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TMI Blog2021 (10) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... have been fulfilled in the present case, agreement towards Management Services cannot be regarded as ancillary and subsidiary to enjoyment of the property under the License Agreement. In the preset case we are concerned with deduction of tax at source under section 195 of the Act where the obligation arises only when the sum is chargeable to tax under the Act. For ascertaining chargeability to tax reference to the relevant DTAA is essential - we hold that the assessee s services were managerial in nature and not technical services. Hence, the assessee is not liable to deduct TDS on the same. The disallowance proposed by DRP and made by AO is deleted. This issue of assessee s appeal is allowed. Disallowance u/s 37(1) of the Act in respect of payment of management fees and information technology (IT) charges - HELD THAT:- Assessee as well as learned CIT DR agreed that the disallowance of management fee and IT charges u/s 37 of the Act has been accepted in other years and there is no dispute about it. Further, to the extent the position is accepted by the CBDT in the Unilateral Advance Pricing Agreement (UAPA) as payment on the Arm s Length Basis the deduction cannot be denie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted by the AO. 3. The brief facts are that the assessee is engaged in the business of undertaking survey of ships for inspection, classification and certification etc. It also caters to the marine, energy, transportation and automotive industry for provision of survey and certification related services. Its residential status under the Act is that of a non-resident and as per the DTAA between India and U. K. is that of a resident of the U. K. and incorporated in U.K. Lloyds Register Shipping, U.K. (LRS) has been carrying on the business of survey, inspection, classification and certification of ships for more than 250 years in the past. Based on its experience, it has developed and has been regularly updating the exhaustive Rules for carrying out the survey and activity as well as other intangibles. After the formation of the assessee and other similar entities which are operational in other parts of the world, LRS has entered into a License Agreement for grant of license to use its intellectual property. The copy of this license agreement is enclosed in assessee s paper book at pages 68 to 93. The Licenses are as per Schedule I, where the assessee appears as the last it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees under section 40(a)(i) of the Act is concerned, it treated the management fees as fees for technical services being ancillary and subsidiary to the enjoyment of the rights under the license agreement. We may bring here one fact that final assessment order was passed in the case of LRS by the same AO assessing the assessee, inter alia assessing the management fees as received from the assessee and Lloyds Register Quality Assurance Ltd. as fees for technical services. Aggrieved, assessee preferred appeal against directions given by DRP. 7. The learned counsel for the assessee Shri Nitesh Joshi first of all stated the fact that the Management fees of ₹ 2,18,73,892/- has been paid by the assessee to LRS as per the Management Services Agreement. No TDS has been deducted on the same, as according to it, the said amount is not chargeable to tax under the Act. The said amount has been assessed in the hands of LRS in an assessment Order passed under section 143(3) of the Act and their appeal is presently pending before the CIT(A) pursuant to set aside by the Tribunal. The issues which arise for consideration of the Tribunal in the said ground, which are in the alternative and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Management Services Agreement are independent of each other and, hence, payment under the later agreement (for management services) cannot be regarded as ancillary and subsidiary to the enjoyment of the property as per the earlier agreement (for license). 10. We have heard learned CIT DR also, who mainly relied on the order of DRP as well as that of the AO. 11. We noted noted the facts and also gone through the DTAA between India and UK, which shows that the Article 13(4) deals with fees for technical services and it has been defined to mean consideration for rendering any technical and consultancy services. The expression 'managerial services' is not included in the said definition. The nature of services as covered by the Management Services agreement i.e. corporate communications, corporate finance and group reporting services, group quality assurance, human resources, information technology, integrated business system, internal audit services, legal services, operational management and reporting, risk management and secretarial services and taxation and treasury services would fall in the category of managerial services which does not form part of fees fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ph 3; iii. Whether the amount paid for the services is an insubstantial portion of the combined payments for the services and the right, property or information described in paragraph 3. iv. Whether the payment made for the services and the royalty described in paragraph 3 are made under a single contract (or a set of related contracts); and v. Whether the person performing the services is the same persons as, or a related person to, the person receiving the royalties described in paragraph 3 or if a person providing the service is doing so in connection with an overall arrangement which includes the payer and recipient of the royalties. 14. Since none of the aforesaid tests, have been fulfilled in the present case, agreement towards Management Services cannot be regarded as ancillary and subsidiary to enjoyment of the property under the License Agreement. Before us, in the course of hearing before the Tribunal, the Revenue had relied upon the judgment of the Hon ble Apex Court in the case of PILCOM v. CIT 425 ITR 312 [2020] 116 taxmann.com 394 (SC) for the proposition that provisions of the DTAA are not applicable when considering the obligation to deduct tax at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P erred in ignoring the detailed explanations as well as evidences furnished by the Appellant in respect of services/ benefits availed by Appellant from its AE and also failed to consider business exigencies while determining the allowability of such expenditure made for payment of management fee and IT charges. 3.3. The AO/ DRP erred in ignoring the principle of consistency, as the transaction of payment of management fee and IT charges has been allowed under section 37(1) in the earlier years and also there is no change either in the factual or the legal position in the year under consideration. 17. At the outset, learned counsel for the assessee as well as learned CIT DR agreed that the disallowance of management fee and IT charges u/s 37 of the Act has been accepted in other years and there is no dispute about it. Further, to the extent the position is accepted by the CBDT in the Unilateral Advance Pricing Agreement (UAPA) as payment on the Arm s Length Basis the deduction cannot be denied. Both learned Counsel as well as learned DR agreed that this matter can be referred to the file of the AO for verification whether this is accepted by UAPA as payment on Arm s Lengt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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