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2023 (7) TMI 165 - AT - Income TaxFees for technical services (FTS) - receipts from rendition of certain services to its Indian subsidiary - assessee has not offered them to tax claiming that they are not taxable in India - make available condition as per Article 13(4)(c) of India- UK DTAA - HELD THAT - As most of the services rendered are routine management support services - some of the services like implementation of ERP patches, identify indirect tax issue that could arise on sourcing from India for a global project, guidance sought by Indian subsidiary on the terms and conditions to be proposed to one of its customer and preparation of global guidelines for use of power conversion entities, advice regarding increase the use of software in regular activities to increase the productivity, assistance given in opening the supplier code in their SAP etc., may fall within the ambit of either technical or consultancy services. Such services have to be specifically identified keeping in view the definition of FTS under Article 13(4) of India-UK DTAA. In the facts of the present case, the departmental authorities have not carried out that exercise before concluding that the entire variety of services rendered by the assessee comes within the sweep of technical or consultancy services. This, in our view, is unsustainable. Though, the departmental authorities have alleged that the make available condition stands satisfied, however, no material has been brought on record to support such finding. As discussed earlier, the burden is entirely on the Revenue to prove that rendition of services by the assessee has made available technical knowledge, knowhow, skill etc. to the service recipient so as to enable the service recipient to utilize such technical knowledge, knowhow, skill etc. independently in future without the aid and assistance of the assessee. Thus, in our view, the Revenue having failed to demonstrate the aforesaid aspect through cogent evidence, it has to be held that the make available condition under Article 13(4)(c) of India-UK treaty is not fulfilled. Thus we hold that the amount received by the assessee from Indian subsidiary towards rendition of various services do not qualify as FTS under Article 13(4) to India-UK DTAA read with India-France DTAA. Decided in favour of assessee.
Issues Involved:
1. Whether the amount received by the assessee for services rendered to its Indian subsidiary qualifies as Fees for Technical Services (FTS) under the India-France Double Taxation Avoidance Agreement (DTAA). 2. Whether the reimbursement of expenses qualifies as FTS. Summary: Issue 1: Nature of Services and FTS Qualification The primary issue is whether the amount of Rs. 5,78,85,456/- received by the assessee for services rendered to its Indian subsidiary qualifies as FTS under the India-France DTAA. The assessee, a non-resident corporate entity and tax resident of France, argued that the services rendered were managerial and not taxable in India. The Assessing Officer, however, classified the services as technical or consultancy services, hence taxable as FTS under the India-France DTAA. The assessee invoked the Most Favoured Nation (MFN) clause, suggesting that the definition of FTS under the India-UK DTAA, which includes a 'make available' condition, should apply. The Assessing Officer rejected this, stating that the protocol alone does not import definitions from other treaties without a specific government notification. The Commissioner (Appeals) accepted the MFN argument but still upheld the taxability, stating that the services rendered made available technical knowledge, skill, etc., to the recipient. Issue 2: Reimbursement of Expenses The reimbursement of expenses amounting to Rs. 65,49,653/- was also contested. The assessee argued that these reimbursements do not qualify as FTS. Tribunal's Findings: 1. MFN Clause Applicability: The Tribunal noted that the Revenue did not appeal against the Commissioner (Appeals)'s decision to apply the MFN clause, thus confirming that the taxability should be determined with reference to Article 13(4) of the India-UK DTAA. 2. Nature of Services: The Tribunal observed that most services rendered were routine management support services, such as payroll support, accounts receivable/payable support, administrative support, and IT support. Only a few services might fall under technical or consultancy services but were not specifically identified by the departmental authorities. 3. 'Make Available' Condition: The Tribunal emphasized that the 'make available' condition requires the service provider to impart technical knowledge, skill, etc., enabling the recipient to apply it independently in the future. The Revenue failed to demonstrate this with cogent evidence. 4. Precedent: The Tribunal referred to its own decision in the assessee's case for the assessment year 2015-16, where identical receipts from the same Indian subsidiary were not considered FTS under Article 13(4) of the India-UK DTAA. Conclusion: The Tribunal held that the amount received by the assessee does not qualify as FTS under Article 13(4) of the India-UK DTAA read with the India-France DTAA. Consequently, the addition of Rs. 5,78,85,456/- was deleted, and the reimbursement of expenses amounting to Rs. 65,49,653/- was also not considered FTS. The appeal was allowed in favor of the assessee. Order Pronounced: The order was pronounced in the open court on 16/06/2023.
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