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2023 (9) TMI 685 - AT - Income TaxIncome taxable in India - taxability of receipts from business support services as Fee for Technical Services (FTS) under Article 13 of India – France Double Taxation Avoidance Agreement (DTAA) read with paragraph 7 of its Protocol read with Article 12(4)(a) of India – Portugal DTAA - assessee’s claim of benefit under MFN [Most Favoured Nation] clause in terms of paragraph 7 of Protocol to India – France DTAA and more restricted definition of FTS as per Article 12(4) of India – Portugal DTAA would apply to the disputed receipts - Whether receipts will not fall in clause (a) of Article 12(4) of India-Portugal tax treaty? - HELD THAT:- The business support service fee received by the assessee from the Indian entity cannot be considered to be ancillary and incidental to the royalty paid by the Indian entity to another group affiliate. Meaning thereby, the business support service fee under no circumstance can be covered under Article 12(4)(a) of India – Portugal DTAA. Thus, in our view, learned first appellate authority has completely misconceived the facts while concluding that the fees are in the nature of FTS under Article 12(4)(a) of India – Portugal DTAA. The judicial precedents cited before us by learned counsel for the assessee support this view. Therefore, we reverse the decision of learned first appellate authority on the issue. Whether the fee received by the assessee can be covered under Article 12(4)(b) of India – Portugal DTAA ? - After considering the nature of services, mode and manner in which services were rendered and various other aspects, it is observed that the test of make available condition under Article 12(4)(b) of India – Portugal treaty has not been satisfied. In fact, no material has been brought on record by the Revenue to establish that while rendering management services, the assessee has made available technical knowledge, know-how, skill etc. to the service recipient, which has enabled the service recipient to acquire the technical knowledge, know-how, skill etc. so as to enable it to apply them independently in future without requiring the aid and assistance of the assessee. As on analyzing the nature of services provided by the assessee under the agreement, it is very much clear that the services are provided on regular day-to-day basis for utilizing in various business operations of the assessee. It is further evident, the assessee has been rendering such services on regular basis and these are not one time services, which once availed, are to be used by the service recipient for their future purpose. Since, the Revenue has failed to demonstrate before us that in course of rendition of services, the assessee has made available technical knowledge, knowhow, skill etc. to the recipient of service, we are unable to upheld the nature and character of receipt as FTS, even under Article 12(4)(b) of India – Portugal DTAA. Thus, in our view, the amount cannot be treated as FTS under the treaty provisions. Amount constituting reimbursement of expenses on cost to cost basis - We direct the Assessing Officer to examine the nature and character of reimbursement of expenses keeping in view the additional evidences and various other evidences filed by the assessee and determine whether such amount qualifies as FTS under Article 12(4) of India – Portugal DTAA. However, before deciding the issue, the assessee must be provided a reasonable opportunity of being heard. Ground no. 2 is partly allowed.
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