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TMI Blog2022 (7) TMI 1330X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1961 (the Act) as well as under India - Singapore Double Tax Avoidance Agreement (DTAA). The Learned Assessing Officer and the Hon'ble DRP failed to appreciate that as the Appellant did not make available any technical knowledge etc to Dimension Data India Private Limited (DD India') the management fee received by the Appellant could not be taxed as FTS under Article 12 of the DTAA. 1.2 On the facts and in the circumstances of the case and in law, learned Assessing Officer and the Hon'ble DRP erred in not following the order of the Hon'ble Mumbai Bench of Income Tax Appellate Tribunal in Appellant's own case for AY 2014-15 wherein after relying on its orders for earlier years, it was held that the management fee was not in the nature of fees for technical services but business profits which could not be taxed in the absence of a permanent establishment. 2. Ground No.2- Inadequate opportunity On the facts and in the circumstances of the case and in law, the Hon'ble DRP & learned Assessing Officer erred in passing impugned orders in breach of the principles of natural justice without providing the Appellant with sufficient and adequate opportunity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be taxed in India. The Assessing Officer was not impressed with this claim of the assessee, and the Assessing Officer required the assessee to show cause as to why this income not be taxed as fees for technical services under section 9(1) of the Income Tax Act, 1961, as also under Article 12 of the Indo Singapore tax treaty. Elaborate submissions were made by the assessee in support of the contention that as long as the provisions of the IndoSinagpore tax treaty are more favourable to the assessee, the provisions of the Income Tax Act cannot be invoked at all, and that, in terms of the requirements of Article 12(4) of the Indo Singapore tax treaty, the fees for technical services can only be taxed in the source jurisdiction only when, inter alia, these services "make available technical knowledge, experience, skill, know-how or process‟. It was then submitted that the connotations of the expression "make available‟ are well established in our jurisprudence, and unless the services enable the Indian entity, to undertake these activities without recourse to the service provider, i.e. the assessee. The nature of services was explained in detail, and it was highlight ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable or transferred to the recipient, the transaction will take the character of royalty and not Fees for Included Services. What has been made available or transferred by the US firm to the recipient is the output technology by rendering services using its technical knowhow and expertise. 4.10. Technical knowledge, experience, skill, know how or processes is said to be made available to the recipient when it can apply the technical knowledge, experience, skill, know how or processes independently by itself without the aid of the service provider. 5.1. In this case, what has been offered to tax by the DD India Limited is not the question herein. The group policy is of rendering the services for the benefit of the group as a whole. It in no ways substitutes the issue of whether the services rendered should be taxed in India or not. The agreement between the assessee and the DD India Limited clearly shows that a lot of managerial, technical and consultancy services is provided by the assessee. What remains to be seen is as to whether the same gets excluded due to the make available clause in the tax treaty. 5.2 The assessee has only brought on record the explanation for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical knowledge, experience, skill, knowhow or processes in his own right. Further, in this case, none of the services are in the nature, where for every client or deal, the recipient has to depend on the assessee to finalize the deal or execute the work, but is able to enter into contracts and execute such contracts with the available technical knowledge, experience, skill, knowhow or processes by himself. 5.6. It is also noted from the records, that the DD India Limited has deducted TDS at the rate of 10% on the amount it has paid to the assessee under consideration. The assessee has also claimed the tax credit and refund of the same in the return of income without offering the same in income during the year under consideration. This clearly shows that the AE also regarded the same as income the assessee, and had as such deducted the TDS without applying for lower/Nil deduction certificates. Further, the assessee has reported in the return of income that the Rs.122,20,27,452/- as income chargeable to tax at special rate and claimed refund of Rs.12,49,36,260/-. 6. In view of the above discussions, the receipts of the amount of Rs.122,20,27,452/- received from DDIL is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the Service Provider's service delivery considering the best practices followed by the group companies; Provide suggested inputs on costing, pricing and commercial terms in relation to Service Recipient's partners and vendors, for the Service Recipient's consideration. V. Legal support for corporate and compliance matters: Provide guidance to the teams of the Service Recipient in their efforts with new client contracts, reseller contracts/ agreements etc; Guidance on handling legal matters including legal compliance, managing intellectual property, managing litigation, general corporate legal matters including but not limited to mergers and acquisition work, dispute resolution (e.g. for HR matters) formulating policies to comply with local laws and ethics training. VI. Services related to finance and accounting: Provide assistance and support in the areas of accounting and finance activities to support corporate operations; Provide inputs in relation to foreign exchange hedging requirements, handling treasury, credit and cash management related activities, regular monitoring of receivables, cash- flow and key cash conversion cycle metrics, and provision of mont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies and training therein- it is so comprehensive. It is also difficult to comprehend that which of these services do not enrich the service recipient, makes him wiser to face similar challenges in future on his own and acquiring skills to deal with the issues. 3.4 It cannot be the case of the assessee that services rendered by it are in the form of providing a sort of FAQ only. If it was so, no client, in a third party situation, would have agreed to pay such a significant amount (More than Rs.122 core) to it. Similarly, by same logic, it cannot also be the argument of the assessee that problems of similar nature, requiring homogenous solutions alone, would only be referred to it as again that would not warrant such high compensation. 3.5 Consequently, it is clear that the assessee is providing managerial, technical and consultancy services to its AE in India, spanning the entire gamut of corporate management, enriching it with the knowledge of enduring nature, The recipient of technology and managerial services is able to make use of technical knowledge, experience, skill, knowhow or processes by itself as such services are not issue bases or case based, but permanent in nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. 8. While on this issue, it will be useful to refer to the following observations made by a coordinate bench, in the case of Shell Global International Solutions BV Vs ITO [(2015) 64 taxmann.com 3 (Ahd)], as follows: 17. As for the connotations of 'make available' clause in the treaty, this issue is no longer res integra. There are at least two non-jurisdictional High Court decisions, namely Hon'ble Delhi High Court in the case of DIT v. Guy Carpenter & Co Ltd. [2012] 346 ITR 504 and Hon'ble Karnataka High Court in the case of CIT v. De Beers India (P.) Ltd. [2012] 346 ITR 467/208 Taxman 406/21 taxmann.com 214 in favour of the assessee, and there is no contrary decision by Hon'ble jurisdictional High Court or by Hon'ble Supreme Court. In De Beers India (P.) Ltd. case (supra), their Lordships posed the question, as to "what is meaning of 'make available'", to themselves, and proceeded to deal with it as follows: '......The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re [2010] 189 Taxman 409/323 ITR 184 (AAR), the Authority for Advance Ruling, inter alia, observed that "some of the services enumerated have the flavor of managerial services" but "services of managerial nature are not included in Article 13 (of Indo-UK tax treaty, which is in pari materia with the treaty provision before us) unlike many other treaties". We are in considered agreement with the views so expressed by the Authority for Advance Ruling. On the same lines are various decisions of this Tribunal in the cases of ICICI Bank Limited v. Dy. CIT [2008] 20 SOT 453 (Mum.) and McKinsey & Co. Inc v. Asstt. DIT [2006] 99 ITD 549 (Mum.). What essentially follows, therefore, is that as long as the services rendered by the assessee are managerial or consultancy services in nature, which do not involve or transmit the technology, the same cannot be brought to tax as fees for technical services. 9. Clearly, therefore, unless the recipient of the services, by virtue of rendition of services by the assessee, is enabled to provide the same services without recourse to the service provider, the services cannot be said to have made available the recipient of services. A mere incidental ad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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