2025 (1) TMI 893 - AT - Income Tax

Income deemed to accrue or arise in India - taxability of receipts towards maintenance, other support and training services and received on account of additional services as Fee for Technical Services (FTS) - assessee is a non-resident corporate entity incorporated under the laws of Singapore - Scope of India-Singapore Treaty DTAA - HELD THAT - The facts of the present appeal reveal that the assessee is providing identical nature of services year on year basis. Had it been the case that the assessee has made available technical knowledge, knowhow, skill etc. to the service recipient, there would not have been any requirement for the assessee to provide such services on recurring basis. This is so because, once the technical knowledge, know-how skill etc. is made available to the service recipient, it enables the service recipient to independently perform such services without requiring the aid and assistance of service provider. Pertinently, while considering identical nature of dispute in assessee s own case in A.Y. 2018-19 2023 (5) TMI 1043 - ITAT MUMBAI had examined the nature of services provided by the assessee in terms with the agreement and concluded that the receipts are not in the nature of FTS. Whether the receipts from additional services can be treated as FTS under the Treaty provisions? - assessee provide service relating to migration of software from old to new - HELD THAT - If the Department seeks to invoke Article 12(4)(b) of the treaty the burden is entirely on the department to demonstrate the fulfillment of make available condition through cogent evidence. Unfortunately, the Department has failed to do so. Allegation of the AO that the assessee has offered similar income to tax in A.Y. 2018-19 does not stand to reason in view of the fact that in A.Y. 2018-19, the assessee offered it as business income in view of the fact that it had a service PE in India. Whereas, it is the assertion of the assessee that in the impugned assessment year there was no PE in India. Even, in the assessment order, there is no allegation by the Assessing Officer regarding existence of PE in India. In that view of the matter, once the receipts are not in the nature of FTS under Article 12(4) of the Treaty, they have to be treated as business receipts and in absence of PE in India, cannot be made taxable. Assessee appeal allowed.

2023 (5) TMI 1043 - AT

1. ISSUES PRESENTED and CONSIDERED

The legal judgment revolves around the following core issues:

Whether the receipts from maintenance, support, and training services, as well as additional services, qualify as Fees for Technical Services (FTS) under Article 12(4) of the India-Singapore Double Taxation Avoidance Agreement (DTAA).
Whether the receipts from additional services related to software implementation and migration can be classified as FTS under the same treaty provisions.
The applicability of the "make available" clause in determining the nature of the services provided by the assessee.
Whether the absence of a Permanent Establishment (PE) in India affects the taxability of the business receipts.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Taxability of Receipts from Maintenance and Support Services as FTS

Relevant Legal Framework and Precedents: The issue is governed by Article 12(4) of the India-Singapore DTAA, which defines FTS as payments for managerial, technical, or consultancy services that "make available" technical knowledge, experience, skill, or know-how.
Court's Interpretation and Reasoning: The court examined whether the services provided by the assessee made available any technical knowledge, skill, or expertise that would enable the recipient to independently apply such knowledge.
Key Evidence and Findings: The court noted that the services were recurring and did not enable the Indian clients to perform the services independently, indicating that no technical knowledge was made available.
Application of Law to Facts: The court applied the "make available" clause and concluded that the services did not qualify as FTS since they did not transfer any technical expertise to the Indian clients.
Treatment of Competing Arguments: The court considered the Department's argument that the services were technical and made available expertise but found no evidence supporting this claim.
Conclusions: The receipts from maintenance and support services were not taxable as FTS under Article 12(4) of the DTAA.

Issue 2: Taxability of Receipts from Additional Services as FTS

Relevant Legal Framework and Precedents: Similar to Issue 1, Article 12(4) of the India-Singapore DTAA was the primary legal framework considered.
Court's Interpretation and Reasoning: The court analyzed whether the additional services, particularly related to software migration, involved the transfer of technical knowledge or expertise.
Key Evidence and Findings: The court found no evidence that the assessee transferred any technical knowledge or skill during the migration services.
Application of Law to Facts: The court held that the services did not satisfy the "make available" requirement, as the Indian clients could not independently perform the migration without the assessee's assistance.
Treatment of Competing Arguments: The court rejected the Department's reliance on the protocol to the India-USA Treaty, emphasizing the need for direct evidence of "make available" under the India-Singapore DTAA.
Conclusions: The receipts from additional services were not taxable as FTS under the treaty provisions.

Issue 3: Impact of Absence of Permanent Establishment (PE)

Relevant Legal Framework and Precedents: The concept of PE is crucial in determining the taxability of business income under international tax treaties.
Court's Interpretation and Reasoning: The court noted that in the absence of a PE in India, the business receipts could not be taxed under the DTAA.
Key Evidence and Findings: The court found no evidence of a PE in India for the assessment years in question.
Application of Law to Facts: The court emphasized that without a PE, the business receipts were not taxable in India.
Treatment of Competing Arguments: The court dismissed the Department's argument regarding the taxability of similar receipts in a previous year due to the existence of a PE at that time.
Conclusions: The absence of a PE meant that the business receipts were not taxable in India.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "Thus, such maintenance support services and training services do not fall in the ambit and nature of FTS within Article 12(4) of India-Singapore DTAA, as these services do not make available any technical skill knowledge or expertise etc., which can enable Indian customer to apply the technology content therein."
Core Principles Established: The judgment reinforces the interpretation of the "make available" clause in the context of FTS under the India-Singapore DTAA, emphasizing the need for actual transfer of technical knowledge or expertise.
Final Determinations on Each Issue: The court concluded that the receipts from maintenance, support, and additional services were not taxable as FTS, and in the absence of a PE, the business receipts were not taxable in India.

The judgment provides a detailed analysis of the application of the "make available" clause in the India-Singapore DTAA and underscores the importance of evidence in establishing the taxability of technical services. The court's reliance on precedent and factual analysis highlights the nuanced approach required in international tax disputes.

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