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TMI Blog2024 (7) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals in all the years have same factual background and having common issue. All the appeals are filed by the Revenue and the Cross Objections are filed by the assessee. Therefore, all the appeals and the cross objections are taken together, heard together and are disposed of together. ITA No.1023/Mum/2024&CO 95/Mum/2024 are taken as the lead cases. ITA No.1023/Mum/2024 (Revenue's Appeal) 3.1 The following are the grounds taken by the revenue: "i. Whether on facts and in circumstances of the case and in the law, the Ld.CIT(A) was erred in not upholding addition of income made on account of the administrative support services rendered by the assessee company to its Indian entity M/s. Jefferries India Pvt Ltd ("JIPL") as 'fests for technical services/included services which is taxable in India under Article 12 of the double taxation avoidance agreement between India and United States of America (Treaty1) since, the assessee 'makes available' technical knowledge, experience, skill, know-how, or process to JIPL? ii. Whether on facts and in circumstances of the case and in the law, the Ld.CIT(A) was correct in holding that the administrative support services are routi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned CIT(A) erred in dismissing the fact that the assessment order under section 143(3) of the Act read with section 144C(3) of the Act dated 2 February 2017, and the reassessment order under section 143(3) read with section 147 read with section 144C(3) dated 10 February 2020, are without jurisdiction and bad in law as much as the same have been passed beyond the time limit prescribed in section 153 of the Act. The learned CIT(A) erred: a. in not appreciating the fact that the re-assessment order dated 10 February 2020 passed under section 143(3) read with section 147 and section 144C(3) of the Act is bad in law, void ab initio and liable to be set aside. b. in not appreciating the fact that the reassessment proceedings initiated under section 147/ 148 of the Act are inherently without jurisdiction and untenable in law as there was no tangible material available with the Learned AO to form reasons to believe that income of the Appellant has escaped assessment. c. in not appreciating the Respondent declared all particulars and details in the original return of income filed for the relevant AY and the AO being satisfied with the same processed it under section 143(1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned assessment order. Further, the assessee company has provided "Administrative Support Service" to JIPL, as per the agreement entered into with JIPL. JIPL is registered with Securities and Exchange Board of India as a Category Merchant Banker and a stock Broker. The principal activities of JIPL are to provide merchant banking and investment advisory services to investors, corporate and stock broking services to domestic and foreign Institutional Investors. The "Research Management Support Services" are rendered towards compliance advice/support, general financial statement preparation, regulatory reporting. Information technology helpdesk support, internal audit of systems, etc. During the impugned assessment year the assessee company provided "Administrative Support Service" to JIPL and the Administrative support charges received from JIPL were amount Rs. 72,80,069/- which was taxed in India. The assessee was also in receipt amount of Rs. 11,46,63,298/- from JIPL on account of reimbursement of expenses which was not offered for taxation while filing the return of income by the assessee. The assessee has claimed that the reimbursement of expenses received from JIPL is not taxabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business and the employees of the Indian entity are assisted to carry on their business model of services on their own in compliance with Indian Generally Accepted Accounting Principles without reference to the service provider. It is not as if for 'making available', the recipient must also be conveyed specifically the right to continue the practice put into effect and adopted under the service agreement on its expiry. 3. As per the MOU to the India-US DTAA, the term make available means that the person acquiring the service is enabled to independently apply the technology. The fact that the services are "continuous" does not by itself imply that is provided. The word "enable" is used in the sense that the services should be such that they make the recipient able or wiser in the subject matter. This is even more evident from the fact that it is the recipient who applies the knowledge and skill and the provider only supports the recipient with knowledge and skill. The services in this scenario are continuous to ensure that the assistance provided and applied by the recipient can be reviewed and continuous experience that is being gained globally can be supplied to the rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, the business strategies, administrative and management support services of the assessee company is ultimately made use by the management for their administrative purposes for which they have paid high service fees to them. Moreover, the employees of the JIPL are all very educated and highly qualified. The said companies recruit the best talent available in the Indian market, from the most premiere of institutions and hence it would be impossible to imagine that the advisory services provided by the assessee company is not absorbed and utilized by them in the management of their projects. Thus, there is an element of 'make available' involved in whatever administrative/advisory service that may have been received by JIPL. 7. The non-resident assessee company, the service provider (SP) has provided services through third party to the Indian entities who are the service recipients. If the expenses were not met by the service recipient (SR), the expenses would have been met by the service provider. As a natural consequence, the service provider might have charged the additional amount (which was to be met out for expenses) from the SR. The expenses of the service provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical character and would fall for coverage only within the meaning of the above Explanation. The amounts were assessable to tax in India. Based on the discussion in the above paragraphs the reimbursements received by JLCC also fall under the purview of FTS and accordingly, the amount received of Rs. 11,46,63,298/- by way of reimbursements is assessed as income of the assessee in the nature of 'Fees for Technical/Included Services' and taxed accordingly. In light of the above legal and factual scenario, it is prayed that the grounds of appeal of the Appellant may kindly be dismissed, if deemed fit." 6. The Ld.AR mentioned that the issue prevails that the explanation of definition of 'FTS' charges. As per insertion of Explanation of Finance Act, 2010 with effect from 01/04/1976 is liable for the tax as per the revenue. But the charges 'FTS' is for technical services which is received by the assessee is duly covered by the Article 12(4)(b) of DTAA between India and US Tax Treaty. In earlier years, the issue was duly covered by the Co-ordinate bench of ITAT- Mumbai in assessee's own case for A.Y. 2012-13 in ITA No.5674/Mum/2017, date of pronouncement 28/03/2023. The rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the practices across global location. No element of profit is earned by the assessee in course of rendering these services. These services include- 1. Management Oversight a Strategic direction