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TMI Blog2019 (10) TMI 830X X X X Extracts X X X X X X X X Extracts X X X X ..... it has earned referral fee from HSCI), there is no element of managerial, technical or consultancy function discharged by assessee. In fact, the services are nothing but commercial services. Accordingly, the referral fees received from HSCI cannot be construed as Fees for Technical Services under Explanation 2 to Section 9(1)(vii) of the Act and, therefore, not subject to tax under Section 9(1)(vii) of the Act. Since neither Section 9(1)(i) or Sections 9(1)(vi) and 9(1)(vii) of the Act bring this income within the scope of the taxing provisions, the referral fees received by the assessee from HSCI cannot be deemed to accrue or arise in India under Section 9 of the Act. Hence, such income is not taxable within the provisions of the DTAA in light of the interpretation given as per Memorandum of Understanding concerning Fees for Technical Services in Article 12 of India-USA DTAA. In view of the above discussion, we direct the Assessing Officer to delete the said addition sustained by the CIT(A), and assessee succeeds on this Ground of appeal. Protection fee received from HSBC Asset Management India Pvt Ltd (AMIN) as Fees for Technical Services - HELD THAT:- We find tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant as fees for technical services from HDPI towards IT related services) 2. The learned CIT(A) erred in treating the fee for the corporate finance and advisory services i.e. referral fee of ₹ 3,12,93,500 received by the Appellant from HSBC Securities and Capital (India) Private Limited (HSCI) as taxable in the hands of the Appellant. 3. The learned CIT(A) erred in treating the protection fees of ₹ 1,33,36,290 received by the Appellant from HSBC Asset Management India Private Limited (AMIN) as taxable in the hands of the Appellant. 4. The learned CIT(A) erred in levying the consequential interest under section 234B of the Act. 3. Briefly put, the relevant facts are that the appellant assessee is a company incorporated in the UK and is engaged in the business of providing banking and financial services to individuals and commercial organizations across the world. The assessee also provides support services such as Information Technology (IT), research support, global product management, etc., to its group entities and, it does not have any office or place of business in India. During th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S, 392 ITR 186 (SC) ii) CIT v. Siemens Aktiongeselschaft, 310 ITR 320 (Bom) 6. The ld. DR appearing for the Revenue, on the other hand, relied upon the orders of the authorities below and submitted that the onus is on the assessee to produce all the evidences of expenditure and that this onus is clearly not discharged by the assessee. 7. We have carefully considered the rival submissions and perused the material on record. We are inclined to uphold the grievance of the assessee. The reimbursement received by the assessee are in respect of specific and actual expenses incurred by the assessee and do not involve any mark-up and the assessee has furnished sufficient evidence to demonstrate the incurring of said expenses. There is thus, no good reason to make any addition to the income in respect of the reimbursement of expenses. The action of the CIT(A), as the Learned Representative rightly contends, is based on pure surmises and conjectures. 8. Here, we would also like to refer to the judgment of A P Moller Maersk AS (supra). In that case, issue related to a foreign company engaged in shipping business, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led the agents to co-ordinate cargos and ports of call for its fleet were findings of fact. Once these were accepted, by no stretch of imagination, could the payments made by the agents be treated as fees for technical services. The payments were in the nature of reimbursement of cost whereby the three agents paid their proportionate share of the expenses incurred on these said systems and for maintaining those systems. Neither the Assessing Officer nor the Commissioner (Appeals) had stated that there was any profit element embedded in the payments received by the assessee from its agents in India. Once the character of the payment was in the nature of reimbursement of the expenses, it could not be income chargeable to tax. Moreover, freight income generated by the assessee in the assessment years in question was accepted as not chargeable to tax as it arose from the operation of ships in international waters in terms of article 9 of the DTAA. Once that was accepted and it was also found that the Maersk net system was an integral part of the shipping business which was allowed to be used by the agents of the assessee as well in order to enable them to discharge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se