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TMI Blog2024 (6) TMI 936X X X X Extracts X X X X X X X X Extracts X X X X ..... s made payments towards royalty, IT, technical services and administrative service fees to its parent company M/s Herbalife International Inc( herein after referred to a AE of assessee for the sake of convenience), USA without deducting TDS. 4. Accordingly, proceedings under section 201(1) of the Income Tax Act, 1961 (hereinafter called 'the Act') were initiated by the AO vide notice dated 14.11.2019. The AO noted that the assessee company M/s Herbalife International India Private Limited, India was not carrying on business outside India nor was it making or earning any income from any source outside India. Ld AO further held that the situs of the services rendered by Herbalife International Inc., USA to the assessee was in India, relying on the provisions of Explanation to sub-section 2 of section 9, the AO held that since the foreign party performed all the administrative services as part of the group global policies, to maintain control over the employed staff in India, the assessee company was ensured the efficiency and effectiveness of the services at all the times. It is thus held that the services were in the nature of managerial service. It was also held that the services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available with the assessee to be utilized in future. 7. Aggrieved with the Order of the CIT(A), assessee preferred appeal before the Tribunal. Assessee has raised four grounds of appeal which are further divided into sub-grounds. At the time of hearing, learned Counsel for the assessee has not pressed ground No.1.2 vis-à-vis limitation issue. So far as ground Nos.2 and 3 are concerned, the solitary issue involved in this case is whether payment made by the assessee to its AE for obtaining administrative services is taxable as FTS/FIS in India. The assessee has relied upon the provisions of Article 12(4) of the DTAA between India and USA. However, the AO has relied upon the provisions of section 9(1)(vii) of the Act to conclude that the nature of services was managerial in nature. The learned Counsel for the assessee drew the attention of the Bench towards para 6 of the Assessment Order at page 16 and pointed out that while framing the assessment, the AO has relied upon the decision of Shell India Markets Pvt. Ltd., reported in 342 ITR 223 (AAR), for supporting his view that services rendered by the AE of the assessee were in the nature of "managerial services". The learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... numerous judgments on this aspect. 13. Be that as it may be it has been pointed out by the assessee that so far as payments made for IT related services, the assessee has duly deducted TDS on IT related services However, for administrative services, assessee has not deduct any TDS as the arrangement was on cost to cost basis and the assessee has not charged any mark up. 14. The arguments of the assessee are in two folds a) the AO has wrongly relied on the provision of section 9(1)(vii), in as much as the expression "managerial services is not there in the provisions of DTAA, b) unless the knowledge, expertise embodied in the services provided, is transferred or make available to the recipient, the amount paid in lieu of services would be out of the purview of FTS. 15. The assessee has relied upon the provisions of Article 12 (4)(b) of DTAA between India and USA. We observed that the provisions of Article 12 (4)(b) of DTAA between India and USA are being interpretated by the Bangalore Bench of ITAT in the case of Tyco Fire and Security India Pvt. Ltd., (supra), 16. We deem it proper to extract the relevant Para of the ITAT in the case of Tyco(Supra), wherein the predecessor ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Raymond Ltd. Vs. DCIT (2003) 80 TTJ (Mum) 120. The Tribunal after elaborate analysis of all the related aspects observed that :- "The words 'making available' in Article 13.4 refers to the stage subsequent to the 'making use of' stage. The qualifying words is 'which' the use of this relative pronoun as a conjunction is to denote some additional function the 'rendering the services' must fulfil. And that is that it should also 'make available' technical knowledge, experience, skill etc. The word which occurring in the article after the word 'services' and before the words 'make available' not only ITA No.229/Bang/2019 described or defines more clearly the antecedent noun '(services') but also gives additional information about the same in the sense that it requires that the services should result in making available to the user technical knowledge, experience, skill, etc. Thus, the normal, plain and grammatical meaning of the language employed is that a mere rendering of services is not roped in unless the person utilizing the services is able to make use of the technical knowledge, etc. by himself in his business or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ", the technical knowledge, skills etc. must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the service provider...payment of consideration would be regarded as FIS only if the twin test of rendering services and making technical knowledge available at the same time is satisfied." 75. It is not even the allegation of the revenue that the non-residents had made available to the assessee, the knowledge generated in the course of rendering managerial services. In our view the services rendered were purely managerial services and by no stretch of imagination can be considered as making available any technical knowledge, experience, skill, know-how or processes, to the assessee. In view of the fact that the services provided by non-residents, did not make a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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