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TMI Blog2022 (8) TMI 1263X X X X Extracts X X X X X X X X Extracts X X X X ..... ed addition made by treating payment received for IT support services as Fee for Technical Services under the provisions of the Act and under Article 12 of the DTAA, is deleted. As a result, grounds raised in assessee s appeal are allowed. Royalty receipts - Payment towards IT support services could not fall under royalty in the instant case. Thus, the Assessing Officer is directed to follow the directions issued by the learned DRP under section 144C(5) of the Act. As a result, grounds raised in assessee s appeal are allowed. - ITA No.1245/Mum./2021 - - - Dated:- 11-5-2022 - Shri Pramod Kumar, Vice President And Shri Sandeep Singh Karhail, Judicial Member For the Assessee : Shri Madhur Agarwal For the Revenue : Ms. Surabhi Sharma, CIT DR ORDER PER SANDEEP SINGH KARHAIL, J.M. The present appeal has been filed by the assessee against the final assessment order dated 30.04.2021, passed under section 143(3) r/w section 144C(13) of the Income Tax Act, 1961 ( the Act ) by the Assessing Officer for the assessment year 2017 18. 2. In this appeal, the assessee has raised following grounds: Based on the facts and circumstances of the case, Shell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices held as 'Royalty' under the Act as well as India-Netherlands DTAA 6. Erred in holding that payments of Rs. 2,50.20,50,998 received by the Appellant for IT Suppoi Services constitutes 'Royalty' under the provisions of the Act and under Article 12(4) of the India- i Netherlands DTAA without appreciating the fact that receipts towards IT support services are not for information concerning industrial, commercial or scientific experience; 7. Failed to appreciate and ignored the fact, that pursuant to Appellant's objections, the Hon ble DRP in its directions have held that IT support services would not fall under Royalty'; Short granting of credit for Tax Deducted at source (TDS) 8. Erred in not granting the TDS credit of Rs. 6,50,837. Interest under section 234B of the Act 9. Erred in levying interest under section 234B of the Act without appreciating the facts and circumstances of the case. The Appellant craves leave to add, alter, omit or substitute any or all of the above grounds of appeal, at any time before or at the time of the appeal. 3. The first issue arising in the present appeal is, whether the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee for Technical Services under Article 12(5)(b) of the DTAA. The Assessing Officer vide draft assessment order dated 23.12.2019, passed under section 144C(1) of the Act did not agree with the submissions of the assessee and held that the payment received by the assessee towards IT support services are in the nature of Fee for Technical Services as well as in the nature of Royalty under the Act as well as under the DTAA. 5. Being aggrieved, the assessee filed detailed objections before the Learned Dispute Resolution Panel ( learned DRP ). Vide directions dated 17.03.2021, issued under section 144C(5) of the Act, learned DRP, inter alia, after noting that the facts of the relevant assessment year are similar to the earlier assessment year, rejected the objections raised by the assessee and held that payment towards IT support services is in the nature of Fee for Technical Services under the provisions of the Act and the DTAA, following its directions issued for the assessment year 2016 17. The learned DRP further held that IT support services could not fall under Royalty in the instant case. 6. The Assessing Officer vide impugned final assessment order dated 30.04.2021, inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the A.Y.2010-11 to 2011-12 in ITA No. 2058/MUM/2016 dated 28.05.2018 wherein the Tribunal following the order for the A.Y. 2009-10 to 2010-11 in ITA.No. 2204/MUM/2014 and 1203/Mum/ 2015, held as under: - 16. We have heard the rival submissions and also perused the material on record. The co-ordinate Bench has decided the identical issue in favour of the assessee in the assessee s own case ITA No. 2204/Mum/2014 for the A.Y. 2009-10 and ITA No. 1203/Mum/2015, for the A.Y. 2010-11 holding as under:- 7. The next issue common issue in both the appeals of assessee is as regards to taxability of payment received by assessee from IT support services which constitutes Fees for Technical Services ('FTS') and royalty under the India Netherlands Treaty DTAA. For this Assessee has raised following ground:- Payments towards IT Support fees held in be Fees for Technical Services 'FTS') and royalty. 4. Erred in holding that payments received by the Appellant for IT support DTAA. 5. Failed to appreciate that IT support services do not 'make available any technical knowledge, skill, experience etc.to the services recipient under Article 12 of the Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cipient must also be conveyed specifically the right to continue the practice put into effect and adopted under the agreement on its expiry. We are of the view that the services provided under the IT agreement are in the nature of Fees for Technical Services and taxable under' the DTAA as well as under the Act. Though the ruling is technically not binding in the present case, the 7 ratio and logic followed by the Hon'ble Authority have very high degree of persuasive value. in any case, this technical know-how is of an enduring nature and has a direct nexus with the assessees business. 5.3.2 considering the above factual and leg matrix we are of the opinion that the action of the AO in treating the above receipt is fee for technical services does not require any interference The alternate arguments on taxability of the receipt as royalty do not require any direction from the penal as we have already upheld the taxability of the services as fees for included service . 