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TMI Blog2024 (8) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... the person acquiring the service is able to apply the technology on its own i.e. the recipient acquires a means to an end. This means that the recipient in this situation is able to reproduce and make use of the technical knowledge, etc. by itself in the business or for their own benefit and without recourse to the performer of the services, in future. Make available is akin to the concept of transfer and involves the transfer of technical knowledge, experience, skill, knowhow, or processes to the recipient by the service provider so that the recipient can apply the same on his own. Merely because the rendering of consulting service requires any expertise by the person providing the service would not per se mean that technology has been made available to the service recipient. In the instant case, the assessee has received payment for rendition of consultancy service in the field of organizational strategy, talent, reward and benefits etc. While rendering of such services, the assessee does not transmit any knowledge, skill or technical know-how in a manner that clients/customers are able to perform the aforesaid functions in future on its own without recourse to the service provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal and Stay Application has been filed by the assessee against the order dated 26.06.2023 passed by the AO u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961. 2. Following grounds have been raised by the assessee: Re: Jurisdictional Ground 3. That the directions dated 28.04.2023 passed by the DRP are void ab initio arid non-est as the same have been issued without a valid document Identification Number (DIN) and falls foul of the pre-requisites enunciated by CBDT Circular No. 19/2019 dated 14.08.2019 mandating generation / allotment / quoting of system generated Document Identification Number on all communications/correspondence/order by the Income Tax Department.- Not pressed Payment received as Training and Consultancy Fees being taxed as FIS 4. That the AO/DRP has erred in bringing to tax the receipts of INR 7,18,00,010, received as consultancy and training fees, as being in the nature of Fees for Included Services ('FIS') under Article 12 of the India-USA Double Taxation Avoidance Agreement (DTAA) read with section 9(1)(vii) of the Act 5. That the AO/DRP failed to appreciate that in absence of any make-available , payments received by the Appellant as consultanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitting, that these payments were not in the nature of reimbursement, the same would not partake the character of FIS, as no knowledge/skill/know-how was made available 14. That the AD erred in levying interest under section 234B of the Act. 15. On the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under section 274 read with section 270A of the Act. 3. The assessee company is incorporated under the laws of USA and is engaged in the business of providing consultancy and professional services. During the year, the assessee received an amount of Rs. 5.16 Cr. as product license fee which has been offered to tax as royalty. The amount received as Consultancy fee of Rs. 5.59 Cr., Referral fee of Rs. 1.68 Cr. and General Management charges of Rs. 55.29 lacs have been claimed as non-taxable under India-USA DTAA under the definition of FIS. Training and Consultancy Fees FIS: 4. During the year, the assessee claimed to have offer consultancy services pertaining to organizational strategy, assessment cessation, talent acquisition, leadership professional development, evaluation of Rewards benefits like ESOPs and compensation, payment str ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e development, effective strategies that improve their organizational structures, create attractive rewards and benefits packages, build thoughtful assessment and succession programs and develop current talent and future leadership. 8. The AO concluded by holding that the services enable the clients to perform better in the area of work for development of business in which the assessee had adequate expertise. The AO held that the training has been provided by people who are highly qualified and the services were customized to suit the needs of the people. The AO held that the services provided by the assessee made the clients capable enough to solve the problems on their own. 9. The AO relied on the judgment of the Co-ordinate Bench of ITAT in the case of H.J. Heinz Company, USA in ITA No.6252/Del/2012 and Mersen India Pvt. Ltd. (20 taxmann.com 475 AAR). 10. Aggrieved, the assessee filed appeal before the ld. DRP. The ld. DRP affirmed the action of the Assessing Officer and held that the make available clause has been met. The order of the ld. DRP on this issue is as under: 5.3 The assessee filed reply to the remand report vide letter dated 27/04/2023. The assessee in its rejoinder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case, and accordingly the receipts on this account have been rightly held as FTS taxable as per the Act as well as the DTAA. Consequently, the objections raised in ground number 2 are rejected. 11. Aggrieved, the assessee filed appeal before the Tribunal. 12. During the hearing, the ld. AR relied on the submissions made before the authorities below and the ld. DR supported the orders of the ld. DRP. 13. Heard the arguments of both the parties and perused the material available on record. 14. The relevant extract of India-USA DTAA is as under: Article 12 of India-USA DTAA on Royalties and Fees for Included Services 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, know-how or processes, or consist of the development and transfer of a technical plan or technical design. Thus, in order for a payment to qualify as FIS under the India USA DTAA, the services should be in the nature of technical or consultan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he performer of the services, in future. Make available is akin to the concept of transfer and involves the transfer of technical knowledge, experience, skill, knowhow, or processes to the recipient by the service provider so that the recipient can apply the same on his own. Further, merely because the rendering of consulting service requires any expertise by the person providing the service would not per se mean that technology has been made available to the service recipient. 16. In the instant case, the assessee has received payment for rendition of consultancy service in the field of organizational strategy, talent, reward and benefits etc. While rendering of such services, the assessee does not transmit any knowledge, skill or technical know-how in a manner that clients/customers are able to perform the aforesaid functions in future on its own without recourse to the service providers and hence, the element of make available in absent in such services. The same is clearly evident from the fact that such services are rendered on continuous basis from preceding years. In the present case, assessee is merely providing consulting services such as organizational strategy, talent st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perating a mobile and online services in its capacity as a Global Provider of Mobile Services on software as a Service (SaaS) basis. The assessee has taken access of these services through mResource LLC by making monthly and associated fees as per the terms of agreement. mResource LLC appoints the assessee as distributor of the platform to client companies. As per the term, for the sole purpose of enabling partner to utilization the platform for its own use or on behalf of clients. 20. The AO reproduced the relevant part of the agreement which is as under: C. License to Partner 1. Distribution. Loop appoints Partner to be a non-exclusive distributor of the Platform to client companies described in Addendum I during the Term, for the sole purpose of enabling partner to utilize the platform for its own use, or on behalf of clients or promote the platform with the relevant clients under the Agreement. 2. Distribution Agreement- For the avoidance of doubt, partners agrees to be bound by Loop as to recommended pricing for license and fees payable by clients in consideration for services provided to them arising out of the rights granted to Partner pursuant to clause C. 1 Loop agrees tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ird party software which was integrated into assessee s information technology infrastructure used for rendering services to an Indian company, would be taxable as Fees for Technical Services / royalty' as per relevant DTAA. 23. Aggrieved, the assessee filed appeal before the Tribunal. 24. Before us, it was submitted that the assessee received Rs. 28,76,000/- from Future step Recruitment Services Pvt. Ltd. and Rs. 26,52,000/- from Hay Consultant India Pvt. Ltd. which are the only one subsidiary of the assessee. WE find that the assessee procures services from third parties and relevant costs was passed on to by the assessee to the affiliates benefiting from such services. The assessee paid to the sellers and in turn got the money reimbursed from their associates. Hence, the same cannot be taxed. Even otherwise also, it would not partake the character of fee for inclusive services (FIS) as no knowledge or know-how was made available to the associates. The appeal of the assessee on this ground is allowed. 25. Since, the appeal of the assessee is allowed, the Stay Application filed by the assessee is dismissed as infructuous. 26. In the result, the appeal of the assessee is allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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