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2023 (5) TMI 544 - AT - Income TaxIncome deemed to accrue or arise in India - Addition in respect of project administration costs as Fees for Included Services ( FIS ) under the India-US Double Taxation Avoidance Agreement ( DTAA ) - HELD THAT - In the present case, the assessee is a tax resident of the United States of America and therefore is entitled to the benefit of the India-US DTAA. The assessee s associated enterprise in India, i.e. GSSPL decided to expand its premises by setting up a new campus in Bangalore, and in this connection, GSSPL entered into an agreement with a developer for the development of a new campus. With effect from 01/04/2012, the assessee entered into Campus Project Services Agreement with GSSPL, whereby the assessee agreed to render the following Campus Project Services to GSSPL. Whether the income received by the assessee falls within the ambit of FTS/FIS ? - As it is relevant to examine the services rendered by the assessee in respect of which said income is received and whether the said service satisfies the conditions laid down under the provisions of the Act/DTAA. We are of the considered view that merely because the assessee has accepted the amount to be in nature of FTS/FIS, the other payment for Campus Project Services cannot be treated as FTS/FIS without the examination of each and every service, particularly when the details pertaining to same are available on record. Adoption of such a broad brush approach without examination of each and every service rendered by the assessee can also lead to a situation where overall the services may appear to be not falling within the ambit of FTS/FIS but a standalone examination of each service may lead to a different conclusion. Since the assessee is a tax resident of the United States of America and is entitled to the benefit of India-US DTAA, therefore before proceeding further it is relevant to examine the relevant provisions of the DTAA for deciding the issue at hand. In the present case, apart from merely using the terminology made available , the Revenue has not brought any instance on record where GSSPL was shown to have used such information without depending upon the assessee. The fact that the assessee continued to receive payment for similar services, on a recurring basis, under the Campus Project Services Agreement in the subsequent assessment years also justifies the claim of the assessee that no technical knowledge, experience, skill, or know-how has been made available to GSSPL. Even if we examine the aforesaid services, in respect of which the assessee received a total payment we find that the same pertains to document handling and printing charges; assistance and support in estimating, scheduling, cost engineering and related control functions; review of kitchen design; review of acoustical design; review of security consultants, parking area, security recommendations; preparation of work schedule; project administration services; procurement services; project pre-development management; project management services, administrative assistance and construction management services; legal services and telecommunications services, which can neither be said to be made available to the recipient nor can consist of development and transfer of any technical plan or a technical design. Therefore, we are of the considered opinion that the aforesaid services do not fall within the ambit of FIS as per Article 12(4) of the India-US DTAA and thus the amount received by the assessee is not taxable under Article 12(4) of the India-US DTAA. As a result, grounds no.1-2 raised in assessee s appeal are allowed. Addition on account of market data charges as Royalty under Article 12 of the India-US DTAA - HELD THAT - We find that the term Royalty as defined in the India-US DTAA is worded similarly to India-Swiss DTAA, which was under consideration in the aforesaid decision. From the record, it is evident that the payment is in respect of usage of the database of the third-party vendors, which was later on recovered by the assessee from the associated enterprises. Therefore, once the payment made for the usage of the database does not fall within the ambit of Royalty, recovery of costs by the assessee from the associated enterprises for the usage of the database cannot also result in Royalty in the hands of the assessee. In any case, in the present case, it has not been disputed by the Revenue that the payment received by the assessee is in the nature of reimbursement of cost and therefore we are of the considered opinion that the same cannot be chargeable to tax. Thus, in view of the aforesaid findings, we direct the AO to delete the addition in respect of the recovery of market data charges. As a result, ground No. 3 raised in assessee s appeal is allowed.
Issues Involved:
1. Addition of project administration costs as Fees for Included Services (FIS) under the India-US DTAA. 2. Addition on account of recovery of market data charges as Royalty under Article 12 of the India-US DTAA. 3. Levy of interest under section 234A of the Act. 4. Short credit of withholding taxes. 5. Not allowing carried forward short-term capital loss. 6. Initiation of penalty proceedings. Summary: 1. Addition of Project Administration Costs as FIS: The main issue was whether the project administration costs reimbursed to the assessee by its associated enterprise, GSSPL, should be treated as Fees for Included Services (FIS) under the India-US DTAA. The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) held that these reimbursements were taxable as FIS. However, the Tribunal found that the services provided (including architectural, engineering, and project administration services) did not make available technical knowledge, skills, or processes to GSSPL. The Tribunal emphasized that merely using the term "made available" without evidence that GSSPL could use the technical knowledge independently was insufficient. Consequently, the Tribunal concluded that the project administration costs did not fall under FIS as per Article 12(4) of the India-US DTAA and allowed the appeal on this ground. 2. Addition on Account of Market Data Charges as Royalty: The AO treated the recovery of market data charges from the assessee's associated enterprises as Royalty under Article 12 of the India-US DTAA. The Tribunal referred to a previous decision in IMS AG (now known as IQVIA AG) v/s DCIT, where it was held that subscription fees for access to databases did not constitute Royalty. The Tribunal noted that the payments were for the usage of third-party databases and did not involve any transfer of technology or making available technical knowledge. Thus, the Tribunal directed the AO to delete the addition, allowing the appeal on this ground. 3. Levy of Interest under Section 234A: The Tribunal remanded the issue of levy of interest under section 234A to the AO for de novo adjudication after verifying whether the return of income was filed within the prescribed time under the Act. 4. Short Credit of Withholding Taxes: The issue of short credit of withholding taxes was restored to the AO for necessary verification and granting of TDS credit in accordance with the law. 5. Not Allowing Carried Forward Short-Term Capital Loss: The Tribunal restored the issue of not allowing the carried forward short-term capital loss to the AO for fresh adjudication after necessary verification. 6. Initiation of Penalty Proceedings: The Tribunal dismissed the ground related to the initiation of penalty proceedings as premature. Conclusion: The Tribunal allowed the appeals on the grounds of addition of project administration costs as FIS and recovery of market data charges as Royalty. The issues related to levy of interest under section 234A, short credit of withholding taxes, and carried forward short-term capital loss were remanded to the AO for fresh adjudication. The ground related to the initiation of penalty proceedings was dismissed as premature.
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