2024 (9) TMI 1121 - AT - Income Tax

Nature of technical services - managerial services rendered by the assessee to its subsidiaries ancillary and subsidiary to the enjoyment of intellectual property as per the license agreement - HELD THAT - We do not find any infirmity in the order of the CIT(A) in holding that the managerial service provided by the assessee is not in the nature of technical services . We do not find any justification for taking any other view. For the above reason, we deem it fit to dismiss the grounds raised by the Revenue. Addition u/s 40(a)(i) - Assessee is not liable to deduct TDS for the services which are managerial in nature and not technical services for A.Ys. 2010- 11 to 2015-16. Short credit of TDS - As the issue of non deduction of TDS for the payment made for managerial services received by the assessee from Lloyds Register of Shipping has already been decided by the Tribunal for this year and earlier years in favour of the assessee, the only issue that has been raised by the assessee in these appeals pertains to non grant of TDS credit by the lower authorities. The assessee has also submitted that it had filed rectification application u/s. 154 of the Act before the ld. A.O. which is pending for disposal. In the present situation, we deem it fit to remand these issues back to the file of the ld. AO for verification and thereby direct the ld. A.O. to grant the TDS credit subject to verification and in accordance with law. The assessee is also directed to comply with the proceeding and to furnish all documents in support of its claim.

Issues Involved:
1. Whether the management services provided by the assessee are ancillary and subsidiary to the enjoyment of intellectual property rights under the License Agreement.
2. Whether the management services provided by the assessee qualify as 'technical services' and are subject to tax under Article 13(4)(a) of the India-UK DTAA.
3. Whether the assessee is liable to deduct TDS on the management services provided.
4. Non-grant of TDS credit by the lower authorities.

Detailed Analysis:

Issue 1: Ancillary and Subsidiary to Enjoyment of Intellectual Property Rights

The Revenue contended that the management services provided by the assessee are ancillary and subsidiary to the enjoyment of intellectual property rights under the License Agreement. The Assessing Officer (A.O.) observed that the management services agreement is interconnected with the license agreement and cannot be enjoyed independently. The A.O. held that the management services are ancillary and subsidiary to the main object of enjoyment of intellectual property rights (IPR) as per the license agreement, thus falling under 'technical services.'

The CIT(A) disagreed, relying on the Tribunal's decision in the case of Lloyd's Register Asia - India Branch Office, which held that management fees are not in the nature of 'technical service' as per Article 13(4) of the India-UK DTAA. The Tribunal upheld the CIT(A)'s decision, noting that the management services agreement and the license agreement are independent of each other. The Tribunal emphasized that the management services do not facilitate the effective application or enjoyment of the intellectual property rights described in the license agreement.

Issue 2: Qualification as 'Technical Services'

The A.O. treated the management services as 'technical services' taxable under Article 13(4)(a) of the India-UK DTAA. However, the CIT(A) and the Tribunal held that the services provided by the assessee are managerial in nature and not technical. The Tribunal referred to the definition in Article 13(4) of the DTAA, which does not include 'managerial services' in the definition of fees for technical services. The Tribunal cited the Hon'ble Delhi Court's decision in Steria (India) Ltd. v. CIT, which held that payments for managerial services cannot be treated as 'fee for technical service.'

Issue 3: Liability to Deduct TDS

The A.O. held that the assessee is liable to deduct TDS on the management services provided, treating them as 'technical services.' The CIT(A) and the Tribunal disagreed, holding that the services are managerial and not technical, thus not subject to TDS under section 195 of the Income Tax Act. The Tribunal referred to the Hon'ble Apex Court's decision in Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT, which distinguished the obligation to deduct tax at source under section 195 from other provisions.

Issue 4: Non-Grant of TDS Credit

The assessee appealed against the non-grant of TDS credit by the lower authorities. The Tribunal noted that the issue of non-deduction of TDS for the payment made for managerial services had already been decided in favor of the assessee for this year and earlier years. The Tribunal remanded the issue back to the A.O. for verification and directed the A.O. to grant the TDS credit subject to verification and in accordance with the law. The assessee was also directed to comply with the proceedings and furnish all necessary documents in support of its claim.

Conclusion:

The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s decision that the management services provided by the assessee are not ancillary and subsidiary to the enjoyment of intellectual property rights and do not qualify as 'technical services.' Consequently, the assessee is not liable to deduct TDS on these services. The Tribunal allowed the assessee's appeals for statistical purposes, remanding the issue of non-grant of TDS credit back to the A.O. for verification.

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