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TMI Blog2022 (4) TMI 1062X X X X Extracts X X X X X X X X Extracts X X X X ..... ce provider i.e. the assessee. These services have not resulted in any enduring benefit to Everest India by way of any knowledge which could be applied by it on its own in future without depending on the assessee. These are general managerial services which are received by the assessee on recurring basis. Therefore, the test laid down under Article 12(4)(b), in our considered view, are not satisfied in the present factual scenario. Thus, management fee received by the assessee from Everest India is not taxable as FIS under the provisions of India-USA DTAA. Accordingly, this ground is allowed in favour of the assessee. Taxability of IC Labour Charges received by the assessee on account of supply of manpower to Everest India under the provisions of the Act and/or under India-USA DTAA as FTS/FIS - HELD THAT:- Admittedly, the manpower is supplied by the assessee under an Inter-Company Sharing Agreement. Under this agreement, if any group entity is in shortage of a manpower resource, any other group entity which has excess manpower resource lends the same and in consideration charges 60% of standard fee rate of employee lent to compensate itself for the salary cost of the employ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - SC ORDER] this ground of appeal is allowed. - ITA No. 2469/Del/2015 And ITA No. 6137/Del/2015 And ITA No. 2355/Del/2017 - - - Dated:- 30-3-2022 - Shri G.S. Pannu, Hon ble President And Shri C.N. Prasad, Judicial Member For the Assessee : Ms. Vandana Bhandari, Adv. For the Department : Shri Vijay Kumar Choudhary, Sr. DR ORDER PER C.N. PRASAD, JM These three appeals are filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-42, New Delhi ( CIT(A) ) dated 17.02.2015; 21.09.2015; and 31.01.2017 pertaining to assessment years ( AY ) 2010-11, AY 2011-12 and AY 2012-13 respectively. 2. Since the underlying facts in issues are common in all the three appeals they were heard together and are disposed of by way of this common order for the sake of convenience and brevity. 3. In all the three appeals, ground no. 2, 3 and 5 are common grounds. In AY 2010-11, Ground no. 10 relates to charging of interest under section 234A and 234B of the Income Tax Act, 1961 ( Act ) which has not been raised in other two appeals. Other grounds in all the three appeals are general in nature and hence do not require adjudication. 4. The m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which means a lack on part of a group member of a specific type of expertise or an adequate number of consulting employees needed to satisfy the requirements of all its clients. Clause 20 defines excess capacity which means possession of a group member of a specific type of expertise or an adequate number of consulting employees needed to satisfy the requirements of all its clients without fully utilizing all its consulting employees. Clause 3 provides scope and delivery of services and it says that during term of this sharing agreement, any member of the group with shortage of capacity may request the services of any member of group with excess capacity. The member with excess capacity will then be referred to as lender and member of group with shortage of capacity will then be referred to as borrower. These clauses indicate that any member of group can borrow consultants from other member of group having excess number of consultants to meet with its requirement. Obviously, the lender member is providing consultants to the borrowing member and consideration received for provision of services of technical or other personnel'' is fee for technical services ( FTS ) as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, referrals, studies, data or recommendation relating to services so as to enable each affiliated entity to promote and improve its business. Further, Attachment C describes various heads of services which include Management oversight, Marketing, Finance and accounting, Human resources development, Information technology, Training and legal. 7.3.1 Perusal of above mentioned clauses clearly indicates that scope of services to be provided under the agreement is to give advice so as to enable the recipient of the services to promote and improve its business and also to provide various trainings. By giving advice, the service provider is enhancing the capability of service recipient who later on can apply that acquired knowledge on its own. Further, service provider is contractually responsible for imparting training to service recipient which satisfies make available requirement In view of above discussion, I hold that consideration received by the appellant as management fee is in nature of FIS/FTS under both domestic act and relevant DTAA subject to taxation on gross basis. The action of the AO on this count is upheld. 7.1 In respect of receipt from third parties, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable in India under beneficial provisions of DTAA. The appellant has not furnished bifurcation of consideration relevant to such services. The AO is directed to work out portion of consideration relevant to such services after getting necessary information from the appellant and grant relief accordingly. To sum up, the appellant shall get relief in respect of consideration relevant to Web promotion, Banner ads, allowing posting of white papers, webinars, branding on website, online listing, promote client through OC emails, web content, and blog articles. All other receipts are taxable as royalty / FTS as discussed supra. 