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2022 (12) TMI 1567 - AT - Income TaxIncome deemed to accrue or arise in India - addition made on account of fees received by the assessee for providing business support services by bringing the same in the ambit of Fee for Technical Services - Scope of make available clause - assessee provides business support services to Michael Page International Recruitment Pvt. Ltd. in pursuance to the intercompany agreement HELD THAT - The facts in the impugned assessment year are identical to the facts in 2017- 18 2022 (7) TMI 1593 - ITAT MUMBAI The Revenue has not brought before us any contrary material therefore we see no reason to take a different view. Following the order of Co-ordinate Bench in assessee s own case on identical set of facts we hold that the addition made by Assessing Officer on account of fee for technical services is unsustainable and hence directed to be deleted for parity of reasons. Thus ground No. 1 of appeal is allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal are: (a) Whether the fees received by the assessee from its Indian Associated Enterprise (AE) for business support services and referral fees constitute "Fees for Technical Services" (FTS) under Article 12 of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore, particularly in light of the "make available" clause? (b) Whether the Assessing Officer was justified in initiating penalty proceedings under section 270A of the Income Tax Act, 1961, given the facts of the case? 2. ISSUE-WISE DETAILED ANALYSIS Issue (a): Taxability of Business Support Services Fees as Fees for Technical Services under the DTAA Relevant Legal Framework and Precedents: The taxation of fees for technical services is governed by section 9(1)(vii)(c) of the Income Tax Act, 1961, read with Article 12(4) of the India-Singapore DTAA. The DTAA includes a "make available" clause, which requires that technical knowledge, experience, skill, know-how or processes be made available to the recipient of the services for the fees to be classified as FTS and thus taxable in India. Judicial precedents, including the decision in Shell Global International Solution BV vs. ITO, emphasize that mere incidental benefits or managerial support do not satisfy the "make available" test. The recipient must be enabled to apply the technology or skills independently after the service contract ends. The transfer of technology or skill must be substantive and enduring. Court's Interpretation and Reasoning: The Tribunal examined the intercompany agreement dated 01/01/2012, which defined the scope of services as management support, administrative support (including finance, personnel, learning and development services), marketing and internet support, routine ad hoc local operational support, and any additional mutually agreed services. The services were business support in nature rather than technical or consultancy services that transfer technology or technical know-how. The Tribunal noted that in the immediately preceding assessment year (2017-18), the Assessing Officer had made a similar addition treating such fees as FTS under the "make available" clause. However, the Tribunal had held that the "make available" clause was not satisfied, as the services did not transfer technical knowledge or skills enabling the Indian AE to provide similar services independently. The Tribunal emphasized that the revenue failed to demonstrate any transfer of technology or know-how, and the benefit to the Indian AE was incidental and managerial rather than technical. Applying the same reasoning to the current assessment year (2018-19), the Tribunal found the facts identical and no contrary evidence provided by the Revenue. Therefore, it followed the precedent and held that the fees received for business support services did not constitute FTS under the DTAA. Key Evidence and Findings: The intercompany agreement clearly delineated the nature of services as business and administrative support rather than technical services. The Tribunal relied on the absence of any evidence showing transfer of technical knowledge or skills. The Revenue did not produce any new material to distinguish the current year facts from the previous year. Application of Law to Facts: The Tribunal applied the "make available" clause test strictly, ruling that since the Indian AE was not enabled to use any technical knowledge or skill independently post-service, the fees could not be treated as FTS. Consequently, the receipts were not taxable in India under section 9(1)(vii)(c) or Article 12 of the DTAA. Treatment of Competing Arguments: The Revenue argued that the services rendered fell within managerial and consultancy services and thus satisfied the "make available" clause. The Tribunal rejected this, relying on the prior ruling for the preceding year and the absence of any transfer of technology or know-how. The Tribunal also addressed the Revenue's contention regarding the assessee's prior tax treatment of similar income by noting that there is no principle of res judicata in income tax proceedings, and prior voluntary inclusion of income does not preclude lawful claims of non-taxability on merits. Conclusion on Issue (a): The Tribunal held that the addition made by the Assessing Officer treating the fees for business support services as FTS was unsustainable and directed deletion of the addition. The fees did not satisfy the "make available" clause under the DTAA and thus were not taxable as FTS in India. Issue (b): Initiation of Penalty Proceedings under Section 270A Relevant Legal Framework: Section 270A of the Income Tax Act provides for penalty for concealment of income or furnishing inaccurate particulars of income. The applicability depends on whether there is any addition or disallowance of income that is attributable to such concealment or inaccuracy. Court's Interpretation and Reasoning: Since the Tribunal deleted the addition on merits, the foundation for penalty proceedings under section 270A fell away. The Tribunal observed that none of the provisions of section 270A were attracted in the facts of the case once the addition was deleted. Application of Law to Facts: With the deletion of the addition, the penalty proceedings became infructuous and were dismissed accordingly. Conclusion on Issue (b): The Tribunal dismissed the ground challenging penalty proceedings as infructuous following the deletion of the addition. 3. SIGNIFICANT HOLDINGS The Tribunal made the following crucial legal determinations: "Clearly, therefore, unless the recipient of the services, by virtue of rendition of services by the assessee, is enabled to provide the same services without recourse to the service provider, the services cannot be said to have made available the recipient of services. A mere incidental advantage to the recipient of service is not enough. The test is the transfer of technology, but then it is not even the case of the revenue that there is a transfer of technology, and what is highlighted is the incidental benefit to the assessee, which is treated as an enduring advantage. As observed in the binding judicial precedents referred to above, in order to invoke "make available" clause, "to fit into the terminology "making available", the technical knowledge and skill must remain with the person receiving the services even after the particular contract comes to an end" and "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 upon the provider". Technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. In our considered view, that condition is not satisfied on the facts of the present case." Core principles established include:
Final determinations:
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