laws referred at the time of hearing. During the year under consideration, the assessee had received a sum of ₹ 3,12,93,500/- as consideration for introducing ABB Switzerland (client of Assessee) to HSCI. In other words, HSCI had paid a referral fee to assessee for introducing ABB to HSCI. Briefly, ABB Switzerland wanted to increase its equity stake in ABB Ltd. India through a voluntary offer and hence needed the services of a merchant banker in India. As per Section 9 of the Act, income earned by a non-resident is taxable in India if, inter-alia , the non-resident has a business connection in India and the income arises through or from the business connection; or it is in the nature of royalty or Fees for Technical Services . Factually speaking, in relation to earning of the said referral fees, the assessee did not carry any activity in India. 14. The AAR in the case of Cushman Wakefield (S) Pte Ltd. , In Re (supra) which was subsequently relied upon in Real Resourcing Ltd. (supra), it has been held that the referral fee did not amount to royalty within the meaning of Explanation 2 to section 9(1)(vi) of the Act as there was no imparting o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scope of the taxing provisions, the referral fees received by the assessee from HSCI cannot be deemed to accrue or arise in India under Section 9 of the Act. Hence, such income is not taxable within the provisions of the DTAA in light of the interpretation given as per Memorandum of Understanding concerning Fees for Technical Services in Article 12 of India-USA DTAA. In view of the above discussion, we direct the Assessing Officer to delete the said addition sustained by the CIT(A), and assessee succeeds on this Ground of appeal. 17. Ground of appeal no. 3 relates to protection fee amounting to ₹ 1,33,36,290/- received from HSBC Asset Management India Pvt Ltd (AMIN) as Fees for Technical Services . 18. Before us, Learned Representative for the assessee has explained that AMIN provides portfolio management and other services to its clients. The services by AMIN to its customers aim to provide personalized portfolio management services to select clientele depending on the investor s risk appetite, growth expectations and personal investment requirements. In August 2007, AMIN launched a close-ended capital guaranteed product in India f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utes the value of the Performance Asset, the Safe Asset and the Exit Asset on the valuation day. Further, the assessee provides rebalancing data (assuming the notional amount of securities that can be bought and sold) which could be used by AMIN for managing the scheme based on the Dynamic Portfolio Methodology. It is not possible for AMIN to independently apply the methodology used by the assessee for providing the aforesaid services. Additionally, the assessee could be liable to pay AMIN an amount equal to the Gap Risk (as defined in the agreement) if at any time before the final valuation day, the Synthetic Portfolio level is less than the Reference Level. 21. In this context, we think it appropriate to refer to the decision rendered in the case of De Beers India Minerals Pvt. Ltd. (supra). In the said case, the Dutch company performed services using technical knowledge and expertise and it had given data, photographs and maps to assessee but they did not make available technical expertise, skill or knowledge in respect of collection or processing of data to assessee, which assessee could apply independently without assistance and undertake such survey indepe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e would not qualify as Fees for Technical Services under Article 13 of the DTAA. Further, given that the services have been provided by the assessee in connection with the business carried on by the assessee in UK, the same are to be treated in the nature of business profits. In this regard, Article 7 of the DTAA provides that business profits earned by an enterprise of UK are taxable in India, only if such enterprise has a PE in India as defined in Article 5 of the DTAA. In the present case, since the assessee does not have a PE in lndia, the protection fee received by the assessee from AMIN is not taxable in India as per the provisions of Article 7 of the DTAA. Hence, we direct the Assessing Officer to delete the said addition as sustained by the CIT(A). Accordingly, on this Ground of appeal also, assessee succeeds. 23. Insofar as Ground of appeal no. 4 is concerned, it relates to charging of interest under Section 234B of the Act which is consequential in nature and does not require any specific adjudication. 24. In the result, the appeal of the assessee is allowed, as above. Order pronounced in the open court on 16th J ..... X X X X Extracts X X X X X X X X Extracts X X X X
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