7.2 The Ld. CIT(A) also confirmed the levy of interest u/s 234A and 234B on tax payable on assessed income for AY 2010-11. The relevant para of the Ld. CIT(A) s order is reproduced below. 8.0 Ground no. 4 is regarding levy of interest u/s 234A/B/C. The appellant has not submitted any argument in respect of the issues involved in this ground of appeal. It is settled principle of law that interest u/s 234A/B/C are mandatory and consequential in nature. The AO is directed to recompute these interests after giving effect to this order. The ground of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services : .. (b) make available technical knowledge, experience, skill, knowhow, or processes, or consist of the development and transfer of a technical plan or technical design. 9.4 Now coming to the facts of the present appeal, the assesee has rendered management support services of the description listed at Annexure C of Master Support Services Agreement to Everest India on independent and non-exclusive basis. These services are centralized services which are being provided to all group entities in order to maintain uniformity and rationalize and standardize the practices across global location. No element of profit is earned by the assesee in course of rendering these services. These services include- 1. Management Oversight a. Strategic direction b. Contract review c. Financial and legal guidance d. Client Relationship Management e. Insurance f. Peer Review 2. Marketing a. Brand Awareness b. Marketplace analysis c. Competitive analysis d. Webinars e. Lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UK DTAA are made available to the Petitioner by the DTAA with France. 9.6 The assesee s case also finds support from the MOU annexed to the India-USA DTAA explaining the FIS wherein it is clarified that clause 4(b) of Article 12 excludes any service that does not make technology available to the person acquiring the service. Memorandum of Understanding (MOU) annexed to the India-USA DTAA dated 15.05.1989 concerning FIS states as under: Article 12 includes only certain technical and consultancy services. But technical services, we mean in this context services requiring expertise in a technology. By consultancy services, we mean in this context advisory services. The categories of technical and consultancy services are to some extent overlapping because a consultancy service could also be a technical service. However, the category of consultancy services also includes an advisory service, whether or not expertise in a technology is required to perform it. Under paragraph 4, technical and consultancy services are considered included services only to the following extent: (1) as described in paragraph 4(a), if they are ancillary and subsidiary to the applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and ecological services ; 4. Communication through satellite or otherwise ; 5. Energy conservation ; 6. Exploration or exploitation of mineral oil or natural gas ; 7. Geological surveys ; 8. Scientific services ; and 9. Technical training. From the above, it is evident that none of the services provided by the assesee are in the nature of FIS. 9.7 Further, considering the services provided by the assesee (listed above), in our view, these are not technical services nor do they require any technological knowledge, skill or experience. There is no transfer of technology involved. Everest India is not enabled to apply any technology on its own without recourse to the service provider i.e. the assesee. These services have not resulted in any enduring benefit to Everest India by way of any knowledge which could be applied by it on its own in future without depending on the assessee. These are general managerial services which are received by the assesee on recurring basis. Therefore, the test laid down under Article 12(4)(b), in our considered view, are not satisfied in the present factual scenario. 9.8 Thus, management fee received by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make it taxable in India as FIS. This is for the reason that there is no rendition of technical or consultancy services by the assesee through the supply of manpower which has enabled Everest India to apply any technical knowledge, experience, skill, know-how on its own without the recourse to the manpower supplied by the assesee. The agreement is continuous in nature and the lending entity is free to withdraw the manpower resource if it requires the resource for its own business. The objective of agreement is not to make Everest India self equipped/self sufficient for future. In support, reliance is placed on the decision of the Hyderabad ITAT in ACIT vs. IIC Systems (P.) Ltd. [2010] 127 TTJ 435 (Hyd.) wherein the ITAT held under: 7. We have considered the rival submissions arid perused the material available on record. There is no dispute with regard to the facts of the case and the only dispute involved in these matters