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TMI Blog2024 (9) TMI 1506X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 115A Main argument of the assessee was that merely providing highly complicated services, as understood by Revenue and the same having nexus with the compensation received by it, by itself will not result in taxing such receipts as fees for included services unless it satisfies the definition of FIS under DTAA between India and USA - HELD THAT:- We are in agreement with the arguments of ld.counsel that in order to constitute a receipt fees for included services [FIS] under Article 12 of India-US DTAA, services rendered must make available technical knowledge, expertise, skill, know how or processes or consist of the development and transfer of a technical plan or technical design. These services rendered by assessee to its sister concern and compensation received on account of the same does not fall in these typical categories mentioned in paragraph 4(b) which includes making technology available nor to be taxable under Article 12 of the tax treaty as FIS, the payment should fit into the terminology make available wherein the technical knowledge, skill etc., must remain with the person receiving the services even after the particular contract comes to an end. Want to back of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent : Shri Nilay Bara Som, CIT ORDER PER MAHAVIR SINGH, VICE PRESIDENT: These three appeals by the assessee in ITA Nos.259, 261 262/CHNY/2023 are arising out of the final assessment orders passed by the Assistant Commissioner of Income Tax, International Taxation Circle 2(2), Chennai vide orders of even date 06.01.2023 in pursuant to the directions of the Dispute Resolution Panel-2, Bengaluru vide directions of even date 19.12.2022 for the assessment years 2014-15, 2016-17 2017-18. The appeal by the assessee in ITA No.260/CHNY/2023 for the assessment year 2015- 16 is arising out of the order of the Commissioner of Income Tax (International Taxation), Chennai passed u/s. 263 of the Income Tax Act, 1961 (hereinafter the Act ) vide order dated 06.01.2023. The assessee has also filed stay applications seeking stay of outstanding demand for the assessment years 2014-15, 2016-17 2017-18. ITA No.259/CHNY/2023 2. At the outset, the ld.counsel for the assessee stated that, first of all, he is arguing on merits and thereafter he will argue on the issue of validity of reassessment proceedings i.e., jurisdictional issue. The ld.counsel for the assessee drew our attention to the following Groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided by the company were not taxable in India under the provisions of the Act and under the India-USA Double Taxation Avoidance Agreement. The AO issue show-cause notice dated 17.02.2022 requiring the assessee to show-cause as to why the said sum of Rs. 1,26,58,51,703/- being receipts from remittances during the relevant financial year 2013-14 relevant to this assessment year 2014-15 were not offered to tax in the return of income and why it should not fall under the category of fee for included services [FIS] under the Act and the India-USA tax treaty. The company replied vide letter dated 28.02.2022 stating that the service provided by the company is not taxable as FIS under Article 12 of the India-US Tax Treaty and reiterated that it cannot reconcile the amount merely on the basis of exact data of Form No.15CA filed by the payer entity. The assessee vide response dated 25.03.2020 inter-alia stated the following:- It is not possible to reconcile merely based on the extracts of remittance data filed by the Indian payer entities with its banker(s) unless it is provided with complete/necessary details/documents in relation to such remittances. The details of remittances are filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjection of the assessee that the payments received by it cannot be treated as 'fee for included services' under Article2(4)(a) USA DTAA cannot be accepted and assessee s objection in this regard is not accepted. Aggrieved, now assessee is in appeal before the Tribunal. 4. We have heard the rival contentions and gone through the facts and circumstances of the case. We noted that the assessee is engaged in the business of designing, engineering, and manufacturing systems for various automotive clients as well as rendering IT support services. The assessee company entered into an IT support services agreement to provide routine operational and maintenance support services. The Assessing Officer while preparing assessment order taxed the receipts from remittances received on account of services provided by the company amounting to Rs. 1,26,58,51,703/- was brought to tax despite claimed by the assessee that services provided by the company is not taxable as FIS under Article 12 of the India-US Tax Treaty and also reiterated that these receipts could not be reconciled merely on the basis of exact data of Form No. 15CA filed by the payer entity. The DRP also rejected the claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable to use of the Services as set forth in this agreement or any Service Description Schedule. VASI will not, and will ensure that each of the other Service Recipients do not, resell any Services, act as a service desk, make the Services available to any third parties, or otherwise use all or any portion of the Services in any way other than in connection with the conduct of the Business in the ordinary course of business. (b) Performance of Excluded Services VASI will, at its sole cost and expense, perform (or cause to be performed) all Excluded Services that are necessary to the continued operation of the Business or performance of the Services. Notwithstanding anything in this Agreement to the contrary, Visteon will have no obligation to perform (or cause the Visteon Service Providers to perform) any Service to the extent that such Service is dependent in any respect upon the performance of an Excluded Service that a Service Recipient fails to perform (or fails to cause to be performed). (c) Correction of Processing Errors VASI is responsible for, and will cause the other Service Recipients to assume responsibility for: (i) the accuracy and completeness of all data of inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the enhancement is performed across Visteon's or a Visteon Service Provider's system), in a manner consistent with past Practices of Visteon and/or the applicable Visteon Service Provider or, if past practices are not relevant, in a manner consistent with current practices of Visteon and/or the applicable Visteon Service Provider, and appropriately upgrade or enhance such equipment, software, and operational features maintained or controlled by the Service Recipients, as may be necessary to remain compatible with any systems used by Visteon and/or the applicable Visteon Service Provider as of and after the Effective Date in connection with providing the Services in a manner consistent with provision of such Services before Effective Date. The ld. Counsel further took us through the Clause 9 of the services agreement, wherein ownership of the intellectual property are described in Clause 9, which reads as under: 9. Ownership of Intellectual Property and IT-Assets 9.1 Intellectual Property (a) Any Intellectual Property owned by Visteon or any Visteon Service Providers, or third- party licensors or other service providers that may be operated or used by Visteon or any Visteon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agreement. 