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2024 (8) TMI 167 - AT - Income TaxTaxability of income in India - receipt from supply planning services treated as fees for technical services/royalty - taxation at the rate of 15% under the India United Kingdom tax treaty - PE in India or not? - HELD THAT - We find that the coordinate bench by order 2023 (12) TMI 1339 - ITAT MUMBAI has decided the identical issue wherein the receipt from SPS services is not chargeable to tax as fees for technical services or royalty as per the Indo UK Double Taxation Avoidance Agreement. DR could not show us any difference in the facts and circumstances of the case compared to those years in the current year, therefore, respectfully following the decision of the coordinate bench in assessee s own case for last 5 years, we also hold that the amount cannot be held to be taxable within the purview of royalty or under FTS as per India United Kingdom Double Taxation Avoidance Agreement. Accordingly, all the grounds of the appeal raised by the learned assessing officer are dismissed, order of the learned CIT A is upheld. Decided in favour of assessee.
Issues Involved:
1. Classification of Supply Planning Services (SPS) as Fees for Technical Services (FTS) or Royalty under the Indo-UK Double Taxation Avoidance Agreement (DTAA). 2. Validity of the CIT(A)'s decision that SPS does not fall under the purview of FTS or Royalty. 3. Consistency of the SPS agreements from 2005-2008 and 2008-2011 in terms of service provision. Detailed Analysis: 1. Classification of Supply Planning Services (SPS) as Fees for Technical Services (FTS) or Royalty under the Indo-UK DTAA The primary issue concerns whether the receipts from SPS amounting to Rs. 536,843,276 should be classified as FTS or Royalty under the Indo-UK DTAA. The assessing officer argued that these services are value-added services and should be taxed as FTS or Royalty. The services included the provision of consistency in diamond boxes, extranets for efficient information sharing, and key account management. The assessing officer referenced previous years' assessments and similar cases where such services were taxed as FTS. 2. Validity of the CIT(A)'s Decision The CIT(A) held that SPS does not fall within the purview of FTS or Royalty under the Indo-UK DTAA. This decision was based on the coordinate bench's ruling for the assessment years 2009-10 to 2013-14, which concluded that the SPS receipts do not constitute FTS or Royalty. The Tribunal found that the services provided did not involve the transfer of technical knowledge or plans that could be commercially exploited. The Tribunal also noted that the extranet was merely an information-sharing platform and did not constitute a technical service. 3. Consistency of the SPS Agreements from 2005-2008 and 2008-2011 The assessing officer contended that the services rendered under the SOC contracts for 2005-2008 and 2008-2011 were essentially the same, and thus, the CIT(A) erred in treating them as separate. However, the CIT(A) and the coordinate bench found that the nature of services provided under these agreements did not change the classification of the receipts. The Tribunal emphasized that the services under the SPS agreements were for providing basic information about diamond quality and did not involve any technical service or royalty. Tribunal's Findings: 1. No Technical Service Provided: The Tribunal agreed with the CIT(A) that the services provided did not involve the transfer of technical knowledge or plans. The extranet was merely a platform for information sharing, not a technical service. 2. No Royalty Involved: The Tribunal found that the basic information provided about diamond quality did not constitute a "Plan" for commercial exploitation, and thus, did not fall under the definition of Royalty as per Article 13 of the Indo-UK DTAA. 3. Use of Trademarks: The Tribunal rejected the argument that the use of trademarks like "Sightholder" constituted Royalty. The fees earned were for SPS services, not for the use of trademarks. 4. No Imparting of Experience: The Tribunal noted that the information provided was based on the assessee's experience but did not involve imparting that experience to the sight holders. Thus, it did not fall under the definition of Royalty for providing industrial, commercial, or scientific experience. Conclusion: The Tribunal upheld the CIT(A)'s decision that the amount of Rs. 536,843,276 received from SPS does not fall within the purview of FTS or Royalty under the Indo-UK DTAA. The appeal by the assessing officer was dismissed, and the order of the CIT(A) was upheld. Result: The appeal of the learned assessing officer is dismissed. Order pronounced in the open court on 29th July 2024.
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