2024 (7) TMI 134 - AT - Income Tax

Accrual of income in India or not - income made on account of the administrative support services rendered by the assessee company to its Indian entity - Fees for Technical Services (FTS)/included services taxable in India under Article 12 India and United States of America Treaty (DTAA) - whether the assessee 'makes available' technical knowledge, experience, skill, know-how, or process to JIPL Indian entity ? - HELD THAT - The word technical services is preceded by the word managerial and succeeded by the word consultancy . Since the expression technical services is duly covered for tax, in case of reimbursement, it is also enabled taxed in India. But considering Article 12(4)(b) of DTAA, the Administrative Support Services is re-defined, and issue is duly covered by the order of the Co-ordinate bench of ITAT in assessee s own case 2023 (3) TMI 1485 - ITAT MUMBAI A.Y. 2012-13 So, both the amounts are not liable for tax in India u/s 9 of the Act. In our considered view, we cannot circumvent the order of co-ordinate bench in case of taxation on FTS which covered by DTAA of IU treaty. No plausible ground to interfere in appeal order. The grounds of the revenue are failed, and both the additions are deleted.

Issues Involved:

1. Taxability of Administrative Support Services as Fees for Technical Services (FTS) under the India-USA Double Taxation Avoidance Agreement (DTAA).
2. Taxability of Reimbursement of Expenses as FTS.
3. Validity of Reassessment Proceedings.
4. Levy of Interest under Section 234D of the Income Tax Act.
5. Initiation of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

1. Taxability of Administrative Support Services as Fees for Technical Services (FTS) under the India-USA Double Taxation Avoidance Agreement (DTAA):

The primary issue was whether the administrative support services provided by the assessee to its Indian entity (JIPL) constituted 'fees for technical services/included services' (FTS) taxable in India under Article 12 of the India-USA DTAA. The revenue argued that the services made available technical knowledge, experience, skill, know-how, or process to JIPL. However, the assessee contended that these services were routine administrative support services and did not result in the transfer of knowledge or know-how to JIPL.

The Tribunal noted that the services provided by the assessee were in the nature of group support services and did not fall under the category of FTS or FIS (fees for included services). The Tribunal relied on its earlier decision in the assessee's own case for AY 2012-13 and other similar cases, concluding that the services did not make available any technical knowledge or skill to JIPL. Hence, the administrative support services were not taxable as FTS under the DTAA.

2. Taxability of Reimbursement of Expenses as FTS:

The revenue argued that reimbursements of expenses received by the assessee from JIPL constituted FTS and were taxable in India. The Tribunal, however, observed that the reimbursements were merely cost-to-cost payments and did not involve any profit element or transfer of technical knowledge. The Tribunal referred to its earlier decisions and the provisions of the India-USA DTAA, concluding that the reimbursements did not qualify as FTS and were not taxable in India.

3. Validity of Reassessment Proceedings:

The assessee challenged the validity of the reassessment proceedings on several grounds, including that the reassessment order was passed beyond the prescribed time limit and without jurisdiction. The Tribunal noted that the reassessment proceedings were initiated without any tangible material and were based on the same facts as the original assessment. The Tribunal found that the reassessment proceedings were invalid and without jurisdiction, as there was no new material to justify the reopening of the case.

4. Levy of Interest under Section 234D of the Income Tax Act:

The Tribunal upheld the action of the Assessing Officer (AO) to levy interest under Section 234D of the Income Tax Act. The Tribunal did not find any merit in the assessee's objection to the levy of interest.

5. Initiation of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act:

The Tribunal upheld the action of the AO to initiate penalty proceedings under Section 271(1)(c) of the Income Tax Act for additions made in the assessment/reassessment order. The Tribunal found that the initiation of penalty proceedings was justified based on the additions made by the AO.

Conclusion:

The Tribunal dismissed the revenue's appeal, holding that the administrative support services and reimbursements received by the assessee were not taxable as FTS under the India-USA DTAA. The Tribunal also dismissed the cross objections filed by the assessee, finding them infructuous. The reassessment proceedings were held to be invalid and without jurisdiction. The levy of interest under Section 234D and the initiation of penalty proceedings under Section 271(1)(c) were upheld.

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