2024 (1) TMI 266 - AT - Income Tax

Income taxable in India - taxability of certain amounts received by the assessee from an Indian group entity, as Fee for Technical Services ( FTS ) u/s 9(1)(vii) of the Income-tax Act as well as under Article 12(4) of India Singapore DTAA - HELD THAT - When the matter came up before the Tribunal in DCIT Vs. Bombardier Transportation India Pvt. Ltd. (payer of service charges) 2017 (1) TMI 780 - ITAT AHMEDABAD the Tribunal after going through the nature of services received and whether make available condition was satisfied, ultimately concluded that while rendering such services, the service provider has not made available technical knowledge, know-how, skill etc. Therefore, payment would not qualify as FTS. On a perusal of the aforesaid decision of the Coordinate Bench, it is observed that the nature of services provided by Bombardier Transportation Canada were far wider in scope than the services provided by the assessee. However, on examining the facts the Tribunal having found that the make available condition has not been satisfied, treated the payments not be in the nature of FTS. The departmental authorities have failed to factually establish through cogent evidence that in course of rendition of services, the assessee has made available technical knowledge, know-how, skill etc. to BTIL so as to enable BTIL to employ/use such technical knowledge, know-how, skill etc. independently without the aid and assistance of the assessee. That being the factual position emerging on record, in our considered opinion, the receipts would not qualify as FTS under Article 12(4)(b) of the tax treaty. Therefore, we conclude that the additions made by the Assessing Officer treating the receipts as FTS are unsustainable. Grounds raised on the issue are allowed.

Summary

Issues:
The major issue involves the taxability of amounts received as Fee for Technical Services (FTS) by the assessee from an Indian group entity under the Income-tax Act and the India-Singapore Double Taxation Avoidance Agreement.

Issue 1 - Taxability of FTS under the Income-tax Act and DTAA:
The assessee, a non-resident corporate entity from Singapore, provided management support services to the Indian group entity. The Assessing Officer considered the services as managerial/technical/consultancy services, making technical knowledge available to the recipient. The assessee argued that the receipts did not qualify as FTS under the DTAA due to the non-fulfillment of the "make available" condition. The Tribunal found that the department failed to establish the transfer of technical knowledge, know-how, skill, etc., independently enabling the recipient to use them without the provider's assistance. Citing similar cases, the Tribunal concluded that the receipts were not FTS under the DTAA.

Issue 2 - Additional claim and levy of interest:
The assessee offered a portion of the receipts as FTS in the return of income but later claimed that it was not taxable under the tax treaty. The Assessing Officer rejected the claim as it was made through a revised return. The first appellate authority did not address the claim specifically. The Tribunal, lacking relevant facts, decided to restore this issue to the Assessing Officer for fresh adjudication after providing a reasonable opportunity for the assessee to be heard.

In conclusion, the Tribunal allowed one appeal and partly allowed two appeals, emphasizing that the receipts did not qualify as FTS under the tax treaty. The judgment was pronounced on 30th October, 2023.