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2021 (10) TMI 354 - AT - Income TaxTDS u/s 195 - Disallowance of management fee paid by invoking the provisions of section 40(a)(i) - whether payment of management fees cannot be regarded as fees for technical services as per the DTAA between India and the U. K. - only reason given by the DRP to hold the payment under the Management Services agreement as fees for technical services is that the said services are ancillary and subsidiary to the enjoyment of the property for which the payment by way of royalty has been made - HELD THAT:- As the test of the object being common is not decisive of the fact that the Management Services agreement is ancillary or subsidiary to the enjoyment of the rights under the License Agreement. The DTAA between India and USA is also similarly worded. As per the Memorandum of Understanding which forms part of the said DTAA, the test of the services being ancillary and incidental to enjoyment of rights under the license agreement would be based on fulfilment of defined conditions. Since none of the aforesaid tests, have been fulfilled in the present case, agreement towards Management Services cannot be regarded as ancillary and subsidiary to enjoyment of the property under the License Agreement. In the preset case we are concerned with deduction of tax at source under section 195 of the Act where the obligation arises only when the sum is chargeable to tax under the Act. For ascertaining chargeability to tax reference to the relevant DTAA is essential - we hold that the assessee’s services were managerial in nature and not technical services. Hence, the assessee is not liable to deduct TDS on the same. The disallowance proposed by DRP and made by AO is deleted. This issue of assessee’s appeal is allowed. Disallowance u/s 37(1) of the Act in respect of payment of management fees and information technology (IT) charges - HELD THAT:- Assessee as well as learned CIT DR agreed that the disallowance of management fee and IT charges u/s 37 of the Act has been accepted in other years and there is no dispute about it. Further, to the extent the position is accepted by the CBDT in the Unilateral Advance Pricing Agreement (UAPA) as payment on the Arm’s Length Basis the deduction cannot be denied. Both learned Counsel as well as learned DR agreed that this matter can be referred to the file of the AO for verification whether this is accepted by UAPA as payment on Arm’s Length basis. Hence, this issue is restored back to the file of the AO. Short grant of TDS credit - HELD THAT:- Both learned counsel for the assessee learned CIT DR agreed that this can be sent back to AO for verification and assessee will produce the relevant certificates of TDS before AO and accordingly, the AO will allow the claim of assessee.
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