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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 ..... own case [ 2023 (3) TMI 1485 - ITAT MUMBAI ] A.Y. 2012-13 So, both the amounts are not liable for tax in India u/s 9 of the Act. In our considered view, we cannot circumvent the order of co-ordinate bench in case of taxation on FTS which covered by DTAA of IU treaty. No plausible ground to interfere in appeal order. The grounds of the revenue are failed, and both the additions are deleted. - Shri Narendra Kumar Billaiya, Accountant Member And Shri Anikesh Banerjee, Judicial Member For the Assessee : Shri Nishant Thakkar For the Revenue : Shri Anil Sant, Addl. CIT DR ORDER PER BENCH: Instant appeals of the revenue and Cross Objections by the assessee are preferred against the common order of the Learned Commissioner of Income-tax (Appeal)-57, Mumbai [for brevity, Ld.CIT(A) ] passed under section 250 of the Income-tax Act, 1961 (in short, the Act ), for Asst Years 2014-15 to 2018-19, date of order 29/12/2023. The impugned orders were emanated from the order of the ld. Assistant Commissioner of Income-tax, (International Taxation) Ward 3(1)(1), Mumbai(in short, the A.O. ) passed under section 143(3) / 144C(13) of the Act, date of order 02/02/2017. 2. During the hearing, both the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at reimbursement of expenses are not taxable as fees for technical/ included services merely relying on decision of the tribunal in the assessee's own case for AY 2012-13 which is not accepted by the Department? v. Whether on the facts, in circumstances of the case and in law, the Ld.CIT(A) has failed appreciate the fact that expenses reimbursed constitute the expenses incidental to the rendering of services by the assessee company to its subsidiary JIPL in India and are clearly classifiable under the category of technical service fees defined in Section 9(1)(iii) of the IT Act read with Article 12(4) of the India-USA DTAA. vi. The' appellant craves leave to amend or alter any ground or add a new ground which may be necessary. Assessee s C.O. No.95/Mum.2024 (Arising out of ITA 1023/Mum/2024) 3.2 Similarly, following are the grounds taken by the assessee in its cross objection:- The Learned CIT(A) erred in not appreciating the fact that the administrative support fees are recovered at cost (i.e. without any mark-up) and the said fact has been accepted in the Unilateral Advance Pricing Agreement dated 8 August 2019 between the Central Board of Direct Taxes and JIPL as well. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order. The above grounds of objections are all independent and without prejudice to one another. The Respondent craves leave to amend or alter any ground or add new ground at any time before or at the time of hearing of the appeal. 4. The brief fact of the case is that the assessee is a foreign company incorporated in United States of America. The assessee company i.e. Jefferies LLC provides Administrative Support Services to Jefferies India Pvt Ltd(in short JIPL) against which the assessee company receives payments from JIPL. For the impugned assessment year, the assessee company had filed its return of income declaring NIL income. Subsequently the case was selected for scrutiny assessment and during assessment proceedings it was noted by the ld. AO that receipts of Rs. 72,80,069/- on account of Administrative Support Services as well as reimbursements amounting to Rs. 11,46,63,298/- received from JIPL were not offered for taxation. The assessment was completed treating the receipts amounting to Rs. 72,80,069/- in the nature of Fee for Technical Services (in short FTS) and accordingly assessed income of the assessee amount of Rs. 72,80,069/- in the impugned assessment order. Furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the said ld. CIT(A) is unjustified. The Ld. DR fully relied on the assessment order. The relevant paragraphs of written submission filed by the Ld. DR are reproduced as below:- Characterized as FTS within the meaning in the DTAA and fall under Section 9 Explanation 2(vi) of the Act. Reliance is further placed on the following findings made by the AO: 1. The services provided by the Assessee company equip the Indian entity to manage its services efficiently based on the reports, analytics expertise across the world made available by the Assessee company. What is required merely is that the fruits of the services remain available to the person utilizing the services in some concrete shape such as experience, skill etc. Such benefits are available to the Indian companies in the shape of services mentioned Schedule A of the Inter group agreement. Therefore, the services would fall within the purview of FTS as the knowledge the users in India are utilize is the expertise of the assessee company is the business. 2. In the case of assessee, the administrative support service is provided to the Indian entity which is utilized in running its business and the employees of the Indian entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncy services', mere development of technical plan of technical design should be sufficient compliance. It need not be necessary that technical plan and design was ' made available' to the recipient. 5. In the case of Mersen India (P) Ltd. The AAR (A.A.R. No. 1074/2010 dated 16.04.2012) observed that the payments by Indian company to French company towards advisory services is fees for technical services. In this case, the French company was provided services in nature of assistance, professional and - administrative consultation and training - various clauses of service agreement contained provision for service which related to overall management and direction, marketing and managing account and financial operations to the Indian company. 6. The Advisory/Support services is stated to have been used by the Indian entity in the course of their normal business activities. The services rendered by the assessee company to the Indian company JIPL are utilized by them for the betterment and improvement of their business model and other practices, which is ultimately reflected in the increase in profitability of JIPL. Thus, the business strategies, administrative and management ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portion as reported in the ITR is reproduced below:- Cochin Refineries requested a foreign company, F. to evaluate whether the coke produced from blend of vacuum bottoms and clarified oil from Bombay High crude was suitable for making anodes for the aluminium industry. The tests were carried out in the USA in regard to which the assessee made payment of Rs. ......The assessee also paid Rs. ....And Rs. ...... which were payments in the nature of reimbursement of the payments made to the personnel of the said consultant F. All these payments were assessed u/s. 9(1)(vii) of the Income tax Act, 1961. This was upheld by the Tribunal. On a reference: Held that the services rendered by the foreign company. It would be in the nature of technical services and would therefore, consequently, be covered fully by the Explanation to section 9(1)(vii) of the Income Tax Act, 1961. Even with regard to the two payments of Rs. ...... and Rs. ...... in the nature of reimbursement of payments made to the personnel. No different situation would be available because there payments would be part and parcel in the process of advice of a technical character and would fall for coverage only within the meani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Everest Global Inc. v. DDIT (2022) 136 taxmann.com 404, it is held as under: - 9.3 We have carefully considered the rival submissions and perused the facts on record. Article 12(4)(b) of the India-USA DTAA provides the meaning of the term FIS as under: 4. For purposes of this Article, fees for included services means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: .. (b) make available technical knowledge, experience, skill, knowhow, or processes, or consist of the development and transfer of a technical plan or technical design. 