2024 (9) TMI 1506 - AT - Income Tax

Accrual of Income in India - Taxability of receipts as fees for included services under India-USA DTAA - addition on account of receipts from remittances on account of providing IT support services maintenance services etc. to its sister concerns in India for the reason that the operations of the assessee company is highly complicated and systems have been codified and methods to be adopted as per business need AO has not accepted the assessee s explanation above that the services rendered by it is not taxable as there is a clear nexus between services rendered and the compensation received by assessee company after going through the recital of service agreement entered into between assessee and its sister concern and treated the total remittances as fee for technical services u/s. 9(1)(vii)(b) of the Act and taxed the same u/s. 115A Main argument of the assessee was that merely providing highly complicated services as understood by Revenue and the same having nexus with the compensation received by it by itself will not result in taxing such receipts as fees for included services unless it satisfies the definition of FIS under DTAA between India and USA - HELD THAT - We are in agreement with the arguments of ld.counsel that in order to constitute a receipt fees for included services FIS under Article 12 of India-US DTAA services rendered must make available technical knowledge expertise skill know how or processes or consist of the development and transfer of a technical plan or technical design. These services rendered by assessee to its sister concern and compensation received on account of the same does not fall in these typical categories mentioned in paragraph 4(b) which includes making technology available nor to be taxable under Article 12 of the tax treaty as FIS the payment should fit into the terminology make available wherein the technical knowledge skill etc. must remain with the person receiving the services even after the particular contract comes to an end. Want to back of that in the present case there is no such clause in the service agreement which we have gone through and substantially reproduced in our order. The nature of services provided by assessee which the company merely centralizes the IT related services to achieve a standardized IT environment and payment towards access to developed standard business / engineering applications data management by providing disaster recovery / back up services helpdesk support services user administration maintenance of IT infrastructure support services telecom services do not make available any technical knowledge experience skills etc. to the recipient since the recipient cannot at any time independently manage the IT environment and requires continuous re-course to the company for the said services. Hence the service provided by the assessee company do not fall within the ambit of fee for included services as defined under Article 12 of India US DTAA and hence not taxable in India. Since the assessee is not having any PE in India and he is covered by India US DTAA and MOA the nature of services rendered by the assessee on account of which received the remunerations cannot be described as fee for included services and hence not taxable in India. We also hold that the amount received cannot be treated as royalty even under the provisions of section 9(1)(vii) because the service rendered cannot constitute technical services so as to cover u/s. 9(1)(vii) of the Act. Hence we delete the addition and allow this issue of assessee s appeal on merits. Point of reconciliation being difference in figures between Form No.26AS and Form No.15CA - We are of the view that Form No.15CA filed by the banker and the assessee was not in a position to verify the details forming part of Form No.15CA. The assessee has made claim as per Form No.26AS this is subject to verification. The assessee will be provided necessary details as received by the AO in Form No.15CA and will confront the same to the assessee so that the assessee can peruse the same and provide suitable response and reconcile the figures. In term of the above this particular verification is restored back to the file of the AO.

Summary

Issues Involved:

1. Validity of reassessment proceedings.
2. Taxability of receipts as 'fees for included services' under India-USA DTAA.
3. Credit of taxes deducted at source.
4. Higher rate of tax levied instead of 15% as per India-USA DTAA.
5. Reconciliation of differences between Form 26AS and Form 15CA.

Issue-Wise Detailed Analysis:

1. Validity of Reassessment Proceedings:

The assessee argued on the merits of the case before addressing the jurisdictional issue of reassessment proceedings. The tribunal did not specifically adjudicate on the jurisdictional issue, treating it as academic since the merits were decided in favor of the assessee.

2. Taxability of Receipts as 'Fees for Included Services' under India-USA DTAA:

The assessee, a foreign company providing IT support services, contended that the receipts were not taxable under Article 12 of the India-USA DTAA. The AO treated the receipts as 'fees for included services' (FIS) under Article 12(4) of the DTAA and Section 9(1)(vii)(b) of the Income Tax Act, taxing them at 10%. The DRP upheld the AO's decision, stating that the services rendered made available technical knowledge, experience, skill, know-how, or processes to the recipient.

The tribunal examined the service agreement and concluded that the services provided did not make available any technical knowledge, experience, skill, or processes to the recipient. The tribunal referenced the protocol to the India-USA DTAA, which clarifies that merely providing services requiring technical input does not constitute making technology available. The tribunal cited several judicial precedents, including the Karnataka High Court's decision in CIT vs. De Beers India Minerals (P) Ltd., and ITAT decisions in Sandvik Australia Pty. Ltd. vs. DDIT and GE Energy Management Services Inc. vs. ADIT, supporting the view that the services did not fall under the definition of FIS. Consequently, the tribunal held that the receipts were not taxable in India under Article 12 of the DTAA.

3. Credit of Taxes Deducted at Source:

The assessee argued that it was entitled to credit for taxes deducted at source on the amounts added to its total income. The tribunal did not specifically address this issue in the judgment, as the primary issue of taxability was decided in favor of the assessee.

4. Higher Rate of Tax Levied Instead of 15% as per India-USA DTAA:

The assessee contended that the AO erred in levying a higher rate of tax instead of the 15% rate specified in the India-USA DTAA. The tribunal's decision to delete the addition on the merits rendered this issue moot.

5. Reconciliation of Differences between Form 26AS and Form 15CA:

The tribunal acknowledged the assessee's difficulty in reconciling the amounts based on Form 15CA filed by the payer entities. The tribunal directed the AO to provide the necessary details from Form 15CA to the assessee for verification and reconciliation. This aspect was remanded back to the AO for verification.

Separate Judgments Delivered by Judges:

Not applicable, as the judgment was delivered collectively without separate opinions from the judges.

Conclusion:

The tribunal allowed the appeals filed by the assessee, holding that the receipts were not taxable as 'fees for included services' under the India-USA DTAA. The tribunal directed the AO to verify the reconciliation of amounts based on Form 15CA. The stay applications filed by the assessee were dismissed as infructuous.