2023 (3) TMI 1187 - AT - Income Tax

Income deemed to accrue or arise in India - Fee For Technical Service (FTS) under Article 12(4)(b) of India-Singapore Double Taxation Avoidance Agreement (DTAA) - amount received towards provision of management support services to the Indian subsidiary - HELD THAT - As in assessee s own case 2021 (10) TMI 443 - ITAT DELHI we hold that the amount received by the assessee cannot be regarded as FTS under Article 122(4)(b) of the Act. Accordingly, addition made is deleted. Grounds are allowed. Addition of Management Support Charges - whether the services rendered by the assessee under Management Support Service Agreement are ancillary and subsidiary to the license granted for user of brand name, charges received from which are in the nature of royalty? - HELD THAT - After threadbare analysis of Management Support Services Agreement and the fee received under various heads in pursuance to such agreement, the Co-ordinate Bench in assessee s own case in assessment year 2012-13 2021 (10) TMI 443 - ITAT DELHI has given a categorical finding that it does not come under Article 12(4) of India-Singapore DTAA. As per in the binding judicial precedents rendered in assessee s own case as well as in case of group company, viz, Sheraton International Inc. 2009 (1) TMI 27 - DELHI HIGH COURT we have no hesitation in holding that the fee received by the assessee under the Centralized Services Agreement cannot be treated as FIS either under Article 12(4)(a) or 12(4)(b) of the India US Tax Treaty. As a natural corollary, it can only be treated as business income of the assessee. Hence, in absence of a PE in India, it will not be taxable - Assessee appeal allowed.

Summary

Issues Involved:
1. Taxability of Management Support Charge as Fee for Technical Services (FTS) under Article 12 of India-Singapore Double Taxation Avoidance Agreement (DTAA).
2. Levy of education cess over the rates provided in Article 11 and 12 of India-Singapore DTAA.

Issue-wise Detailed Analysis:

1. Taxability of Management Support Charge as Fee for Technical Services (FTS) under Article 12 of India-Singapore Double Taxation Avoidance Agreement (DTAA):

The primary issue in dispute was whether the amount received towards the provision of management support services to the Indian subsidiary is in the nature of Fee for Technical Services (FTS) under Article 12(4)(b) of the India-Singapore DTAA.

The assessee, a non-resident corporate entity incorporated under the laws of Singapore, had entered into an agreement with its Indian subsidiary for the provision of Management Support Services. The fee received under this agreement was claimed by the assessee to be not taxable in India as it was not in the nature of FTS.

The Assessing Officer examined the Management Support Services Agreement and concluded that the services rendered by the assessee were in the nature of consultancy services and had made available technical knowledge, skill, know-how, etc. Consequently, the amount received was treated as FTS under Article 12(4)(b) of the India-Singapore DTAA and Section 9(1)(vii) of the Act. The Commissioner of Income-Tax (Appeals) granted partial relief by holding that payment received towards information technology services could not be regarded as FTS.

The Tribunal, while considering the submissions, found that the issue was covered by the decision of the co-ordinate Bench in the assessee's own case for the assessment year 2012-13. It was held that the services provided by the assessee did not satisfy the 'make available' condition under Article 12(4)(b) of the DTAA. The Tribunal emphasized that the services rendered were managerial/technical/consultancy in nature but did not result in the transfer of technology or enable the recipient to apply the technology independently in the future.

In the subsequent assessment year, the Commissioner (Appeals) concluded that the amount received was in the nature of FTS under Article 12(4)(a) as it was ancillary and subsidiary to the license agreement for the use of brand names. However, the Tribunal found that the agreements for the user of brand names and for Management Support Services were independent of each other and not connected. The Tribunal reiterated that the Management Support Services fee did not fall under Article 12(4) of the DTAA and should not be treated as FTS.

2. Levy of Education Cess over the Rates Provided in Article 11 and 12 of India-Singapore DTAA:

The second issue raised was the levy of education cess over the rates provided in Article 11 and 12 of the India-Singapore DTAA while computing the taxable income of the appellant. However, the Tribunal's decision primarily focused on the first issue of taxability under the DTAA and did not provide a detailed analysis of the levy of education cess.

Conclusion:

The Tribunal held that the amount received by the assessee towards the provision of management support services could not be regarded as FTS under Article 12(4)(b) of the India-Singapore DTAA. Consequently, the additions made by the Assessing Officer were deleted, and the appeals were allowed. The Tribunal's decision was based on the precedent set in the assessee's own case for the previous assessment year, which clarified that the services rendered did not meet the 'make available' condition required for FTS classification under the DTAA.