5. The ld.Counsel also took us through page nos. 140 to 150 of assessee s paper book, wherein in the services agreement, various services are described in Exhibit A- IT Services Description , in this services including Engineering IT Services, Business application services, Manufacturing IT solutions services, Data management services, End user computing services, Central IT support, Security services, Network services, Server services, Telecom services, IT staff support services, and consequently fees and expenses, how these are to be determined. The ld.Counsel drew our attention to the Appendix A, wherein usage of business applications and their functionalities are described at Pages 156 to 158 and in Appendix C Responsibility chart as enclosed at pages 160 to 163 of assessee s paper book. The ld.Counsel also drew our attention to Exhibit B-Services Agreement for IT Projects, which is enclosed in assessee s paper book at pages 164 to 170 and further, copies of invoices are also enclosed. 6. In view of the above, ld.Counsel first of all took us through the Indo-US DTAA, which is enclosed at Pages 88 to 108 of assessee s paper book and referred Article 12(4), which reads ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al engineering); 2. Architectural services; and 3. Computer software development. Under paragraph 4(b), technical and consultancy services could make technology available in a variety of settings, activities, and industries. Such services may, for examples, relate to any of the following areas: 1. Bio-technical 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. 7. We have heard rival contentions and gone through facts and circumstances of the case. We noted that the AO while passing draft assessment order u/s. 144C of the Act, proposed addition on account of receipts from remittances during financial year 2013-14 relevant to this assessment year 2014-15 on account of providing IT support services, maintenance services, etc., to its sister concerns in India for the reason that the operations of the assessee company is highly complicated and systems have been codified and methods to be adopted as per business need. The AO has not accepted the assessee s expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... com Services and IT Staff Support Services, services rendered under Other heads is in the nature of Technical services and fall under the category of Fees for Technical Services under section 9(1)(vii)(b) of the IT Act, 1961 and as Fees for Included Services as per Article 12(4) of the India-US DTAA as the services rendered, as seen above, satisfied the make available clause. 8. We noted that the DRP simpliciter confirmed the action of AO by observing that the assessee has not been able to demonstrate that the services rendered do not lead to make available technical knowledge, experience, skill, know how or process to the assessee. Further, there is no information on what was the nature of services rendered and the information contained therein have to be head as fees for included services as per Article 12(4)(a) of the Indo-USA DTAA. Hence, the panel confirmed the action of the AO in treating the payments received by the assessee during the year under consideration as fees for technical services u/s. 9(1)(vii)(b) of the Act and fee for included services under Article 12(4)(a) of the Indo- USA DTAA. Finally, the DRP held that the claim of assessee that such services were not made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comes to an end. Want to back of that, in the present case there is no such clause in the service agreement which we have gone through and substantially reproduced in our order. The nature of services provided by assessee which the company merely centralizes the IT related services to achieve a standardized IT environment and payment towards access to developed standard business / engineering applications, data management by providing disaster recovery / back up services, helpdesk support services, user administration, maintenance of IT infrastructure support services, telecom services do not make available any technical knowledge, experience, skills, etc., to the recipient, since the recipient cannot at any time independently manage the IT environment and requires continuous re-course to the company for the said services. Hence the service provided by the assessee company do not fall within the ambit of fee for included services as defined under Article 12 of India US DTAA and hence, not taxable in India. 10.1 Admittedly, the assessee is a non-resident and having no PE in India. We have gone through the decision of Hon ble Karnataka High Court in the case of CIT vs. De Beers India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendering of such technical services by the service provider, whether the recipient is enabled to use the technology which the service provider had used. Therefore, unless the service provider makes available his technical knowledge, experience, skill, know-how or process to the recipient of the technical service, in view of the clauses in the DTAA the liability to tax is not attracted. and finally at para 31 held as under:- 31. Therefore, the assessees not being possessed with the technical knowhow to conduct this prospecting operations and reconnaissance operations, engaged the services of Fugro which is expert in the field. By way of technical services Fugro delivered to the assessees the data and information after such operations. The said data is certainly made use of by the assessees. Not only the said data and information was furnished in the digital form, it is also provided to the assessees in the form of maps and photographs. These maps and photographs which were made available to the assessees cannot be construed as technology made available. Fugro has not devised any technical plan or technical design. Therefore, the question or Fugro transferring any technical plan or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., vs. ADIT reported in [2022] 135 taxmann.com 173, wherein the Delhi Tribunal noted that the assessee company entered into an agreement with the Indian company to provide off-shore maintenance and support services. As per agreement, the assessee s broad scope of work was to provide off-shore maintenance and support services from outside India and no part of services was defined under the agreement were rendered by the assessee from India. The Tribunal in these facts, held as under:- 27. From the above explanation provided in the MOU that forms an integral part of tax treaty that service only, if it makes available technical knowledge, experience, skill, know-how or processes to the service recipient. The receiver of this service can be said to acquire the relevant skills used by service provider only if he acquires those skills in such a way that he can himself use them independently without getting any assistance or being dependent on the service provider in future. 28. The facts of the present case clearly show that the offshore maintenance and support services provided by the assessee PGCIL are not geared towards making available any technical knowledge, experience, skills, kno ..... X X X X Extracts X X X X X X X X Extracts X X X X
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