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TMI Blog2023 (5) TMI 1221X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of Article 13(4)(c) of India-UK DTAA. 3. Ground No. 3 The Ld. AO on the facts and in the circumstance of the case has failed to appreciate that the services rendered by the appellant are pre-dominantly 'managerial' in nature and that the term 'managerial' has specifically been excluded from the purview of the definition of FTS under Article 13 of the India-UK DTAA. 4. Ground No. 4 The Ld. AO on the facts and in the circumstances of the case has erred in law and facts in holding that the payments received by the Appellant from AE are taxable as fees for technical services, without considering the fact that the services do not make available technical knowledge, experience, skill, etc. 5. Ground No. 5 The Ld. AO on the facts and in the circumstances of the case has failed to appreciate that the services rendered by the appellant do not "make available" any technical knowledge, experience, skill, know-how or processes, based on the incorrect understanding of the nature of the services provided by the appellant. 6. Ground No. 6 The Ld. AO on the facts and in the circumstances of the case has erred in holding that the advice on financial support, sales, legal and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,04,370/- during the relevant AY should not be held as fees for technical services (FTS) under section 9(i)(vii) of the Act and Article 13 of the India-UK DTAA and added to its income. The reply filed by the assessee was considered by the Ld. AO but not found tenable. He proposed an addition of Rs. 83,04,370/- to the total income of the assessee on account of FTS for the reason that the services provided by the assessee make available technical knowledge, skill, experience, know-how, etc. and will fall within the purview of FTS under Article 13(4)(c) of the India-UK DTAA. 4. The assessee challenged the draft assessment order before the Ld. Dispute Resolution Penal ("DRP") who vide its order dated 09.02.2022 confirmed the addition of Rs. 83,04,370/- rejecting the objections raised by the assessee. The Ld. AO thereafter passed the final assessment order dated 28.02.2022 under section 143(3) r.w.s 144C(13) of the Act pursuant to the directions of the Ld. DRP by recording the following observations and findings:- "6. With regard to the above services there is no doubt that such services are made available in the context of the DTAA between India and UK. It is seen that the advice an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable to the assessee. It was held that the services were clearly made available to the assessee. * In the case of Areva T&D Ltd (order dated 7.2.2012 in AAR No 876 of 2010), the AAR has held that the IT sharing services 'made available" technical knowledge, expertise to the assessee, resulting in such services being characterized as FTS and therefore, subject to Indian withholding tax. * In the case of Mersen India Pvt. Ltd. [2012] 20 taxmann.com 475 (AAR - New Delhi), the facts of the case were that the Assessee, an Indian Company, entered into a service agreement with a French Company. In terms of service agreement, French Company has undertaken to provide assessee with services in nature of assistance, professional and administrative consultation and training. Various clauses of service agreement contain provisions for services which relate to overall management and direction, marketing and managing accounts and financial operations of assessee. It is also apparent that advice and assistance provided by French Company on business strategy, on general management, on marketing and commercial matters, on financial control and accounting matters, and on purchase and sales, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Technical Service. As the assessee has under reported and misreported income by not offering the receipts as FTS while filing the return of income, therefore, I propose to consider it a fit case for initiation of penalty proceedings u/s 270A of the Act." 5. Aggrieved, the assessee is before the Tribunal challenging the addition of Rs. 83,04,370/- made by the Ld. AO and all the grounds of appeal relate thereto. 6. Ground No. 1 is general in nature. Ground No. 2 relates to addition of Rs. 83,04,370/- to the income of the assessee on account of services rendered by the assessee to its AE in India i.e. BTPL held to be FTS under the provisions of Article 13(4)(c) of the India-UK DTAA. Ground No. 3 to 7 are arguments in support of ground No. 2. Ground No. 8 relates to initiation of penalty proceedings under section 270A of the Act which is premature and do not require adjudication at this stage. 7. The Ld. AR submitted that the services rendered by the assessee are managerial in nature and took us through the detailed description of the services rendered by the assessee under the terms of the Agreement between the assessee and BTPL. He submitted that the services provided by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undisputed fact that the assessee is a tax resident of UK and therefore has opted to be governed by the provisions of India-UK DTAA being more beneficial to it under the provisions of section 90 of the Act. 9.1 Article 13(4) of the India-UK DTAA defines the term "Fees for Technical Services" to mean- "payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including the provisions of services of technical or other personnel) which: (a).... (b)..... (c) make available technical knowledge, experience, skill, know-how or processes, or consists of the development and transfer of a technical plan or technical design." 9.2 Clause 3.1 of the Agreement (copy at pages 87-91 of the Paper Book) states that:- "Service provider (Infobip) shall perform the Services including but not limited to the: a) Finance support services; b) Technical support services; c) Sales support services; and d) Legal support services" 9.3 The assessee had provided detailed explanation along with documentary proof before the Ld. AO outlining the mode and examples of provision of the above services by the assessee to BTPL which is stated bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntracts/agreements for BTPL to be entered with its clients. These services are provided by the assessee year after year on continuous basis which shows that the assessee cannot perform these services on its own without recourse to the assessee. 9.5 It is amply clear from the above facts that the services provided by the assessee includes administrative services, accounting services, legal services and other support services that are ancillary to the functioning of corporate management function of BTPL. These services are thus essentially in the nature of managerial services which are in our considered view outside the scope of the meaning of FTS under Article 13(4) of the India-UK DTAA. As submitted by the Ld. AR to which we agree that even if the above services are considered to the FTS being technical, managerial and consultancy services as per the provisions of section 9(1)(vii) of the Act, these services will not fall within the meaning of FTS under Article 13(4) of the India-UK DTAA as the services provided by the assessee to BTPL does not make available any technical knowledge/experience, skill, know-how or processes or consist of the development and transfer of technical pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfied. 9.7 In Outotec India P Ltd. Vs CIT (2015) 41 ITR (Trib) 449 (Delhi), Delhi Bench of the Tribunal pointed out that the expression "make available" in the context of 'fees for technical services' contemplates that the technical services should be of such a nature, that the payer comes to possess the technical knowledge so provided which enables it to utilize the same thenceforward. If the services are consumed without leaving anything tangible with the payer for use in future, it will not be 'make available' of the technical services notwithstanding the fact that its benefit flowed directly to the payer. 9.8 In Mahindra and Mahindra Ltd. vs. Dy CIT (2009) 313 ITR (AT) 263 (Mumbai) (SB) it has been held that where the payer only obtained the benefit from the services, but did not get any technical knowledge experience or skill in its possession for future use, it cannot be said that technical know-how was made available. 10. On the facts and in the circumstances of the case, and in the light of the decisions (supra) we are of the view that the services rendered by the assessee to BTPL do not satisfy "make available" clause as envisaged under Article 13(4)(c) of the India ..... X X X X Extracts X X X X X X X X Extracts X X X X
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