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TMI Blog2023 (12) TMI 802X X X X Extracts X X X X X X X X Extracts X X X X ..... pts from business consultancy services , we observe, as per Example 7 of the Memorandum of Understanding to India-USA DTAA, a receipt cannot be treated as FTS merely because the service provider while providing consultancy services has used substantial technical skill and expertise. Because, while providing such services, the American Company is not making available to the Indian Company, any technical expertise, knowledge or skill etc. but is merely transferring commercial information to the Indian Company by utilizing technical skill. Thus, no hesitation in holding that the receipts in dispute are not in the nature of FIS under Article 12(4)(b) of India-USA DTAA. Taxability of reimbursement of expenses payment cannot be treated either as FIS under Article 12(4)(b) of the Tax Treaty or royalty. Addition being receipts from provision of support services as FIS - As per AO not only the services are in the nature of technical/consultancy services, but while rendering such services, the assessee had made available technical knowledge, know-how, skill etc. as the services rendered include training of personnel, thus receipts would qualify as FIS under Article 12(4)(b) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer is directed to delete the addition. As per AO assessee had settled the dispute under the Vivad Se Vishwas Scheme, 2020, thereby tacitly accepting the additions - This observations of the Assessing Officer is not, at all, relevant for deciding the issue, as, settlement of dispute under the Vivad Se Vishwas Scheme, 2020 cannot be construed to mean a tacit acceptability of the additions, in fact, the aforesaid position stands clarified by the CBDT Circular no. 09/2020, dated 22 nd April, 2020. Assessee appeal allowed. - SHRI SAKTIJIT DEY, VICE-PRESIDENT AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER For the Appellant : Sh. Himanshu Sinha, Advocate For the Respondent : Sh. Vizay B. Vasanta, CIT(DR) ORDER The present appeal has been filed by the assessee challenging the final assessment order dated 18.05.2022 passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 pertaining to assessment year 2019-20, in pursuance to directions of learned Dispute Resolution Pane ( DRP ). 2. In ground nos. 2 and 3, the assessee has challenged the addition of an amount of Rs. 9,09,98,733/- by characterizing it as Fee for Included Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsement of expenses are concerned, the Assessing Officer observed that such receipts are also in the nature of FIS/FTS, both under Article 12(4)(b) of the tax treaty as well as under section 9(1)(vii) of the Act. He further observed that not only the services rendered are in the nature of consultancy services, but while rendering such services, the assessee had made available technical know-how, knowledge, skill etc. Further, he observed that similar dispute relating to the aforesaid two receipts arising in assessment years 2011-12 to 2014-15, assessment years 2016-17 and 2017-18 have been settled by the assessee under the Direct Tax Vivad Se Vishwas Scheme, 2020, which shows tacit acceptability of the additions as FIS/FTS by the assessee. Thus, in the aforesaid premises, the Assessing Officer brought both the receipts to tax under Article 12(4)(b) of the tax treaty. Contesting the aforesaid additions, the assessee raised objections before learned DRP. However, following their directions in assessment year 2018-19 in respect of similar dispute, learned DRP rejected the objections of the assessee. 7. Before us, it is a common point between the parties that the issues relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received ; or (b) make available technical knowledge, experience, skill, knowhow, or processes, or consist of the development and transfer of the development and transfer of a technical plan or technical design. 15. As per Article 12(4), FIS includes any payment received towards rendering technical or consultancy services. In the facts of the present appeal, admittedly, the departmental authorities have categorically held that the receipts are covered under Article 12(4)(b). Thus to qualify under Article 12(4)(b) of the Tax Treaty, the following two conditions are to be fulfilled: i) The services rendered must be technical or consultancy services; ii) Rendering of such services result in making available technical knowledge, expertise, skill, knowhow or processes etc. 16. So firstly it has to be seen whether the services rendered are of the nature of techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while providing such services, the American Company is not making available to the Indian Company, any technical expertise, knowledge or skill etc. but is merely transferring commercial information to the Indian Company by utilizing technical skill. Thus, keeping in perspective the aforesaid factors as well as the ratio laid down in the judiciary precedents cited before us, we have no hesitation in holding that the receipts in dispute are not in the nature of FIS under Article 12(4)(b) of India-USA DTAA. We order accordingly. 9. Whereas, on the issue of taxability of reimbursement of expenses, the observations of the Tribunal are as under: 23. We have considered rival submissions and perused the material on record. 24. It is observed, while considering the issue relating to the nature and character of identical receipts and whether it requires withholding of tax, the Tribunal in case of the payer i.e. Bain India in assessment year 2009-10, in the order referred to above, has held that the payment cannot be treated either as FIS under Article 12(4)(b) of the Tax Treaty or royalty. Therefore, it was held by the Tribunal that there was no requirement on the part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but while rendering such services, the assessee had made available technical knowledge, know-how, skill etc. as the services rendered include training of personnel. Thus, he concluded that the receipts would qualify as FIS under Article 12(4)(b) of the tax treaty. Learned DRP upheld the aforesaid decision of the Assessing Officer. 14. Before us, learned counsel appearing for the assessee reiterated the stand taken before the departmental authorities. Whereas, drawing our attention to the support services agreement placed on record, learned Departmental Representative submitted that not only the services rendered are in the nature of technical and consultancy service, but while rendering such services, the assessee had made available technical knowledge, know-how, skill etc. as a part of the services in relation to training the personnel of Bain India. Thus, he submitted, the conditions of Article 12(4)(b) stand satisfied. 15. We have considered rival submissions and perused the materials on record. The short issue arising for consideration is whether the receipts from provision of support services would qualify as FIS under Article 12(4)(b) of India USA DTAA. To qualify as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. 2) Claims, disputes, litigation and governmental proceedings. 3) Locating and evaluating outside consultants and experts for legal, tax and other specialist services 4) General and legal advice and assistance in the review of all legal problems on a case-by-case basis and procedures in the above-mentioned areas. 1.4 Field Service Support and Local Marketing Support 1) Provide assistance in the development of local marketing programs, and the. selection of media and promotional services. Advice on field visits of marketing personnel and contact with customer personnel. 2) Provide aid in preparation of forecasts. 3) Aid by providing information and assist in the development of local public relations programs. 4) Provide assistance concerning structure and functions of the organization 1.5 Computer, communication and Information Services Assistance on centralized and decentralized computer, communication and information systems. Such services may include: 1) Advise and assist in maintenance and support of suitable accounting, personnel and related systems. 2) Advise and assist in the evaluation of data ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to the impugned assessment year, in no other assessment year the Assessing Officer has treated the receipts from support services as FIS and brought it to tax. Thus, on overall consideration of facts and materials on record, we are of the view that the Revenue has not brought on record any materials to establish the fulfillment of make available condition of Article 12(4)(b) of India USA DTAA. 18. For the sake of completeness, we must observe that in course of hearing, learned Departmental Representative has relied upon a decision of the Coordinate Bench in case of H.J. Heinz Company Vs. ADIT [2019] 108 taxmann.com 473 (Delhi Trib.). 19. On a careful reading of the said judgment, we find that the decision of the Coordinate Bench is distinguishable on facts as the services rendered in case of that assessee is in relation to manufacture of products. Whereas, in the facts of the present appeal, services rendered are not in relation to any manufacturing activity. In this view of the matter, the receipts cannot be treated as FIS under Article 12(4)(b) of the tax treaty. The Assessing Officer is directed to delete the addition. 20. Before parting, we must observe that whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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