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TMI Blog2024 (8) TMI 1424X X X X Extracts X X X X X X X X Extracts X X X X ..... th the appeals are reproduced below; ITA No.784/Del/2023:- 1. On the facts and circumstances of the case and in law, the Ld. AD and the Hon'ble DRP erred in making an addition of INR 23,35,13,560 towards reimbursement of cost for providing IT/Support services considering the same to be taxable in India without appreciating the facts of the case that the amount received by the Appellant is a cost-to-cost reimbursement and there is no income clement embedded in it. 2. On the facts and circumstances of the case and in law, the Ld. AO and the Hon'ble DRP erred in making an addition of INR 23,35,13,560 to the income of the Company on account of reimbursement of cost for providing IT Support services by treating the same as fees for included services (FIS) under Article 12 of the India- USA Double Taxation Avoidance Agreement ('DTAA) 3. On the facts and circumstances of the case and in law, the Ld. AD and the Hon'ble DRP erred in merely assuming that there is make available of technical knowledge by the Appellant to the service recipient and training being provided by the Appellant to the service recipient without bringing any materials on record to substantiate th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ription of the IT related services provided by the Assessee to its AE(s), which are as provided below: a) IT Application services The Company provides support services to Invesco Group companies in relation to various application platforms and their respective systems. The applications used by Invesco Group are substantially procured from third party. An IT Application cost will largely include the cost of applications, cost of maintaining such applications and the cost of team/personnel providing continuous support service to the Invesco Group in relation to various applications. b) IT infrastructure services An IT Infrastructure service cost will include the cost of central servers, data networks, voice networks, central storage, audio visual systems, cost of maintaining such infrastructure and the cost of team /personnel providing continuous support service to the Invesco Group. The Company provides support services by ensuring availability of right infrastructure to Invesco Group companies. c) IT Security services An IT Security team is primarily responsible for cyber security, developing and monitoring security policies, carry out I security audits, take internal a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signed with the Indian AE [Invesco (India) Private Limited], the Assessee was to provide a myriad of IT related Support services to its AE due to a continuing need for assistance in such areas. It shall be pertinent to note that the arrangement as per the MSA was to continue for an indefinite period and for the services provided, the Assessee was compensated via a Service fee being the cost-to-cost reimbursement. It may be noted that by virtue of the MSA the Assessee has been providing its services since 2018 and continues to provide the same till date. As for further reference, the preamble and compensation clause and Annex II to the MSA are reproduced below: "This Agreement is made between Invesco (India) Private Limited (formerly known as Hyderabad IT Support Services Private Limited), (hereinafter referred to as the "Recipient"), a company organised and existing under the laws of India and having its registered address at 15th Floor, Block 6. North Tower, DivyuSree Orion Raidurgam Village. Serilingampally Mandal, Ranga Reddy District. Hyderabad 500 032. Telangana, India; AND Invesco Holding Company (US) Inc. (hereinafter referred to as the "Provider"), a company organ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Recipient The Service Fee shall be determined and allocated to the Parties based on the allocation keys as detailed in the attached appendices. The Provider shall charge the recipient in a currency agreed between the parties. All sums not paid at the due date of payment shall be subject to interest at a rate of the currency LIBOR plus 1%" 2.3 It was specifically pleaded by Assessee, that in the process of provision of IT services, none of its personnel visited India in connection with the rendition of such services. Thus, in the absence of any transfer of technical know-how to its AE(s), the 'make available' clause under Article 12(4)(b) of the India-USA DTAA is not satisfied and hence the case of the Assessee cannot be covered under "Fees for Included Services or FTS as contemplated under the India-USA DTAA. 2.4 However, the AO was not satisfied and framed a Draft Assessment Order u/s 143(3) of the Act vide order dated 21.03.2022. The submission of the Assessee on the amounts reimbursed to it being on a cost-to-cost basis, was rejected by the AO with following observations : "5. The submissions of the assessee have been considered, however, not found to be satisf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d upon by the AO in its Draft Assessment Order. 