made available to the service recipient. Therefore, the assistance, support or advice provided by the assessee to BTPL shall not per se be considered to make technology available since the assessee did not make available any technical knowledge, experience or skill to BTPL by way of rendering the above support services to BTPL. Article 13(4) of the India UK DTAA does not apply to the assessee s case and hence the consideration could not be included in FTS. Services rendered by the assessee to BTPL do not satisfy make available clause as envisaged under Article 13(4)(c) of the India-UK DTAA to fall within the scope of FTS. Hence, the fees for the services rendered by the assessee from outside India to BTPL are not in the nature of FTS as per the provisions of Article 13(4)(c) of India-UK DTAA. Decided in favour of the assessee.

Summary

Issues Involved:
1. Whether the services rendered by the assessee to its AE in India are in the nature of Fees for Technical Services (FTS) under Article 13(4)(c) of the India-UK DTAA.
2. Whether the services provided by the assessee make available technical knowledge, experience, skill, know-how, etc., to the AE.
3. Whether the initiation of penalty proceedings under section 270A of the Act is justified.

Summary:

Issue 1: Nature of Services as FTS
The primary issue was whether the services rendered by the assessee to its AE in India, amounting to Rs. 83,04,370, qualify as Fees for Technical Services (FTS) under Article 13(4)(c) of the India-UK DTAA. The assessee contended that the services were managerial in nature and thus outside the scope of FTS. The Tribunal noted that the services provided included financial support, sales support, legal support, and technical support, which are managerial services and therefore do not fall under the definition of FTS as per Article 13(4) of the India-UK DTAA.

Issue 2: Make Available Clause
The Tribunal examined whether the services made available technical knowledge, experience, skill, know-how, or processes to the AE. The assessee argued that the services were not of enduring nature and BTPL could not apply and use the technical knowledge on their own without the support of the assessee. The Tribunal agreed, stating that the services provided were continuously rendered and BTPL had to repeatedly seek assistance from the assessee, indicating that the technical knowledge was not made available in a manner that BTPL could use independently in the future. The Tribunal cited several judicial precedents supporting the view that mere rendering of services does not equate to making technical knowledge available.

Issue 3: Penalty Proceedings
Regarding the initiation of penalty proceedings under section 270A of the Act, the Tribunal deemed it premature and did not require adjudication at this stage.

Conclusion:
The Tribunal concluded that the services rendered by the assessee to BTPL do not satisfy the "make available" clause under Article 13(4)(c) of the India-UK DTAA and hence, the fees for these services are not in the nature of FTS. Accordingly, the appeal of the assessee was allowed, and the addition of Rs. 83,04,370 to the total income was deleted. The initiation of penalty proceedings was not addressed as it was considered premature.