b Contract review c Financial and legal guidance d Client Relationship Management e Insurance f Peer Review 2. Marketing a Brand Awareness b Marketplace analysis c Competitive analysis d Webinars e Leadership forum f Speaking engagements 3. Finance and Accounting a Payroll b General ledger c Employee time and expense d Revenue and expense accruals e Payables f Accounts Receivables g Cash Management h Financial Reporting i Budgeting j Line of credit access management 4. Human Resource management a Recruiting b Compensation c Benefits administration d Legal 5. Information Technology a Laptop Maintenance b Help desk support c Desk side support d User Id and password e Remote access f System/antivirus g Intranet h Inter site communication links, email, voice mail etc i Standard computer platform j New hardware and software k Training on IT resources l Licenses and compliance m Computer and phone networks 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of consultancy services also includes an advisory service, whether or not expertise in a technology is required to perform it. Under paragraph 4, technical and consultancy services are considered included services only to the following extent: (1) as described in paragraph 4(a), if they are ancillary and subsidiary to the application or enjoyment of a right, property or information for which are royalty payment is made; or (2) as described in paragraph 4(b), if they make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Thus, under paragraph 4(b), consultancy services which are not of a technical nature cannot be included services. {emphasis supplied} Paragraph 4(b) Paragraph 4(b) of Article 12 refers to technical or consultancy services that make available to the person acquiring the services, technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plant or technical design to such person. (For this purpose, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing on the assessee. These are general managerial services which are received by the assessee on recurring basis. Therefore, the test laid down under Article 12(4)(b), in our considered view, are not satisfied in the present factual scenario. 9.8 Thus, management fee received by the assessee from Everest India is not taxable as FIS under the provisions of India-USA DTAA. Accordingly, this ground is allowed in favour of the assessee." 12. Further, the coordinate bench decided similar issues in the case of EdenredPte Ltd v. DDIT [2020] 118 taxmann.com 2 (Mumbai - Trib.) and held as under: - "9. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. We find that the services provided under the management agreement broadly include (i) consultancy services to support the sales activities of Surf Gold, (ii) legal services, (iii) financial advisory services and (iv) human resource assistance. There is no dispute here that under the provisions of section 9(1)(vii) of the Act, rendering of management services will be taxable as FTS. However, Edenred, by virtue of section 90(2) of the Act, is eligible to rely o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provider. In other words, 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 on the provider." In the case of Intertek Services (307 ITR 418), the AAR has observed on the term 'make available' as under : "By making available the technical skills or know-how, the recipient of service will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider. In other words, to fit into the terminology 'make available', the technical knowledge, skills etc. must remain with the person receiving the services even after the particular contract comes to an end. The services offered may be the product of intense technological effort and lot of technical knowledge and experience of the service provider would have gone into it. But, that is not enough to fall within the description of services which make available the technical knowledge, etc. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee for making managerial decision, financial decision, risk management decision etc. The service of technical input, advice, expertise etc. rendered by the USA company are technical in nature as provided in clause 4(b) of the Article 12 of the DTAA. It is found that this case is reversed by the Hon'ble Kerala High Court in 97 taxmann.com 642 dated 09.08.2018, wherein it is held that fees for management services received by US company would not be taxable in India as there is no transfer of technical knowledge by US company to Indian company. In Shell India Markets (P.) Ltd. (supra), the applicant is an Indian company, it has a network of retail fuel stations in India. SIPCL is a group company of assessee incorporated in UK. It is in the business of providing consultancy services to various group companies. The applicant has entered into Cost Contribution Agreement (CCA) with SIPCL for provisions of General Business Support Services (BSS). While providing General BSS, SIPCL works closely with the employees of the applicant and supports/advices them. Thus, General BSS is made available to the applicant. However, we find that subsequently, after considering the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IS under the treaty and these services does not amount to make available technical or skill or expertise while providing these services. Therefore, in our considered view, the services provided by the assessee to its subsidiaries are only to support to function the administration and day to day management of JIPL considering the fact that JIPL does not have any infrastructure to carry out any administration and day to day management. These facts are confirmed by the lower authorities and also facts on record. Therefore, these services are outside the ambit of FIS and FTS. Hence, we are inclined to allow the grounds raised by the assessee." 7. We heard the rival submission and considered the documents available in the record. The moot issue is that the assessee received amount to Rs. 72,80,069/- on account of "Administrative Support Services" and also the reimbursement of amount to Rs. 11,46,63,298/- received from JIPL which have not been offered for tax in ROI. As per the revenue, the FTS is liable for the tax under section 9(1)(vii) of the Act. The word 'technical services' is preceded by the word 'managerial' and succeeded by the word 'consultancy'. Since the expression technica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own case, it is seen that the issue related to taxability of administrative support services as FTS has been decided by the ITAT in favour of the appellant. For ready reference, relevant para of the decision of ITAT is reproduced as under: "13. From the above discussions and case law, the services provided by the group entities or holding company to its subsidiaries as support services to run their business effectively will not be considered as FTS or FIS under the treaty and these services does not amount to make available technical or skill or expertise while providing these services. Therefore, in our considered view, the services provided by the assessee to its subsidiaries are only to support to function the administration and day to day management of JIPL considering the fact that JIPL does not have any infrastructure to carry out any administration and day to day management. These facts are confirmed by the lower authorities and also facts on record. Therefore, these services are outside the ambit of FIS and FTS. Hence we are incline to allow the grounds raised by the assessee." The facts and circumstances of the grounds related to administrative support services for AY. ..... 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