9.4 Now coming to the facts of the present appeal, the assessee has rendered management support services of the description listed at Annexure C of Master Support Services Agreement to Everest India on independent and non-exclusive basis. These services are centralized services which are being provided to all group entities in order to maintain uniformity and rationalize and standardize the practices across global location. No element of profit is earned by the assessee in course of rendering th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther examine the second part of the definition, viz., whether any of the services envisaged under Article 13(4) of the Indo-UK DTAA are made available to the Petitioner by the DTAA with France. 9.6. The assessee s case also finds support from the MOU annexed to the India-USA DTAA explaining the FIS wherein it is clarified that clause 4(b) of Article 12 excludes any service that does not make technology available to the person acquiring the service. Memorandum of Understanding (MOU) annexed to the India-USA DTAA dated 15.05.1989 concerning FIS states as under: Article 12 includes only certain technical and consultancy services. But technical services, we mean in this context services requiring expertise in a technology. By consultancy services, we mean in this context advisory services. The categories of technical and consultancy services are to some extent overlapping because a consultancy service could also be a technical service. However, the category 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 foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical services ; 2. Food processing ; 3. Environmental and ecological services ; 4. Communication through satellite or otherwise ; 5. Energy conservation ; 6. Exploration or exploitation of mineral oil or natural gas; 7. Geological surveys ; 8. Scientific services ; and 9. Technical training. From the above, it is evident that none of the services provided by the assessee are in the nature of FIS. 9.7 Further, considering the services provided by the assessee (listed above), in our view, these are not technical services nor do they require any technological knowledge, skill or experience. There is no transfer of technology involved. Everest India is not enabled to apply any technology on its own without recourse to the service provider i.e. the assessee. These services have not resulted in any enduring benefit to Everest India by way of any knowledge which could be applied by it on its own in future without depending 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 receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e available to the service recipient. We find that in the instant case, the management services are provided only to support SurfGold in carrying on its business efficiently and running the business in line with the business model, policies and best practices followed by the Edenred group. These services do not make available any technical knowledge, skill, knowhow or processes to SurfGold. 9.1 Now we discuss the case laws relied on both sides. We begin with the reliance placed by the Ld. counsel. In the case of De Beers Mineral (P.) Ltd., the Hon ble Karnataka High Court has observed as under : The technical or consultancy services rendered should be aimed at and result in transmitting of technical knowledge etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service 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 te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting and risk analysis, fall short of the requirements laid down in the definition of fees for technical services in DTAA between India and Singapore. It will be too much to say that by providing such services (assuming they are technical or consultancy services), the Applicant receiving the services is enabled to apply the technology contained therein i.e. the technology, knowledge, skills, etc. possessed by the service provider or technical plan developed by the service provider. We do not find anything in the IT support services that answer the description of technical services as defined in the Treaty. 9.2 Then we turn to the case laws relied on by the Ld. DR. in US Technology Resources Pvt. Ltd. (supra), in terms of management service agreement between the assessee and the USA company, the latter provides highly technical services which are used 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o effect and adopted under the service agreement on its expiry. It is found that this case is reversed and set aside for fresh adjudication by the Hon ble Delhi High Court in 52 taxmann.com 161 dated 30.09.2014 and hence cannot be made applicable. 9.3 We find that in view of the factual matrix delineated at para 9 above, the case laws narrated at para 9.1 hereinbefore i.e. De Beers Mineral (P.) Ltd; Intertek Services; M/s BharatiAxa General Insurance Co. Ltd. are applicable to the instant case. Therefore, we delete the addition of Rs. 73,61,951/- made by the AO towards management services fees and allow the 3rd ground of appeal. 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces, in respect of administrative support services, the ITAT-Mumbai, in its own case for AY. 2012-13 has held that providing administrative support services did not make available of services by the appellant to M/s. Jefferies India Pvt. Ltd. and hence those services were not qualified as fees for technical services. The appellant further submitted that in APA Agreement for AY. 2018-19 onwards and for roll back years upto AY. 2014- 15, the administrative support services were accepted without any mark-up and on cost-to-cost basis. The appellant has also relied upon various decisions to support the argument that providing services on year-to-year basis and routine services for day-to-day administration did not result into make available of services. 6.3.2 From perusal of the order of the ITAT for AY. 2012-13 in appellant s 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 subsidiari ..... X X X X Extracts X X X X X X X X Extracts X X X X
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