2024 (6) TMI 322 - AT - Income Tax

Accrual of income in India - Taxability as Fees for Included Service (FIS)/Fees for Technical Services(FTS) - assessee had received an amount from Indian subsidiary on account of rendition of management service - assessee is a non-resident corporate entity and incorporated in Singapore engaged in the business of providing management services and sales of software license to its customers in India - assessee has entered into an Inter Company Management Services Agreement with the Indian Subsidiary - HELD THAT - For rendition of such services the assessee receives certain amounts towards fees from the Indian subsidiary. The crucial issue requiring consideration is whether in course of rendition of such services the assessee has made available technical knowledge know- how skill etc. to the employees of the Indian Subsidiary so as to enable the Indian Subsidiary to perform such services themselves without further aid and assistance of the assessee in future. As could be seen from the observations of the AO except making a general statement that the make available condition u/A 12 of the Income Tax Treaty is satisfied he has failed to demonstrate or bring out on record any convincing reasoning to establish that in course of rendition of services the assessee has made available technical know-how knowledge skill etc. to the service recipient so as to enable service recipient to perform such services independently by utilizing the technical know-how knowledge skill etc acquired from the assessee. AO has alleged that the assessee has failed to furnish necessary details/documents however he has not elaborated what were the informations required from the assessee. Unfortunately Ld. DRP has mechanically endorsed the view of the AO without examining the issue both factually and legally with proper application of mind. Since the Departmental Authorities have failed to demonstrate that the make available condition enshrined in Article 12(4)(b) of the tax treaty is satisfied we are unable to sustain the addition as FTS/FIS. Accordingly the Assessing Officer is directed to delete the addition. Addition of an amount received from AU Small Finance Bank Ltd. towards sale of software as FTS - Schedule C provides for the license fee for first 10, 00, 000 users. Even the invoice raised by the assessee on AU Small Finance Bank Limited clearly shows the sale of mobile application license fee. Thus it is explicit from the license agreement that what the assessee has sold are software licences and not any services. Therefore in the first place the Departmental Authorities have committed error in treating the receipts from the sale of software as FTS. Keeping in perspective the facts available on record it would have been understandable had the Departmental Authorities taxed the receipts as royalty which of course can be a debatable issue in view of ratio laid down in the case of Engineering Analysis Centre of Excellence (P.) Ltd 2021 (3) TMI 138 - SUPREME COURT - However one need not go into that aspect as the singular case of the Departmental authorities is that the receipts are in the nature of FTS which findings. in our view is contrary to the facts and material available on record hence totally unacceptable. Accordingly we hold that the amount in dispute is not taxable as FTS. The Assessing Officer is directed to delete the addition. This ground of the assessee is allowed.