2023 (8) TMI 445 - AT - Income Tax

Income taxable in India - payment received by the assessee towards TSIS services - Royalty receipts - HELD THAT - It is noticed that the assessee has entered into an agreement with the Indian companies for rendering TSIS services and the terms of the agreement as per the submission of the ld AR are verbatim similar to the agreement which were in force for A.Ys. 2012-13 to 2015-16. It is also noticed that the DRP while upholding the treatment of TSIS fees as royalty, while following its own order for A.Y. 2015-16 did not bring out any contrary finding with regarding the nature of services rendered by the assessee or the terms as per the terms of agreement dated 30/11/2017. Therefore, in our considered view, the decision of the co-ordinate bench in assessee s own case for A.Ys. 2012-13 to 2015-16 2023 (1) TMI 1207 - ITAT MUMBAI is applicable to the year under consideration also. Therefore, we direct the Assessing Officer to delete the addition made towards TSIS services by treating the same as royalty. Management Fees taxed as fees for technical services (FTS) - HELD THAT - Management fees received by the assessee from Indian group companies should not be treated as FTS and accordingly, not taxable in India. This ground is allowed in favour of the assessee. Claim made first time before DRP - Guarantee Fees - assessee claimed that the guarantee fees should not be taxed in India - claim could be made only through filing the revised return of income and since the assessee did not file any revised return the claim made through revised statement of income cannot be accepted - HELD THAT - As decided in Pruthvi Brokers Shareholders (P.) Ltd. 2012 (7) TMI 158 - BOMBAY HIGH COURT had held that any valid claim of assessee could be made for the first time either by way of filing a revised computation or before the appellate authorities. In assessee's case the claim is made for the first time before the DRP that the guarantee fees earned by the assessee is not taxable as per the DTAA. Thus if the assessee is entitled for a deduction, as per law and facts, same should not be denied merely because the claim was not made in the return of income. Since the lower authorities have not examined the issue on merits, we remit the issue back to the AO for a fresh examination.

Summary

Issues Involved:
1. Taxability of TSIS Service Fees as Royalty.
2. Taxability of Management Service Fees as Fees for Technical Services (FTS).
3. Taxability of Guarantee Fees.

Summary of Judgment:

1. Taxability of TSIS Service Fees as Royalty:
The assessee, a French company, provided TSIS services to its Indian group companies, which include IT infrastructure management and web hosting services. The Assessing Officer (AO) considered these payments as royalty under the India-France DTAA. The assessee argued that the services did not involve the use of any intellectual property. The Dispute Resolution Panel (DRP) upheld the AO's decision, relying on its own order for the assessment year 2015-16. However, the Tribunal noted that in previous years (A.Y. 2012-13 to 2015-16), similar issues were resolved in favor of the assessee, holding that TSIS services are not to be treated as royalty. The Tribunal directed the AO to delete the addition made towards TSIS services by treating the same as royalty.

2. Taxability of Management Service Fees as Fees for Technical Services (FTS):
The assessee received management service fees from its Indian group companies and claimed that these are not taxable in India as per the India-France DTAA. The AO treated these fees as FTS under section 9(1)(vii) of the Act. The DRP upheld this view, relying on its own decision for A.Y. 2015-16. The Tribunal, however, noted that in previous years (A.Y. 2012-13, 2017-18, and 2018-19), the management service fees were consistently held not to be taxable as royalty or FTS. The Tribunal reiterated that the management fees should not be treated as FTS and are not taxable in India.

3. Taxability of Guarantee Fees:
The assessee initially offered the guarantee fees to tax but later claimed before the DRP that these should not be taxed in India. The DRP rejected this claim, citing that it was not made through a revised return of income. The Tribunal noted that valid claims could be entertained by appellate authorities, referencing the Supreme Court decision in Goetze (India) Ltd. and the Bombay High Court decision in Pruthvi Brokers & Shareholders (P.) Ltd. The Tribunal remitted the issue back to the AO for fresh examination of the taxability of guarantee fees in India, directing that the issue be decided in accordance with law after giving the assessee a reasonable opportunity to make submissions.

Conclusion:
The appeal was partly allowed with directions to delete the additions made towards TSIS services and management fees, and to re-examine the taxability of guarantee fees.