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2019 (7) TMI 402 - AT - Income TaxIncome accrued in India - Reimbursement of cost - whether taxable as fees for technical services (FTS) - Assessee company is a tax resident of France - HELD THAT - We are confronted with a situation in which Mr. Franck Euvrard was employed by Faurecia India as its CEO. It is not as if Mr. Franck Euvrard was rendering services to Faurecia India on behalf of the assessee for which the amount in dispute was received by the assessee company. Rather, it is a case of Mr. Franck Euvrard working as an employee of Faurecia India. The assessee had no role to play in the rendition of services by Mr. Franck Euvrard to Faurecia India, except that a part of salary payable by the Indian entity was initially paid by the assessee in France to Mr. Franck Euvrard, which was later on recovered without any profit element. Thus, it is held that the sum of ₹ 47.30 lac received by the assessee from Faurecia India is not in the nature of fees for technical services u/s.9(1)(vii) of the Act. Sum received by the non-resident assessee from the Indian entity is not chargeable to tax in its hands as the same is in the nature of reimbursement of cost and does not fall within the purview of Fees for technical services u/s. 9(1)(vii) of the Act. We, therefore, overturn the impugned order on this score and order to delete the addition. Taxability towards receipt of Support services - consideration for technical and managerial services - royalty or FTS - nature of services rendered by the assessee to Faurecia India in terms of Services Agreement - India UK DTAA - HELD THAT - As adverted to the nature of services rendered by the assessee to Faurecia India and found them to be Managerial and also Technical in nature. Managerial services are concerned, the consideration for them goes out of the purview of Fees for technical services , as the term managerial is absent in Article 13(4) of the DTAA with UK. Case of the AO rests on treating consideration for such services as Royalty or Fees for technical services only. Resultantly, payment for the Managerial services cannot be brought with in the scope of the term Fees for technical services under Article 13 of the DTAA with France as read in conjunction with the DTAA with the UK. As far as the remaining Technical services rendered by the assessee to Faurecia India are concerned, it is seen that these are of coordinating the Information system and assisting Faurecia India in computerisation of systems, office automation and utilisation of personal computers which fall into the aforesaid three categories namely, Operations, Technical support and Studies. On going through the nature of such services, it is manifested that these do not result in making available any technical knowhow etc. to the Faurecia India. When we advert to the nature of the Technical services rendered by the assessee, it gets axiomatic that no technical knowledge was made available by the assessee to Faurecia India for its use thereafter. Rather, it is a case of providing a service involving technical knowledge, which got consumed with its provision itself. Since such services simply involve use of technical knowledge and do not result into handing over some technical knowhow to Faurecia India, the same, in our considered opinion, cannot be termed as Fees for technical services under the DTAA. Total amount received by the assessee for rendition of services to Faurecia India, which is a mixed bag of Managerial and Technical services, does not eventually make available any technical knowledge, experience, skill, know-how etc. to the India entity and hence the same cannot in our considered opinion be considered as Fees for technical services under Article 13(4) of the DTAA with France when read with the Protocol and Article 13(4) of DTAA with the UK. As the extant payment received by the assessee can neither be construed as Royalty u/s 9(1)(vi) of the Act nor as Fees for technical services under the DTAA, the same cannot be included in the total income of the assessee. Ex consequenti, we overturn the impugned order on this score and order the deletion of the addition. - Decided in favour of assessee.
Issues Involved:
1. Reimbursement of cost – whether taxable as Fees for Technical Services (FTS)? 2. Consideration for technical and managerial services – whether royalty or FTS? Detailed Analysis: I. Reimbursement of Cost – Whether Taxable as Fees for Technical Services (FTS)? Factual Background: The assessee, a tax resident of France, received ?47,30,250 from an Indian entity, Faurecia Technology Center India Limited, as reimbursement of salary costs for an expatriate, Mr. Franck Euvrard. The AO included this amount in the total income of the assessee, considering it as "Fees for technical services" under section 9(1)(vii) of the Income-tax Act, 1961 and Royalty under Article 13 of the DTAA between India and France. Tribunal’s Analysis: - Nature of Transaction: Mr. Franck Euvrard was employed by the Indian entity as its CEO, with his salary partly paid by the assessee in France and reimbursed by the Indian entity without any markup. - Section 9(1)(vii) Explanation: The Tribunal noted that any consideration for rendering managerial, technical, or consultancy services, including provision of services of technical or other personnel, is considered as fees for technical services. However, the exception is if the consideration is income chargeable under the head "Salaries." - Real Recipient: The Tribunal emphasized that the real recipient of the salary was Mr. Franck Euvrard, who was employed by the Indian entity. The Indian entity deducted tax at source from the total salary, including the reimbursed amount, which was offered to tax under the head "Salaries." - Reimbursement without Profit Element: The Tribunal noted that the reimbursement was on a cost-to-cost basis without any profit element, and such reimbursement does not constitute income in the hands of the non-resident. - Relevant Case Law: The Tribunal distinguished the case from Centrica India Offshore Pvt. Ltd. Vs. CIT, where the payment was considered as fees for technical services. Instead, it relied on DIT (International Taxation) Vs. A.P. Mollar Maersk A.S. and DIT(I.T.) Vs. Wizcraft International Entertainment Pvt. Ltd., where reimbursements were not considered as income. Conclusion: The Tribunal held that the sum of ?47,30,250 received by the assessee from the Indian entity is not chargeable to tax as it is a reimbursement of cost and does not fall within the purview of "Fees for technical services" under section 9(1)(vii) of the Act. The addition was deleted. II. Consideration for Technical and Managerial Services – Whether Royalty or FTS? Factual Background: The assessee received ?2,66,72,222 from Faurecia India for providing Global Information Support services. The AO categorized this amount as Royalty and also as Fees for Technical Services (FTS) under the Income-tax Act and the DTAA. Tribunal’s Analysis: - Nature of Services: The services included General Management, Communication, Sales and Marketing, Program Management, Accounting, Controlling and Tax, Treasury, Legal, Insurance, Real Estate, Information System, Human Resources, Purchasing, Manufacturing, and Quality. - Royalty: The Tribunal examined section 9(1)(vi) and concluded that the services did not involve imparting information concerning technical, industrial, or commercial knowledge, experience, or skill. The services were not for the use of intellectual property but were mere rendering of services. - Fees for Technical Services under the Act: The services were considered as managerial and technical, falling within the definition of FTS under section 9(1)(vii). - DTAA Analysis: Article 13 of the DTAA with France defines FTS similarly to the Act. However, the Protocol with France includes a Most Favoured Nation (MFN) clause, allowing the application of a more restricted scope from DTAAs with OECD countries. - DTAA with UK: Under the DTAA with the UK, FTS means payments for services that "make available" technical knowledge, experience, skill, know-how, or processes. The Tribunal found that the services did not make available any technical knowledge for future use by the Indian entity. - Conclusion on DTAA: The Tribunal concluded that the services rendered did not result in making available any technical knowledge, experience, skill, know-how, etc., and thus, the payment could not be considered as FTS under the DTAA. Conclusion: The Tribunal held that the payment received by the assessee could neither be construed as Royalty under section 9(1)(vi) nor as FTS under the DTAA. The addition was deleted. Final Order: The appeal was allowed, and the additions made by the AO were deleted. The judgment was pronounced in the Open Court on 08th July, 2019.
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