2022 (11) TMI 135 - AT - Income Tax

Income deemed to accrue or arise in India - treating the amount received by the assessee during the year under consideration from its Indian subsidiary as Fees for Technical Services (FTS) - Scope of Agreements entered into between the assessee and its Singapore entity - HELD THAT - assessee will send necessary personnel to Indian subsidiary company NWIL s facilities to provide management expertise and knowledge to assist with specific issues as necessary. This manifests that the assessee was not only providing some services but also deputing its personnel to its Indian entity for providing expertise and knowledge to assist with specific issues as necessary. As clauses of the Addendum to the Agreement that the assessee was obliged to maintain all the necessary details and record of services and the expenses incurred thereon. Since such details were not readily available with the ld. AR, he requested that the matter may be sent back to the AO/TPO for fresh determination of the issue in the light of all the relevant information/evidence. DR did not raise any serious objection to it. In view of the fact that certain crucial evidence for the decision is not available on record and further certain evidence filed as additional evidence has not been examined by the authorities below, we are of the considered opinion that it would meet the ends of justice if the impugned order on this score is set-aside and the matter is remitted to the file of the AO. We order accordingly and direct him to determine the precise nature of services rendered by the assessee to NWIL and then determine its taxability or otherwise. Needless to say, the assessee will be providing all the necessary details as called for by the AO for a proper determination of the issue.

Summary

Issues Involved:
1. Addition of Rs.24,33,66,285/- as 'Fees for Technical Services' (FTS).
2. Non-granting of credit for TDS on interest received.
3. Initiation of penalty.

Issue-wise Detailed Analysis:

1. Addition of Rs.24,33,66,285/- as 'Fees for Technical Services' (FTS):

The core issue revolves around the addition of Rs.24,33,66,285/- received by the assessee from its Indian subsidiary, Nalco Water India Limited (NWIL), which was treated by the Assessing Officer (AO) as 'Fees for Technical Services' (FTS). The assessee, a foreign company incorporated under Delaware laws, argued that the amount was exempt under the Double Taxation Avoidance Agreement (DTAA) between India and the USA. The AO, however, classified the amount as 'FTS' under Section 9(1)(vii) of the Income-tax Act, 1961, and as 'Fees for Included Services' under Article 12 of the DTAA. This view was upheld by the Dispute Resolution Panel (DRP), leading to the addition in the final assessment order.

The Tribunal noted that the AO and DRP relied on directions from earlier years where similar receipts were considered taxable. However, the Tribunal also observed that the assessee had inconsistently treated such receipts as taxable in earlier years (2008-09 and 2009-10) and non-taxable in subsequent years, with no adjudication by the Tribunal on the merits of the issue.

The Tribunal emphasized the importance of determining whether the services rendered 'make available' technical knowledge, as required by Article 12(4) of the DTAA. The Tribunal highlighted that the Agreements between the assessee, its Singapore entity, and NWIL lacked clarity on the specific nature of the services provided. The Tribunal directed the AO to ascertain the precise nature of the services rendered to NWIL and determine their taxability accordingly. The case was remitted to the AO for fresh determination, with instructions for the assessee to provide necessary details.

2. Non-granting of credit for TDS on interest received:

The second issue concerned the non-granting of credit for Tax Deducted at Source (TDS) on interest received by the assessee. The Tribunal directed the AO to examine the matter and allow the necessary credit for TDS after proper verification.

3. Initiation of penalty:

The final issue pertained to the initiation of penalty proceedings. The Tribunal found this ground to be premature and dismissed it accordingly.

Conclusion:

The appeal was allowed for statistical purposes, with the Tribunal setting aside the impugned order and remitting the matter to the AO for fresh determination of the taxability of the services rendered by the assessee to NWIL. The AO was also directed to verify and grant credit for TDS on interest received, while the initiation of penalty was dismissed as premature.