2024 (1) TMI 1406 - AT - Income Tax

Income deemed to accrue or arise in India - management fee/processing fee received by the non-resident banking company from India - whether the management fee/processing fee received by the assessee is in the nature of Fees for Technical Services (FTS) under provisions of section 9(1)(vii) as well under Article 12 of the India Germany Double Tax Avoidance Agreement (DTAA) - HELD THAT - The term interest includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized. Thus, even the definition of interest in the domestic law, in our view, covers all kinds of payment attached to the loan. AO, no doubt, has accepted the claim of the assessee that interest along with other fees, such as, commitment fee, documentation fee attached to the loan granted are exempt under Article 11(3)(b) of the Act. Even the management fee is of similar nature as commitment fee and documentation fee, as it is closely linked to the loan granted, hence cannot be distinguished from the documentation fee and commitment fee. Thus, in our view, management fee partakes the character of interest u/s 2(28A). Hence, would be exempt from taxation in India in terms of Article 11(3)(b) of the treaty. While coming to such conclusion, we find support from the decision of Sisecam Flat Glass India Ltd. 2021 (3) TMI 591 - ITAT KOLKATA Thus, we hold that the amount in dispute, being covered under Article 11(3)(b) of the India Germany DTAA is not taxable in India. Assessee appeal allowed.

Summary

Issues:
1. Whether the management fee/processing fee received by the assessee is in the nature of Fees for Technical Services (FTS) under section 9(1)(vii) of the Income Tax Act and Article 12 of the India Germany Double Tax Avoidance Agreement (DTAA).

Detailed Analysis:
The appeal was filed challenging the final assessment order under section 147 r.w.s 144 of the Income Tax Act for Assessment Year 2016-17. The primary issue was whether the management fee/processing fee received by the non-resident banking company from India is considered Fees for Technical Services (FTS) under section 9(1)(vii) of the Act and Article 12 of the India Germany DTAA. The Assessing Officer reopened the assessment due to non-deduction of tax at source on the management/processing fee received. The dispute revolved around the taxability of the management fee under the treaty and domestic law.

The Assessing Officer held that the management/processing fee is in the nature of FTS, hence taxable under the treaty and the Act. The assessee contended that the fee is exempt under Article 11(3)(b) of the India Germany DTAA. The Dispute Resolution Panel directed the Assessing Officer to reconsider the claim. The final assessment order reiterated the taxability of the management fee. The issue was whether the fee should be treated as interest under the treaty and domestic law.

The tribunal analyzed the loan agreement terms and observed that the management fee was closely linked to the loan granted. It held that the management fee partakes the character of interest under section 2(28A) of the Act and is exempt from taxation in India as per Article 11(3)(b) of the treaty. The tribunal relied on a previous decision to support its conclusion. Consequently, it allowed Ground No.3 of the appeal.

The tribunal found Ground No.1 and 2 to be academic in light of the decision on the main issue and kept them open. Ground No.4 was deemed consequential, and Ground No.5 premature, hence not requiring adjudication. The appeal was partly allowed based on the tribunal's decision on the main issue regarding the taxability of the management fee.