2025 (5) TMI 711 - AT - Income Tax

Income deemed to accrue or arise in India - Taxability of income earned by the assessee from maintenance services and training services as Fees for Technical Services ( FTS ) - Entitlement to benefits of the India-Singapore DTAA - assessee have any permanent establishment in India under Article 5 or not? - HELD THAT - A similar issue in assessee s own case 2023 (5) TMI 1043 - ITAT MUMBAI after considering the relevant clauses of the agreement held that maintenance services and training services provided by the assessee to the Indian customers do not fall within the ambit of FTS under Article 12 of the India-Singapore DTAA as the services do not make available any technical skills knowledge or expertise etc. which enables the Indian customers to apply the technology contained therein and therefore the income of the assessee from rendering the services is not taxable in India. Decided against revenue.

Summary

The core legal questions considered by the Tribunal pertain to the taxability of income earned by a Singapore-incorporated assessee from maintenance services and training services provided to Indian clients, specifically whether such income constitutes Fees for Technical Services (FTS) under Article 12 of the India-Singapore Double Taxation Avoidance Agreement (DTAA) and whether the assessee has a Permanent Establishment (PE) in India under Article 5 of the DTAA, thereby attracting taxation under section 9(1) of the Income Tax Act, 1961.

The primary issues can be summarized as follows:

• Whether the assessee is entitled to benefits under the India-Singapore DTAA, particularly the exclusion of income from maintenance and training services from FTS classification due to absence of PE in India.
• Whether the receipts from maintenance and training services qualify as Fees for Technical Services under Article 12 of the DTAA and are taxable under section 9(1) of the Income Tax Act.

The Tribunal's detailed analysis on these issues is as follows:

Legal Framework and Precedents: The Tribunal examined the provisions of Articles 5, 7, and 12 of the India-Singapore DTAA. Article 5 defines the concept of Permanent Establishment, Article 7 deals with business profits attributable to PE, and Article 12 defines Fees for Technical Services, focusing on whether technical knowledge, experience, or skill is made available to the service recipient. The Tribunal also relied heavily on a coordinate bench decision in the assessee's own case for the assessment year 2018-19, which dealt with identical facts and legal issues.

Court's Interpretation and Reasoning: The Tribunal noted that the assessee is a Singapore-based company engaged in sub-licensing software and providing maintenance and training services to Indian clients. The services included telephone and email assistance, remote login support, basic training on software usage, and software updates related to error corrections and improvements. The Tribunal emphasized that the assistance was limited to troubleshooting and support without transferring any proprietary technology or know-how to the Indian clients.

The Tribunal interpreted Article 12 of the DTAA strictly, focusing on whether the services rendered made available any technical knowledge or expertise enabling the Indian customers to apply the technology independently. It was found that the maintenance and training services were support-oriented, with Indian clients having their own in-house IT teams who coordinated with the assessee. The services did not confer any transferable technical skill or knowledge to the clients.

Key Evidence and Findings: The Tribunal scrutinized the agreements between the assessee and Indian customers, the nature of services rendered, and the operational facts such as absence of any onsite maintenance team or PE in India. It was noted that the Indian customers had their own internal IT support teams, and the assessee's role was limited to assisting these teams in troubleshooting software issues. Training was limited to basic usage instructions rather than imparting technical expertise. Software updates were standard and did not involve customization or enhancement of functionalities.

Application of Law to Facts: Applying the DTAA provisions, the Tribunal concluded that the maintenance and training services did not amount to FTS as per Article 12 because the services did not make available any technical knowledge or expertise to the Indian clients. Consequently, the income from these services could not be taxed as FTS in India. Further, since no PE existed in India under Article 5, the income was not taxable as business profits under Article 7. The Tribunal thus upheld the CIT(A)'s deletion of the addition made by the Assessing Officer treating such income as taxable FTS.

Treatment of Competing Arguments: The Revenue contended that the services were technical in nature and made available technical knowledge to Indian clients, thus attracting tax as FTS. The Assessing Officer emphasized onsite training and technical expertise involved. However, the Tribunal found these arguments unconvincing in light of the evidence and the coordinate bench's precedent. The Tribunal observed that the services were routine support and training related to software usage, not the transfer of technical know-how or expertise, and no PE existed in India. The Tribunal respectfully followed the coordinate bench ruling, finding no change in facts or law to warrant deviation.

Conclusions: The Tribunal concluded that the income from maintenance and training services does not constitute Fees for Technical Services under the India-Singapore DTAA and is not taxable in India in the absence of a PE. The deletion of the addition made by the Assessing Officer was upheld. This conclusion was uniformly applied to the assessment years 2015-16, 2016-17, and 2017-18.

Significant holdings from the Tribunal include the following verbatim excerpts and principles:

"Such assistance is by responding to reasonable questions communicated by the in-house support team concerning the use of software programme and resolving the discovery of bug in respect of software supplied by the assessee... The in-house support team of the Indian customers is mainly a centralized point of contact for purpose of co-ordination... Since, the role of in-house support team involves coordinating... the personnel in such In-House support team / IT team need to be competent to know how to use the software program to be able to effectively explain the query / bug to MSEA which would then enable MSEA to identify the issue and resolve the same."

"The assessee company provides training to the end users and in-house team members of the Indian customers only with respect to the proper usage of the program... Apart from that, as a part of maintenance services, assessee also provides updates... There is no addition in the functionalities through such update which are only standard updates and not customization."

"If it is of recurring annual fees, there is no question that assessee was making available any technology or knowhow of the Indian customers on year to year basis... If there is any bug or problem faced by the customers while using the software, assessee provides trouble shooting to fix those bugs... This does not mean that assessee had made available any technology in software."

"Such maintenance support services and training services do not fall in the ambit and nature of FTS within Article 12(4) of India-Singapore DTAA, as these services do not make available any technical skill knowledge or expertise etc., which can enable Indian customer to apply the technology content therein."

The Tribunal established the core principle that routine maintenance and basic training services that do not transfer technical knowledge or expertise enabling the application of technology by the service recipient do not constitute Fees for Technical Services under the India-Singapore DTAA. Furthermore, the absence of a Permanent Establishment in India precludes taxation of such income as business profits under the DTAA.

In final determinations, the Tribunal dismissed the Revenue's appeals for the assessment years 2015-16, 2016-17, and 2017-18, upholding the CIT(A)'s orders deleting the additions made on account of treating receipts from maintenance and training services as taxable FTS. The Tribunal's decision is grounded on consistent application of the DTAA provisions, factual matrix, and binding coordinate bench precedent in the assessee's own case.