2022 (10) TMI 1049 - AT - Income Tax

Income deemed to accrue or arise in India - payments received by the assessee for rendering certain services to the Indian companies as per the terms of General Services Agreement (GSA) - Whether qualify as Fees for included Services (FIS) u/s 12(4)(b) of the India- USA DTAA? - HELD THAT - Activities of the assessee is related to the GSA which the assessee was entered in agreement on 02.06.2003. The GSA receipts are not taxable under Article 12(4) of India-USA DTAA. From the memorandum of understanding, it is, obvious that as provided in clause 4B of Article 12 of the India-USA DTAA, that if the technical and consulting services made available are technical knowledge, experience, skill, know howor process orconsistthe development and transfer of a technical plan or technical design are considered to be technical or consultancy services. As also clarified that consultancy services not of technical nature cannot fall under Included Services . In view of this memorandum of understanding between two sovereign countries, the consultancy services which are technical in nature alleging to be included as technical and consultancy services for the purpose fees for included service as per sub-clause 4B of Article 12 of DTAA between India USA. While undertaking the above services, the assessee had not executed any contract to make anybusiness. So, as to use services independently by applying the technology. All the services undertaken by the assessee or either support service IT enable services; co-ordination of tax services as rendered above are not stage which request transfer of technology receipts to skill company. We are fully relied on the order of the coordinate bench in this issue and the addition amount - Decided against revenue.

Issues Involved:
1. Taxability of payments received under the General Services Agreement (GSA) as "Fees for Included Services" (FIS) under Article 12(4)(b) of the India-USA DTAA.
2. Determination of whether GSA receipts are taxable in India.
3. Comparison of services provided by the assessee and AC Nielsen ORG Pvt. Ltd. under the GSA.
4. Reliance on the decision of ITAT and the status of the decision of AAR in Perfetti VAN Holding.

Detailed Analysis:

Issue 1: Taxability of Payments under GSA as FIS
The primary issue was whether the payments received by the assessee for rendering services to Indian companies under the GSA qualify as "Fees for Included Services" (FIS) under Article 12(4)(b) of the India-USA DTAA. The Assessing Officer (AO) initially taxed the entire income, splitting it 50% as royalty and 50% as FIS. However, the CIT(A) disagreed, holding that the services provided did not make technical knowledge, experience, skill, know-how, or processes available to the Indian entities, thus not qualifying as FIS. The ITAT upheld this view, emphasizing that the services rendered were of a managerial nature and did not meet the "make available" criteria required for FIS under the DTAA.

Issue 2: Determination of GSA Receipts' Taxability in India
The CIT(A) and ITAT both concluded that the GSA receipts were not taxable in India. The assessee argued that the services rendered, including management, legal, and market research services, did not involve the transfer of technical knowledge or skills that could be independently used by the Indian entities. The ITAT agreed, noting that the services were supportive and did not constitute technical services as defined under Article 12(4) of the DTAA. The ITAT relied on previous decisions, including the assessee's own case for earlier assessment years, to support this conclusion.

Issue 3: Comparison of Services Provided by Assessee and AC Nielsen ORG Pvt. Ltd.
The revenue contended that the services provided by the assessee and AC Nielsen ORG Pvt. Ltd. were similar and should be taxed similarly. However, the CIT(A) and ITAT found that the agreements and services provided were consistent across the years and did not change the nature of the receipts. The ITAT noted that the GSA dated 02.06.2003 and the subsequent agreement dated 28.11.2007 were similar, and thus, the taxability of the receipts remained unchanged.

Issue 4: Reliance on ITAT Decision and Status of AAR Decision in Perfetti VAN Holding
The revenue argued that the CIT(A) erred in relying on the ITAT's decision, given that the decision of the AAR in Perfetti VAN Holding was set aside by the Delhi High Court and was pending finalization. The ITAT, however, found that the previous decisions of the ITAT in the assessee's own case were directly applicable and binding. The ITAT emphasized that the services provided did not meet the criteria for FIS and thus were not taxable under the DTAA.

Conclusion:
The ITAT dismissed the revenue's appeals, affirming the CIT(A)'s decision that the GSA receipts were not taxable as FIS under Article 12(4) of the India-USA DTAA. The ITAT reiterated that the services rendered did not involve the transfer of technical knowledge or skills that could be independently used by the Indian entities, and thus, the receipts were not taxable in India. The ITAT relied on its previous rulings and the consistent nature of the agreements and services provided by the assessee to support its decision.

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