2.7 The DRP, however, upon considering the submissions of the Assessee, vide order dated 15.12.2022, rejected the same. In this regard, the DRP was of the opinion that the case of the Assessee clearly falls within the ambit of FTS under the Act and the India- USA DTAA. 2.8 Ld. Counsel Sh. Deepak Chopra, submitted that the DRP erred insofar as it observed that the Assessee provides training to personnel of its global AE(s) and the services provided by it includes technical guidance, support including advice for the maintenance of various services and that without such technical guidance and support, such IT services cannot be rendered. Thus the sole issue that arises for consideration in the present case is whether the IT Management and other support services provided by the Assessee could partake the character of a technical service in terms of Article 12(4)(b) of India -USA DTAA. 3. In this regard the relevant extract of Article 12(4)(b) is reproduced below for ease of reference - "ARTICLE 12 ROYALTIES AND FEES FOR INCLUDED SERVICES 1. Royalties and fees for included services arising in a Contracting State and paid to a reside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... skills to its Indian AE(s). In this context we find that the services provided by assessee are routine and most importantly are recurring. 3.3 Now in this regard, admittedly this was a continuing contract and the services were provided year after year since 2018. We thus find substance in the contention of Ld. Counsel that in case technical knowledge was made available to the AEs then such AEs would not have required such services year after year. In our considered opinion, if the assessee had enabled the service recipient to apply the technology on its own, then why would the service recipient require such service year after year every year. The facts on record show that the recipient of the services is not enabled to provide the same service without recourse to the service provider. i.e, the assessee. 3.4 As for this proposition we place reliance on the decision of coordinate bench in the case of Bio Rad Laboratories Inc. v. ACIT, International Taxation - [2023] 149 taxmann.com 342 (Delhi - Trib.) where the bench having considered the fact that agreement was continuing over the years observed as under; "22. In our humble opinion, mere incidental advantage to the recipient of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ireland Limited v. Commissioner of Income Tax & Another [Neutral Citation 2024: DHC: 1910-DB/ wherein it has been held as under- "42. Insofar as the products for SFDC India's internal use were concerned, they stood restricted to those which would enable SFDC India to demonstrate the functionality of SFDC products in trade shows and exhibitions, to train its customers and employees on the use of those products and products to administer and manage customer accounts. None of these aspects would appear to be imbued with a technical hue. Imparting training or educating a person with respect to the functionality and attributes of a software or application would clearly not amount to the rendering of technical service under the DTAA. More importantly, the technical assistance and training which the petitioner proposed to provide was confined to marketing. distribution, support and sale of SFDC products. The assistance and training which Section 4.3 of the Reseller Agreement speaks of was concerned with fields wholly unrelated to providing technical service. 43. Similarly Exhibit B speaks of the products being concerned with assisting the Reseller in the performance of its sales a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable technical knowledge, etc. and not of managerial nature. The reading of the Article clearly indicates that the consultancy service must be which makes available technical knowledge, etc. Sub-para (c) to Article 13(4) restricts such services to those which make available technical knowledge or consist of development and transfer of a technical plan or technical design. Thus, a harmonious reading of the provision of Article 13 in its entirety, clearly establishes the intent of the DTAA in making income chargeable to tax only if the services availed pertain to technical services or consultancy services. Technical services in this context mean services requiring expertise in a technology. By Consultancy Services, in this context, would mean advisory services. The categories of technical and consultancy services are to some extent, overlapping. Under paragraph 4. technical and consultancy services are considered included services only to the following extent: (1) as described in paragraph 4(3), If they are uncillary and subsidiary to the application or enjoyment of a right, property or information for which a payment described in paragraph (3)(4) of Article 13 received: (2) are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en held as under:- "59. We have considered rival submissions and perused the materials on record. From the assessment order, it is discernible that the receipts are in the nature of cost-to-cost reimbursement of payments made to Singapore government. Hence, the receipts did not have any profit element embedded therein. In fact, the Assessing Officer has not disputed the aforesaid factual position. In case of DIT (International Taxation) v. A.P. Moller Maersk AS [2017] 78 taxmann.com 287/246 Taxman 309/392 ITR 186/[2017] 5 SCC 651. the Hon'ble Supreme Court has observed that once the character of the payment is found to be in the nature of reimbursement of expenses without having any profit element embedded therein, it cannot be held to be chargeable to tax. 9. It comes up that the AO has not made any enquiry to rebut the claim of the assessee that the cost incurred by the assessee company for providing IT support services is allocated to its AE's without any element of profit. In this context as we consider the copy of a MSA dated 20.05.2019 as made available on pages 131 to 149 of the paper book alongwith the copies of debit note made available on pages-150 to 153 of the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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