2015 (9) TMI 957 - AT - Income Tax

Transfer pricing adjustment - computation of the Arm s Length Price - Management Service Fees ( MSF ) received whether taxable in India as Fees for Technical Services ( FTS ) within the meaning of Article 12 of the India-Sweden read with the protocol thereto ? Held that - Since the nature of services provided by the assessee company to its affiliates during A.Y. 2007-08 and 2008-09 are similar, therefore, following the decision of the Tribunal in assessee s own case in the immediately preceding assessment year and in absence of any contrary material brought to our notice we hold that the Management Service Fees received by the assessee is not taxable in India on the principle of most favoured nation clause the payment received by the assessee company from its Indian subsidiaries cannot be brought to tax. We hold and direct accordingly. - Decided in favour of assessee.

Issues Involved:
1. Taxability of Management Service Fees (MSF) received by the assessee.
2. Applicability of Double Taxation Avoidance Agreement (DTAA) between India and Portugal via the protocol attached to DTAA between India and Sweden.
3. Determination of whether the services rendered were managerial or technical in nature.

Issue-wise Detailed Analysis:

1. Taxability of Management Service Fees (MSF) received by the assessee:
The assessee, a non-resident company incorporated in Sweden, received a "Management Service Fee" from its Indian subsidiaries. The Assessing Officer (AO) treated this amount as taxable fees for technical services (FTS) under Article 12 of the India-Sweden Tax Treaty. The AO's position was based on the inclusion of managerial, technical, or consultancy services in Article 12. The Dispute Resolution Panel (DRP) upheld this view, stating the services provided were not purely managerial but also included technical and consultancy elements.

2. Applicability of Double Taxation Avoidance Agreement (DTAA) between India and Portugal via the protocol attached to DTAA between India and Sweden:
The assessee argued that the MSF should not be taxable in India based on the protocol to the DTAA between India and Sweden, which states that if India enters into an agreement with an OECD member (such as Portugal) with a more restricted scope for taxing FTS, the same scope should apply to the India-Sweden DTAA. The India-Portugal DTAA includes a "make available" clause, meaning that technical knowledge or skills must be made available to the recipient for the services to be taxable. The assessee contended that their services did not meet this criterion.

3. Determination of whether the services rendered were managerial or technical in nature:
The DRP did not accept the assessee's claim that the services were purely managerial. The DRP noted that the agreement between the assessee and its Indian subsidiaries did not clearly list the services as managerial. Instead, the DRP found that the services included elements of marketing, manufacturing, human resources, and information technology functions, which could be considered technical or consultancy services.

Tribunal's Decision:
The Tribunal referred to its decision in the assessee's own case for the previous assessment year (2007-08), where it was held that the MSF received by the assessee could not be taxed in India based on the principle of the most favoured nation (MFN) clause. The Tribunal noted that the nature of services provided in the current assessment year (2008-09) was identical to those provided in the previous year. Therefore, the Tribunal concluded that the MSF received by the assessee was not taxable in India, following the MFN clause and the precedent set in the previous year.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, holding that the MSF received was not taxable in India based on the MFN clause in the DTAA between India and Sweden, read with the India-Portugal DTAA. The grounds raised by the assessee were accepted, and the addition made by the AO was deleted.

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