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2025 (5) TMI 1488 - AT - Income TaxTaxability of income received from rendering management support services as Fees for Technical Services ( FTS ) under Article 12 of the India-Singapore DTAA - HELD THAT - We find that while deciding a similar issue raised in assessee s own case in Michael Page International Recruitment Private Limited 2022 (7) TMI 1593 - ITAT MUMBAI held that the income earned by the assessee from rendering management support services is not taxable as FTS under the provisions of Article 12(4) of the India-Singapore DTAA. Thus we uphold the plea of the assessee and delete the impugned addition in respect of income earned by the assessee from rendering management support services - Decided in favour of assessee.
The core legal questions considered in this appeal are as follows:
1. Whether the final assessment order dated 09/12/2024 passed under sections 143(3) read with 144C(13) of the Income Tax Act, 1961 is void-ab-initio, illegal, and liable to be quashed. 2. Whether the income earned by the assessee from rendering management support services qualifies as 'Fees for Technical Services' (FTS) under Article 12 of the India-Singapore Double Taxation Avoidance Agreement (DTAA), thereby attracting taxability in India. 3. Whether the Assessing Officer erred in not granting credit for Equalisation Levy (EL) paid by the assessee while computing the tax demand, violating section 144C(13) of the Act. 4. Whether the levy of interest under section 234B of the Act by the Assessing Officer is justified. 5. Whether the proposal to initiate penalty proceedings under section 270A of the Act is justified. Issue-wise Detailed Analysis: Issue 1: Validity of the Final Assessment Order This ground was not pressed by the assessee during the hearing and was accordingly dismissed as not pressed. No further analysis was undertaken by the Tribunal on this point. Issue 2: Taxability of Income from Management Support Services as Fees for Technical Services under Article 12 of the India-Singapore DTAA Relevant legal framework and precedents: The key legal provisions involved are section 9(1)(vii) of the Income Tax Act, 1961, which deals with income deemed to accrue or arise in India by way of fees for technical services, and Article 12 of the India-Singapore DTAA, which governs the taxation of fees for technical services. The pivotal interpretative principle is the 'make available' clause under Article 12(4), which requires that the technical knowledge or skill imparted by the service provider enables the recipient to apply such technology or skills independently in the future. Binding precedents include coordinate bench decisions in the assessee's own case for assessment years 2017-18 and 2018-19, which held that income from management support services does not amount to FTS as the services do not 'make available' any technical knowledge or skill to the Indian entity. Court's interpretation and reasoning: The Tribunal examined whether the management support services rendered by the assessee transferred any technical knowledge, skill, or know-how that enabled the Indian entity to independently provide similar services. It was observed that mere incidental benefits or enduring advantages to the recipient do not satisfy the 'make available' requirement. The Tribunal emphasized that for the 'make available' clause to apply, the recipient must be able to deploy the technology or skills independently after the contract ends. It was noted that the revenue did not allege any transfer of technology or skill. The Tribunal reiterated that in the absence of such transfer, the income cannot be taxed as FTS under Article 12(4). Furthermore, section 90(2) of the Act mandates that treaty provisions prevail if they are more beneficial to the assessee, rendering the domestic provisions of section 9(1)(vii) inapplicable in such circumstances. Key evidence and findings: The assessee's business involves executive search, recruitment, and management support services. The income from management support services was substantial (INR 15,59,23,979). The assessee contended that no Permanent Establishment existed in India and that the services did not transfer technical knowledge. The Assessing Officer and DRP disagreed, treating the income as FTS. However, the Tribunal relied heavily on earlier coordinate bench rulings where similar facts were found in favour of the assessee. Application of law to facts: Applying the 'make available' test, the Tribunal found no evidence that the Indian entity was enabled to provide the same services independently. The technical knowledge or skills were not imparted or absorbed to the extent required to trigger taxability under Article 12(4). Therefore, the income from management support services was held not taxable as FTS under the DTAA. Treatment of competing arguments: The Departmental Representative relied on the AO and DRP orders, asserting the technical nature of services and transfer of skills. The Tribunal rejected this, noting the absence of any factual or legal change since prior favorable decisions for the assessee. The Tribunal also dismissed the argument that the assessee's earlier voluntary taxability of similar income barred the current claim, holding that there is no principle of res judicata in income tax proceedings and each year must be examined on its own merits. Conclusion: The Tribunal upheld the assessee's plea and deleted the addition of INR 15,59,23,979 as FTS income, following coordinate bench precedents. Issue 3: Credit for Equalisation Levy Paid The assessee had paid Equalisation Levy (EL) at 2% on the income from management support services and did not claim any refund. The learned AR submitted that if the income is held not taxable (as per Issue 2), the question of EL credit becomes infructuous. Accordingly, the ground was dismissed as not pressed. Issue 4: Levy of Interest under Section 234B This issue is consequential to the tax demand arising from the addition of income as FTS. Since the addition was deleted, the interest computation under section 234B also requires recomputation. The Tribunal held that this ground does not require separate adjudication. Issue 5: Initiation of Penalty Proceedings under Section 270A The Tribunal found the proposal for penalty premature and dismissed this ground without detailed examination. Significant Holdings: The Tribunal's crucial legal reasoning on the taxability of management support services as FTS is encapsulated in the following verbatim excerpt from the coordinate bench decision for AY 2017-18, which it respectfully followed: "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. We, therefore, hold that that 'make available' clause in the Indo-Singapore tax treaty cannot be invoked on the facts of the present case- as no case is even made out by the revenue that as a result of rendition of these services to the Indian entity, there is any transfer of skill of technology." The Tribunal also firmly established the principle that taxability under the DTAA takes precedence over domestic law if it is more beneficial to the assessee, as per section 90(2) of the Act. Final determinations on each issue:
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