2025 (1) TMI 174 - AT - Income Tax

Income deemed to accrue or arise in India - taxability of administrative support service charges as fees for technical services (FTS) in terms of Article 13 of Double Taxation Avoidance Agreement (DTAA) between India United Kingdom (UK) - HELD THAT - As decided in assessee s own case in A.Y. 2012- 13. 2023 (3) TMI 1485 - ITAT MUMBAI the services provided by the group entities or holding company to its subsidiaries as support services to run their business effectively will not be considered as FTS or FIS under the treaty and these services does not amount to make available technical or skill or expertise while providing these services. Thus the services provided by the assessee to its subsidiaries are only to support to function the administration and day to day management of JIPL considering the fact that JIPL does not have any infrastructure to carry out any administration and day to day management. These facts are confirmed by the lower authorities and also facts on record. Therefore, these services are outside the ambit of FIS and FTS. Hence we are incline to allow the grounds raised by the assessee. Taxability of reimbursement of expenses as FTS under Article 13(4) of India-UK treaty - As decided in assessee s own case in A.Y. 2012- 13 2023 (3) TMI 1485 - ITAT MUMBAI we hold that reimbursement of expenses cannot be treated as FTS. Accordingly, we uphold the decision of learned first appellate authority by dismissing the grounds raised.

1. ISSUES PRESENTED and CONSIDERED

The legal judgment from the Appellate Tribunal ITAT Mumbai primarily revolves around the following core issues:

Whether the administrative support service charges received by the assessee qualify as Fees for Technical Services (FTS) under Article 13 of the Double Taxation Avoidance Agreement (DTAA) between India and the United Kingdom.
Whether the reimbursement of expenses incurred by the assessee on behalf of its Indian subsidiary should be treated as FTS under Article 13(4) of the India-UK treaty.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Taxability of Administrative Support Service Charges as FTS

Relevant Legal Framework and Precedents: The primary legal framework considered is Article 13 of the DTAA between India and the UK. The Tribunal also referred to its own prior decision in the assessee's case for A.Y. 2012-13, where it was held that such fees do not qualify as FTS under the treaty.
Court's Interpretation and Reasoning: The Tribunal interpreted that for services to be considered as FTS, they must involve the transfer of technical knowledge, skills, or processes. The Tribunal found that the administrative support services provided did not make available any such technical knowledge to the Indian subsidiary.
Key Evidence and Findings: The Tribunal noted that the services provided were administrative in nature, including compliance advisory, financial statement preparation, and IT support, which were shared across the group without any markup.
Application of Law to Facts: The Tribunal applied Article 13(4) of the India-UK DTAA and concluded that the services did not fit the definition of FTS as they did not make available technical knowledge or skills.
Treatment of Competing Arguments: The Revenue argued that the services were technical in nature and should be taxed as FTS. However, the Tribunal favored the assessee's argument, supported by the APA and the absence of any technical transfer.
Conclusions: The Tribunal concluded that the administrative support service charges are not taxable as FTS under the DTAA provisions.

Issue 2: Taxability of Reimbursement of Expenses as FTS

Relevant Legal Framework and Precedents: The Tribunal referred to its prior decision in the assessee's case for A.Y. 2012-13, where it was held that reimbursement of expenses without markup does not qualify as FTS.
Court's Interpretation and Reasoning: The Tribunal reasoned that reimbursement of expenses, being a cost-to-cost transaction without any profit element, does not constitute FTS.
Key Evidence and Findings: The Tribunal observed that the expenses were incurred for services rendered to the Indian subsidiary and reimbursed without any markup.
Application of Law to Facts: Applying the principles from Article 13(4) of the DTAA, the Tribunal found that the reimbursements did not involve any transfer of technical services.
Treatment of Competing Arguments: The Revenue's argument that reimbursements should be taxed as FTS was rejected based on the absence of any technical service or profit element.
Conclusions: The Tribunal concluded that the reimbursement of expenses is not taxable as FTS under the treaty provisions.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal reiterated, "The services provided by the assessee in order to support and provide the administrative and day to day management services to the JIPL are in the nature of group support services. These services are not to fall under the category of FIS or FTS."
Core Principles Established: The judgment reinforces the principle that administrative support services and reimbursement of expenses, when provided without markup and not involving the transfer of technical knowledge, do not qualify as FTS under the DTAA.
Final Determinations on Each Issue: The Tribunal dismissed the Revenue's appeals, confirming that neither the administrative support service charges nor the reimbursement of expenses are taxable as FTS under the India-UK DTAA.

The judgment thus provides clarity on the interpretation of FTS under international tax treaties, particularly concerning intra-group administrative services and cost reimbursements.

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