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TMI Blog2023 (7) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... not in the nature of FTS. In spite of that the AO has treated the entire receipts as FTS and added at the hands of the assessee. This, in our view, is unacceptable. Whether the other condition of Article 13(4) of India UK treaty is fulfilled? - As in course of rendition of service, the service provider must transfer the technology, technical know-how, skill etc. to the service recipient to the extent that service recipient can perform such services in future without required the assistance of the service provider and without depending upon the service provider. Meaning thereby, the service recipient must be in a position to acquire technical knowledge, knowhow, skill etc., so as to independently apply it. In the facts of the present case, evidently, the services provided by the assessee to the Indian AE are merely for enabling and assisting the Indian AE in making the correct decisions on certain aspects as specifically provided under the group service agreement. Such rendition of services do not result in transfer of technical knowledge, know-how, skill etc. to the Indian AE. The make available condition provided under Article 13(4)(c) remains non-compliant. That bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e India UK DTAA to qualify as FTS, the services rendered must make available technical know-how, knowledge, skill etc. to the service recipient. After verifying the nature of services rendered by the assessee, the Assessing Officer observed that some of the services rendered by the assessee to the India AE are in the nature of FTS. Such services are as under: i. Assistance in relation to Human Resource Management (HRM) ii. Assistance in relation to Accounting iii. Assistance in Tax and Legal Support 3. Thus, considering these services to be in the nature of technical or consultancy services in terms of Article 13(4) of India UK DTAA, the Assessing Officer brought them to tax on gross basis by applying the rate of 10%. Accordingly, he framed the draft assessment orders. Against the draft assessment orders, the assessee raised objections before learned DRP. Learned DRP disposed of assessee s objections in cryptic and unreasoned manner by upholding the decision of the Assessing Officer. 4. Before us, learned Senior Counsel appearing for the assessee drew our attention to the group service agreement entered with the Indian AE, under which certain services were render ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of technical or consultancy services. He submitted, merely because services rendered are part of intragroup services, they cannot be excluded from the purview of FTS as the nature of services rendered has to be looked into. 6. As regards assessee s contention that the make available condition is not satisfied, learned Departmental Representative submitted, the nature of service rendered clearly establishes that while rendering such services the assessee has issued necessary guidance to the India AE regarding the mode and manner of certain activities to be carried out. Thus, essentially, the assessee has made available the technical, knowledge, know-how, skill etc. to enable the Indian AE to perform such services indepentedly. Thus, he submitted, the receipts are taxable as FTS. 7. We have considered rival submissions in the light of the decisions relied upon and perused the materials on record. Undisputedly, the assessee has entered into intragroup services agreement with various group entities, including the Indian AE. In terms with the group services agreement, the assessee renders following services: Human resource management: NMR manages payroll processes, recr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 12 (4): For the purposes 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 (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received ; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received ; or (c) make available technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical design. 9. A careful reading of Article 13(4) makes it clear that FTS means payments of any kind in consideration for rendering of any technical or consultancy services, which firstly, are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment of the nature of royalty is received. Secondly, they must be ancillary and subsidiary to the enjoyment of the property for which the payment in the natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvisory services in certain areas as per the terms of the agreement. From the nature of services, it is quite evident that assessee s role in the services provided is purely to assist the Indian AE or other participating group entities in making correct decision on the aspects specifically referred to in the agreement. Thus, the nature of services provided to the Indian AE does not seem to be falling in the category of either technical or consultancy services. In fact, in the assessment orders, the Assessing Officer himself has stated that some of the services are of the nature of FTS. Thus, the Assessing Officer clearly admits that all the services rendered by the assessee are not in the nature of FTS. In spite of that the Assessing Officer has treated the entire receipts as FTS and added at the hands of the assessee. This, in our view, is unacceptable. 11. Having said so, it is necessary to examine whether the other condition of Article 13(4) of India UK treaty is fulfilled. Even assuming that as per the Assessing Officer s version, few of the services are in the nature of technical and consultancy nature, the crucial factor needs to be examined is whether while rendering su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in a position to acquire technical knowledge, knowhow, skill etc., so as to independently apply it. In the facts of the present case, evidently, the services provided by the assessee to the Indian AE are merely for enabling and assisting the Indian AE in making the correct decisions on certain aspects as specifically provided under the group service agreement. Such rendition of services do not result in transfer of technical knowledge, know-how, skill etc. to the Indian AE. Therefore, in our view, the make available condition provided under Article 13(4)(c) remains non-compliant. That being the position, the receipts would not fall within the definition of FTS as provided under Article 13(4) of India UK DTAA. While coming to such conclusion, we have drawn support from the judicial precedents cited before us by learned counsel for the assessee. 13. In view of the aforesaid, we hold that the receipts, not being in the nature of FTS under Article 13(4) of India UK DTAA, are not taxable at the hands of the assessee in India. Grounds are allowed. 14. In the result, appeals are allowed. Order pronounced in the open court on 30th June, 2023 - - TaxTMI - TMITax - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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