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2023 (5) TMI 544 - AT - Income TaxIncome deemed to accrue or arise in India - Addition in respect of project administration costs as Fees for Included Services (“FIS”) under the India-US Double Taxation Avoidance Agreement (“DTAA”) - HELD THAT:- In the present case, the assessee is a tax resident of the United States of America and therefore is entitled to the benefit of the India-US DTAA. The assessee’s associated enterprise in India, i.e. GSSPL decided to expand its premises by setting up a new campus in Bangalore, and in this connection, GSSPL entered into an agreement with a developer for the development of a new campus. With effect from 01/04/2012, the assessee entered into Campus Project Services Agreement with GSSPL, whereby the assessee agreed to render the following Campus Project Services to GSSPL. Whether the income received by the assessee falls within the ambit of FTS/FIS? - As it is relevant to examine the services rendered by the assessee in respect of which said income is received and whether the said service satisfies the conditions laid down under the provisions of the Act/DTAA. We are of the considered view that merely because the assessee has accepted the amount to be in nature of FTS/FIS, the other payment for Campus Project Services cannot be treated as FTS/FIS without the examination of each and every service, particularly when the details pertaining to same are available on record. Adoption of such a broad brush approach without examination of each and every service rendered by the assessee can also lead to a situation where overall the services may appear to be not falling within the ambit of FTS/FIS but a standalone examination of each service may lead to a different conclusion. Since the assessee is a tax resident of the United States of America and is entitled to the benefit of India-US DTAA, therefore before proceeding further it is relevant to examine the relevant provisions of the DTAA for deciding the issue at hand. In the present case, apart from merely using the terminology “made available”, the Revenue has not brought any instance on record where GSSPL was shown to have used such information without depending upon the assessee. The fact that the assessee continued to receive payment for similar services, on a recurring basis, under the Campus Project Services Agreement in the subsequent assessment years also justifies the claim of the assessee that no technical knowledge, experience, skill, or know-how has been made available to GSSPL. Even if we examine the aforesaid services, in respect of which the assessee received a total payment we find that the same pertains to document handling and printing charges; assistance and support in estimating, scheduling, cost engineering and related control functions; review of kitchen design; review of acoustical design; review of security consultants, parking area, security recommendations; preparation of work schedule; project administration services; procurement services; project pre-development management; project management services, administrative assistance and construction management services; legal services and telecommunications services, which can neither be said to be made available to the recipient nor can consist of development and transfer of any technical plan or a technical design. Therefore, we are of the considered opinion that the aforesaid services do not fall within the ambit of FIS as per Article 12(4) of the India-US DTAA and thus the amount received by the assessee is not taxable under Article 12(4) of the India-US DTAA. As a result, grounds no.1-2 raised in assessee’s appeal are allowed. Addition on account of market data charges as Royalty under Article 12 of the India-US DTAA - HELD THAT:- We find that the term “Royalty” as defined in the India-US DTAA is worded similarly to India-Swiss DTAA, which was under consideration in the aforesaid decision. From the record, it is evident that the payment is in respect of usage of the database of the third-party vendors, which was later on recovered by the assessee from the associated enterprises. Therefore, once the payment made for the usage of the database does not fall within the ambit of Royalty, recovery of costs by the assessee from the associated enterprises for the usage of the database cannot also result in Royalty in the hands of the assessee. In any case, in the present case, it has not been disputed by the Revenue that the payment received by the assessee is in the nature of reimbursement of cost and therefore we are of the considered opinion that the same cannot be chargeable to tax. Thus, in view of the aforesaid findings, we direct the AO to delete the addition in respect of the recovery of market data charges. As a result, ground No. 3 raised in assessee’s appeal is allowed.
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