2015 (7) TMI 985 - AT - Income Tax

Fees received under consulting agreement from Wokhard Hospitals and M/s Carol Info Services are taxable as Fee for included services - The tax authorities have examined only the agreements and have drawn conclusion against the assessee. They have not examined about the nature of services actually provided or delivered by the assessee to the Indian entities. In our considered view, one may not be able to come to a conclusion about the nature of services provided unless the actual services/deliverables are examined. Then one shall be in a position to ascertain as to whether the services or techniques provided was mere commercial information or a technique made available to the assessee. We may elucidate this point with an example. Let us assume that a financial consultancy firm provides consultancy services for Cash management system . It may provide various techniques to be followed to achieve the objective of effective cash management. The said techniques may be followed by the recipient of services even in the absence of the financial consultancy firm. In that case, the question that requires to be examined is whether the financial consultancy firm has made available the technology related to Cash management system or not within the meaning of the provisions of Indo-USA DTAA. In the absence of such kind of examination from the side of tax authorities, we notice that the Tribunal also has proceeded to adjudicate the issue by considering the agreements only. In the absence of such kind of intricate details, we are also not in a position to examine the nature of services vis- -vis the products/package, if any, delivered by the assessee. Since the Tribunal has consistently taken a particular view in the earlier years and since there was no deeper examination done by the tax authorities, we are inclined to follow the decision rendered by the Tribunal in the earlier years. Accordingly, by following the order passed by the Tribunal in the earlier years, we set aside the orders of Ld CIT(A) in AY 2006-07 and the assessment orders passed on the above said issues in AY 2007-08 to 2009-10 and direct the AO to delete the addition of all the receipts discussed above. - Decided in favour of assessee.

Summary

Issues:
Whether the assessee is liable to pay tax on amounts received for services provided to various entities under different agreements.

Analysis:
The assessee, a Non-Profit educational entity incorporated in the USA, provided educational and consultancy services to Indian entities under specific agreements. The main contention was the tax liability on the receipts under these agreements as per the Indo-US DTAA. The AO treated the receipts as taxable, categorizing them as Royalty or Fee for Included Services. The assessee argued that the receipts were business receipts and not taxable in India due to the absence of a permanent establishment. The CIT(A) partially upheld the AO's decision, taxing certain receipts. Both parties appealed the decision for AY 2006-07.

The AO continued to tax receipts in the following years as Royalty or Fee for Included Services. The assessee challenged these orders as well. During the hearing, the Tribunal noted previous decisions favoring the assessee under the Indo-US DTAA for AY 2000-01 to 2004-05. The Tribunal's decision for AY 2004-05 held that receipts were not taxable as they did not constitute Fee for Included Services or Royalty, and the assessee lacked a Permanent Establishment in India.

The Tribunal extended this decision to the current case, ruling that receipts under certain agreements were not taxable. It emphasized the need to examine the nature of services provided, not just agreements. Due to the lack of detailed examination by tax authorities, the Tribunal relied on previous decisions and directed the AO to delete the additions made in the assessments for AY 2006-07 and subsequent years. Consequently, interest under section 234B was not applicable. The Revenue's appeal for AY 2006-07 was dismissed, and all appeals by the assessee were allowed.

In conclusion, the Tribunal ruled in favor of the assessee, following previous decisions and emphasizing the importance of examining the actual services provided. The judgment highlighted the application of the Indo-US DTAA in determining tax liability on receipts for services rendered to Indian entities under specific agreements.