relate to the nature of the payments made, so as to determine whether, the TDS provisions are attracted or not. Thus, the primary question that arises is whether the payments in question made by the assessee to the ACSC, were by way of fee for technical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts made by the assessee company to the ACSC falling within the definition of 'fee for included services' as per art. 12(4) of the DTAA, since the provisions of DTAA, as held by the apex Court in the cage of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC), shall prevail over the provisions of the IT Act, to the extent the same are beneficial to the assessee. The CIT(A) after elaborate discussion with regard to the various aspects of the matter, in the light of the contentions of the assessee, came to the conclusion that so far as DTAA between India and USA is concerned, consultancy services which are not technical in nature, cannot be treated as 'fee for included services'. We also notice that the fact that in the instant case the agreement of the assessee with ACSC is only for manpower supply or supply of technical personnel and it is well accepted even by the AO in para 2 of the impugned orders passed under section 201(1) r/w section 195 of the Act. The DTAA between India and USA also clarifies that the provision of services may require technical input by a person providing the person (sic-service), which does not per se mean that technical knowledge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done is mentioned even in the work order issued by the assessee. Thus, neither the agreement nor the invoice refer to any technical services rendered or any product or software developed for IBM. All the agreements, invoices and related documents produced before us lead to the fact that the payments have been made only for supply of manpower for certain amount of hours and nothing more. Since there is no technology, skill, experience, technical plan, design, etc . had been made available either by the assessee. or the ACSC, as held by the CIT(A), invoking the provisions of art. 12(4)(b) of the DTAA for treating the payments as chargeable to tax in India, is not justified. In our view, the CIT(A) was justified in holding that the services rendered by the ACSC for which remittances in question have been made by the assessee are akin to those of a recruitment or placement agency, and would not come within the purview of 'fee for inducted services' within the meaning of art. 12(4)(b) of the DTAA between India and USA. Even if the payments would constitute fees for technical services under section 9(l)( vii) of the IT Act, in view of section 90(2) of the Act, the Indian company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground 5) relates to addition made by AO on account of miscellaneous services rendered to third party clients. These services comprises of two components i.e. access to published research reports by subscribing to the same and customized research advisory. 11.1 The Ld. DR relied upon the findings of the Ld. CIT(A). The Ld. AR submitted that the assesee sold published research reports and provided custom research services to clients in India as per work orders / invoices which are on record. The published reports are general in nature and factual information is compiled from various secondary sources. Anyone in the public can subscribe to the database and on payment of requisite fee access these general purpose reports. The database and server of assessee is in USA. The database subscription is granted through a website, which allows download of published reports, annual market updates, white papers, data cuts. The published reports and database is copyright protected. The subscriber gets a non-exclusive, non-transferable right and license to use the published report. The subscription material can be used by subscriber for business purpose only by and among subscriber s employees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case that the impugned service has anything to do with Article 12(3). Further, the receipts under this head are not even taxable as FIS/FTS under Article 12(4)(b) of the India-US treaty. 11.3 We find force in the above submission of the assesee. By allowing access to database what assessee grants to customers is only a right to use a copyrighted material (i.e. published report). The assessee does not grant the right to use the copyright. Hence, consideration (subscription fee) received by the assesee is not taxable as royalty under the provisions of Article 12(3) of the India-USA DTAA. Similarly in customized research advisory services the assessee is providing only advisory services through emails or presentations. The output of custom research advisory is not provided through subscription mode or data base access mode and, therefore, the question of access to data base does not arise at all. Further there is no transfer of any copy right to the customers. Thus, the considerations received by the assessee towards customized research advisory services are not taxable under the head Royalty. This ground of appeal is allowed. 12. The last ground of appeal relates to levy of in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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