2023 (10) TMI 299 - AT - Income Tax

Income accrued in India - Fee for Technical Services FTS - 'make available clause satisfied or not? - AO treated the management fee received by the assessee under administrative support agreement as fee for technical services read with article 12(4) of Indo Singapore DTAA - whether services of the nature of Management Support, treasury Support, Legal Support, Information Communication and Human Resources are not of the nature of FTS as 'make available clause is not satisfied in case of these services? - as submitted employee of the assessee visited India in connection with rendering of these services and the recipient was enabled to derive benefit of enduring nature from receipt of these services thus satisfying the 'make available clause. Assessee is a company incorporated under the laws of Singapore and is engaged in the business of providing transportation, logistics and supply chain solutions. The principle activities of the assessee are in the nature of management and support activities to its subsidiaries and related corporation in the Asia Pacific region - HELD THAT - Since in the instant case, the training was for intimating the employees employed by India affiliate regarding the standard steps to be followed in executing an order / trade / business. This improves customer satisfaction and helps in reducing overall cost for the Indian affiliate / organization. 25. We observe that training per se, would not result in make available of technology, experience, skill processes, etc., unless the training involves the transfer of technology, processes, skills, etc., to the recipient in a manner which enables the recipient to apply the technology and to derive benefit therefrom without recourse to the tutor, it would not fall within the expression technical services as defined in the Treaty. Such trainings do not make available' technical knowledge, experience, skill, know-how or processes. There was no transfer of technology. It merely facilitated the employees of the appellant to work in accordance with the expected standards. Thus, the training did not make available any technical knowledge, experience, skill, know-how or processes. In the case of Exxon Mobil Company India Pvt. Ltd. 2018 (3) TMI 938 - ITAT MUMBAI considered the payment made by assessee to Singapore based Company for providing legal support services including management consulting functional advise, administrative, technical, professional and other support services and held that since foreign company had not made available any technical knowledge, expertise, skill, knowhow or process which enabled assessee to apply technology contained therein on its own payment made by assessee could not be considered as fees for technical services as defined under article 12(4)(b) of Indo Singapore DTAA while holding so the Tribunal considering the decision of De Bears India Mineral Pvt. Ltd 2012 (5) TMI 191 - KARNATAKA HIGH COURT Thus we hold that the marketing and sales services, operations and standardization services do not satisfy the make available clause as per article 12(4)(b) of Indo Singapore DTAA and, therefore, the amounts are attributable for these services cannot be held to be fees for technical services. Decided in favour of assessee.

Summary

Issues Involved:
1. Taxability of Management Fee as Fee for Technical Services (FTS)
2. Application of the "Make Available" Clause under Indo-Singapore DTAA
3. Chargeability of Interest under Sections 234A and 234B of the Income Tax Act

Summary:

1. Taxability of Management Fee as Fee for Technical Services (FTS):
The primary issue was whether the management fee received by the assessee for various support services constitutes Fee for Technical Services (FTS) under Section 9(1)(vii) of the Income Tax Act and Article 12 of the Indo-Singapore DTAA. The services in question included Management Support, Finance and Treasury functions, Information Technology Support, Human Resources, Administrative Support, Legal Support, Marketing and Sales Services, and Operations & Standardization.

2. Application of the "Make Available" Clause under Indo-Singapore DTAA:
The Assessing Officer (AO) argued that the services provided by the assessee enabled the Indian affiliate to derive enduring benefits, thus satisfying the "make available" clause. However, the Ld.CIT(A) held that except for Marketing and Sales Services, and Operations & Standardization Services, the other services did not satisfy the "make available" clause as per Article 12(4) of the Indo-Singapore DTAA.

Management Support Services, Finance and Treasury Support, Legal Support, Information Technology Support, Human Resources and Administrative Support:
The Ld.CIT(A) concluded that these services did not involve the transfer of technical knowledge or expertise that would enable the Indian affiliate to perform the services independently. Therefore, these services were not chargeable as FTS under the DTAA.

Marketing and Sales Services, Operations & Standardization Services:
The Ld.CIT(A) upheld the AO's view that these services satisfied the "make available" clause because they involved training and imparting knowledge that enabled the Indian affiliate to apply the acquired skills independently. However, upon further review, it was observed that the training provided was more about acquainting employees with organizational policies rather than transferring technical knowledge or skills. Therefore, these services did not meet the "make available" criteria under Article 12(4)(b) of the DTAA.

3. Chargeability of Interest under Sections 234A and 234B:
The assessee challenged the Ld.CIT(A)'s direction to charge interest under Sections 234A and 234B. The matter was restored to the AO to decide in accordance with the law after providing the assessee an opportunity to be heard.

Conclusion:
- The appeals of the Revenue were dismissed.
- The appeals of the assessee were partly allowed, with the Ld.CIT(A)'s decision being upheld for Management Support, Finance and Treasury Support, Legal Support, Information Technology Support, Human Resources and Administrative Support services, and overturned for Marketing and Sales Services, and Operations & Standardization Services.
- The issue of interest under Sections 234A and 234B was remanded to the AO for reconsideration.

Order pronounced in the open court on 25/09/2023.