10. The learned Counsel for the assessee explained the facts that the SITI BV is a company registered in the Netherlands. SIT! BV is in the business of providing information technology (IT') ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act or as per the provisions of the relevant double taxation avoidance agreement, whichever is more beneficial. SIT! BV is a nonresident for Indian tax purposes. Accordingly, SITI BV could be assessed as per the provisions of the Actor as per the Treaty, whichever is more beneficial to SIT! By. IN view of the same, the non-taxability of the services rendered by SITI BV has been examined under the provisions of the Treaty. Article 12(4) of the Treaty defines the term. Payments of any kind received as a consideration for the use, or the right to use, any copyright of literacy, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience.' 12. From the above, it is clear that SITI BV is engaged in providing IT services to Indian entities but does not provide any right to use any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. Even under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich this Convention has effect; (aa) 15% of the gross amount of such royalties or fees for technical services when the payer of the royalties or fees for technical services is the Govern rent of the first mentioned Contracting State or a political sub-division of that State and (bb) 20% of the gross amount of such royalties or fees for technical services in all other cases; and (ii) during subsequent years 15% of the gross amount of such royalties or fees for technical services; and (b) in the case of royalties within paragraph 3(b) of this Article and fees for technical services defined in paragraph 4(b) of this Article, 10% of the gross amount of such royalties and fees for technical services. 3** ** ** (4) For the purpose of paragraph 2 of this Article, and subject to paragraph 5, of this Article, the term fees for technical services means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which: (a) are ancillary and subsidiary to the application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll within the expression 'fees for technical services' as appearing in article,. 13(4)'(c) of the DTAA read with section 9(1)(vii) of the said Act. While doing so the Tribunal, inter alia, found that the assessee company was an international reinsurance intermediary (broker) and was a tax resident of United Kingdom. Further, that it was a recognized broker by the financial services authority of United Kingdom, it was also an admitted position that the assessee did not maintain any office in India and mat it had a referral relationship with J B Boda reinsurance (Broker) Pvt. Ltd of Mumbai and that J. B. Boda was duly licenced by the Insurance Regulatory Development Authority to transact reinsurance business in India 11 The Tribunal also observed as under. 27. In the illustrative transaction, New India Insurance Co. Ltd in India has entered into an agreement to reinsure on an Excess Loss basis the catastrophe risk arising from its primary insurance cover in conjunction with J.B. Boda and Alsford Page and gems Ltd. (the reinsurance brokers). The terms of the agreement specifies that the assessee in conjunction with J.B. Bode are recognized as intermediary, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ternational reinsurer it was also pointed out that as per the normal industry practice, tea reinsurance premium net of brokerage al 10% as per the policy contract is remitted to the assessee, i.e., reinsurance brokers, for onward transmission to international reinsurers. The intermediation fee which is another word for brokerage is paid separately by the originating insurance in India to J.B. Bodo, the international reinsurance brokers like the assessee and other intermediaries, based on a mutually agreed ratio which accounts for their relative contribution in the reinsurance process. 12. Based on this manner of transacting, the Tribunal came to a conclusion that the payment received by the assessee could not be regarded as 'fees for technical services'. Further, more, the Tribunal also held that such receipts would not amount to fees for technical services as the make available clause contained in article 13(4)(c) had not been satisfied in the facts and circumstances of the present case. 13. In our view, the Tribunal has arrived at these conclusions purely on assessing the factual matrix of the case at hand. The findings are in, the nature of factual findings a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 239 ITR (Stat) 56]. It is evident that the Authority for Advance Rulings had not considered the said amendment. 14. In view of the above, we are of the that the concept of make available of technical services that such receipts would not amount to fee for technical services so as to the concept of make available clause contained in Article 13(4)(c) of the treaty has not been satisfied. Accordingly, we delete the addition and allow this issue of assessee s appeal. 17. Since, the co-ordinate Bench has decided the identical issue in favour of the assessee in assessee s own appeals for the A.Y. 2009-10 and 2010-11 referred above, we respectfully following the order of the co-ordinate Bench allow Ground No. 5, 6 and 7 of this appeal. 10. Facts being identical, respectfully following the said decision of the Tribunal we allow Ground Nos. 5 and 6 of the assessee. 11. In so far as Ground No.2 is concerned the Ld. Counsel for the assessee submitted that since it was held in favour of the assessee on Royalty and FTS ground, the ground raised by the assessee in respect of receipts towards access to use software and IT support services does not constitute income may ..... X X X X Extracts X X X X X X X X Extracts X X X X
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