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TMI Blog2025 (1) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. Taxability of reimbursement of expenses as FTS under Article 13(4) of India-UK treaty - As decided in assessee s own case in A.Y. 2012- 13 [ 2023 (3) TMI 1485 - ITAT MUMBAI] we hold that reimbursement of expenses cannot be treated as FTS. Accordingly, we uphold the decision of learned first appellate authority by dismissing the grounds raised. - Shri Saktijit Dey, VP And Ms. Padmavathy S, AM For the Assessee : Shri Nishant Thakkar And Shri Hiten Thakkar For the Revenue : Shri Krishna Kumar ORDER PER BENCH: The captioned appeals by the Revenue and cross objections by the assessee, arise out of separate orders of learned Commissioner of Income Tax (Appeals), Mumbai ( ld.CIT(A) for short), pertaining to the assessment years (A.Ys.) 2018-19 to 2021-22. 2. Since, the appeals relate to the same a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e consideration for such services were recovered from the Indian subsidiary at cost. 8. Before the A.O., the assessee claimed that the consideration received towards provision of administrative support services, is not taxable in India. However, the A.O. was of the view that such services, being in the nature of technical service fee, has to be treated as FTS , hence, has to be brought to tax in India. Accordingly, he issued a show cause notice to the assessee. In response to the said show cause notice, the assessee reiterated its stand that, fees received on account of provision of administrative support service does not fall within the ambit of FTS, as provided under Article 13(4) of India UK Tax Treaty, firstly, because they are not in the nature of technical and consultancy services, and, secondly, assuming them are of such nature, however, while providing such services, the assessee had not made available technical knowledge, experience, skill, knowhow or processes or development of transfer of technical plan or technical design to the service recipient. The assessee further emphasized before the A.O. that the Indian subsidiary had entered into an unilateral Advance Pricing Ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch and trade execution in equity, equity linked and fixed income securities including investment grade corporate bonds, high yield and distressed securities, government and agency securities, markets and asset backed securities, municipal securities, bank loans, leveraged loans and emerging markets depths as well as derivatives and engage in securities financing and commodities derivative trading activities. The group offers companies capital markets merger and acquisition, restructuring and other financial advisory services. The group also provides certain assets management services and products to institutions and other investors. 7. We observe from the record that the Jefferies Group Inc functions in such a way that services of the intragroup companies are shared, executed and utilised by all the group companies in order to service the targeted customers, in this case customers in Indian territory. Based on the above, the assessee has entered intragroup agreement for services between Jefferies India Private Limited (JIPL), Jefferies International Ltd (assessee), Jefferies Co (Jefco) and Jefferies Hong Kong Ltd (JHKL). The latest agreement submitted before us, which is made eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the real activity carried on by the JIPL in the Indian territory and market. We observe from the terms mentioned in the schedule B are: a. JIPL primary activity is to market the corporate finance services provided by JIL, Jefco and JHKL and assistance to promote contact between JIL, Jefco and JHKL and existing as well as potential clients in India. b. Provision of an advisory services to above mentioned intra group companies regarding development within the markets in India. c. Liaising and providing feedback d. Providing assistance, consents or approvals which may be required from regulator agencies to enable any services offered by the intra group companies e. Undertaking due diligence with respect to potential clients or assisting the intra group companies in their performance f. group. Providing other assistance as per requirements to the intra 10. From the above, it is clear that JIPL scope of work and activities are limited to marketing and introduction of clients to intra group in order to facilitate the group object of providing investment banking activities. We also observe from the observation of TPO in the case of JIPL as well as the AR of the assessee submitted itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 link ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsultancy 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 Edenred Pte 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chnical 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 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 12. There being no difference in the factual position, in the impugned assessment years, respectfully following the decision of the co-ordinate bench, as referred above, we decide the issue in favour of the assessee, while upholding the decision of learned first appellate authority. Hence, grounds are dismissed. 13. In ground nos. 4 5, the dispute is with regard to taxability of reimbursement of expenses as FTS under Article 13(4) of India-UK treaty. 14. Briefly, the facts are, in course of the assessment proceeding, the A.O., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction. The Hon ble Supreme Court held in the case of DIT v. AP Moller Maersk (392 ITR 116) SC as under: - 11. Aforesaid are the findings of facts. It is clearly held that no technical services are provided by the assessee to the agents. Once these are accepted, by no stretch of imagination, payments made by the agents can be treated as fee for technical service. It is in the nature of reimbursement of cost whereby the three agents paid their proportionate share of the expenses incurred on these said systems and for maintaining those systems. It is re-emphasised that neither the AO nor the CIT (A) has stated that there was any profit element embedded in the payments received by the assessee from its agents in India. Record shows that the assessee had given the calculations of the total costs and pro-rata division thereof among the agents for reimbursement. Not only that, the assessee have even submitted before the Transfer Pricing Officer that these payments were reimbursement in the hands of the assessee and the reimbursement was accepted as such at arm's length. Once the character of the payment is found to be in the nature of reimbursement of the expenses, it cannot be i ..... 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