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2021 (10) TMI 443 - AT - Income TaxIncome accrued in India - Amount accrued to the Assessee from another group company in India on account of management support costs - FTS under the India- Singapore DTAA - principal and meaning of 'Make Available' - Assessee is providing services in the nature of operational support, accounting and legal support information technology related services etc.- assessee has challenged the treatment of Management support services charge on account of support services provided by the Assessee as Fee for Technical Services (FTS) under the India- Singapore Double Taxation Avoidance Agreement('DTAA') - CIT(A) held that the payment for management, support service is held to be FTS except for payment of Information Technology Services - HELD THAT - As gone through the agreement and the TP study report of the IHG India with regard to the services provided. We find that the operational support such as Providing advice, information and competitive expertise to local general CMH Hotel management on the operation of Hotels in accordance with brand standards, maintaining the qualification available with regard to the international hotel business and its management techniques and Coordinating the managerial plan and actions, advising local general CMH Hotel management on trends and changes in the hotel business in general and provide advice on the production of operating and capital budgets at the level of the CMH Hotels, which are consistent with the strategic plan can at best be the managerial consultancy service but not the services made available so that the recipient can use or replicate the such services received from the assessee. With regard to accounting support the Bench has posed a pertinent question as to why not the accounting support given be treated as the technical knowledge 'made available'. It was answered that the accounting support given was in relation to the preparation of balance sheet and modalities and to advice production of reports regarding the budgets from time to time and the services are rendered repetitively based on the requirements of the clients and hence it cannot be treated as a service which was 'made available' to be applied independently and in times to come. We, after going through the type of services rendered, hereby concur with the explanation given by the ld. AR. Similarly, the services rendered in connection with training recruitment and manpower specification, we find that there is neither technology transfer, knowledge transfer nor transfer of any skill or know-how. We hold that the provisions of the Article 12(4) could not be applied to the services rendered by the assessee in the strict sense of the provisions of DTAA. Hence, we hold that the decision of the ld. CIT(A) cannot be supported. Appeal of the assessee is allowed.
Issues Involved:
1. Confirmation of addition under section 144C(3) r.w.s. 143(3) concerning Management Support Charge. 2. Classification of Management Support Charge as Fee for Technical Services (FTS) under Article 12 of India-Singapore DTAA. 3. Interpretation of "make available" in the context of Article 12(4)(b) of India-Singapore DTAA. 4. Evaluation of whether the services provided by the appellant to IHG India constitute FTS. Detailed Analysis: Issue 1: Confirmation of Addition under Section 144C(3) r.w.s. 143(3) The appellant contested the confirmation of the addition made by the Assessing Officer (AO) under section 144C(3) r.w.s. 143(3) concerning Management Support Charge. The appellant argued that the CIT(A) erred in confirming this addition, asserting that the services provided do not qualify as Fee for Technical Services (FTS) under the India-Singapore Double Taxation Avoidance Agreement (DTAA). Issue 2: Classification of Management Support Charge as FTS The appellant received an amount of ?5,43,76,923/- from IHG India for providing management support services. The CIT(A) treated this amount as FTS under Article 12 of the India-Singapore DTAA. The appellant argued that the services provided were managerial, technical, and consultancy in nature but did not automatically qualify as FTS unless they made available technical knowledge, experience, skill, know-how, or processes to the recipient. Issue 3: Interpretation of "Make Available" The appellant contended that the CIT(A) misinterpreted the term "make available" in Article 12(4)(b) of the DTAA. The appellant argued that the services provided did not enable IHG India to apply the technology independently. The CIT(A) concluded that the services made available technology, knowledge, skill, and experience to the recipient, but the appellant argued that the ongoing need for these services indicated that the technology was not made available in a manner that enabled independent application by IHG India. Issue 4: Evaluation of Services as FTS The appellant provided various services, including operational support, accounting and legal support, and IT services, to IHG India. The appellant argued that these services did not constitute FTS because they did not make available technical knowledge or skills for independent application by IHG India. The CIT(A) and AO disagreed, asserting that the services provided managerial, technical, and consultancy support, inherently transferring knowledge and skills to IHG India. Tribunal's Findings: 1. Operational Support: The tribunal found that services such as providing advice on hotel operations, maintaining qualifications in hotel management, and coordinating managerial plans were managerial consultancy services but did not make available technology or skills for independent use by IHG India. 2. Accounting Support: The tribunal questioned whether accounting support constituted technical knowledge made available. The appellant clarified that the support involved repetitive services like preparing balance sheets and budget reports, which did not enable independent application by IHG India. The tribunal concurred with this explanation. 3. Training and Recruitment Services: The tribunal found no transfer of technology, knowledge, or skills in services related to training, recruitment, and manpower specification. 4. Legal and IT Services: The tribunal did not find sufficient evidence that these services made available technical knowledge, experience, or skills for independent application by IHG India. Conclusion: The tribunal concluded that the services provided by the appellant did not meet the "make available" criteria under Article 12(4) of the India-Singapore DTAA. Therefore, these services could not be classified as FTS. The tribunal allowed the appeal, overturning the CIT(A)'s decision. Result: The appeal of the assessee was allowed, and the order of the CIT(A) was not supported. Order Pronounced in the Open Court on 24/09/2021.
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