TMI Blog2020 (7) TMI 644X X X X Extracts X X X X X X X X Extracts X X X X ..... rges and allow ground of appeal of assessee. Claim of management service fees made by the appellant as non-taxable - HELD THAT:- We find that the services provided under the management agreement broadly include (i) consultancy services to support the sales activities of Surf Gold, (ii) legal services, (iii) financial advisory services and (iv) human resource assistance. There is no dispute here that under the provisions of section 9(1)(vii) of the Act, rendering of management services will be taxable as FTS. However, Edenred, by virtue of section 90(2) of the Act, is eligible to rely on the provisions of the India-Singapore DTAA, should the same be more beneficial than the provisions of the Act. In this regard, we fruitfully rely on the judgment in the case of New Skies Satellite BV Ors [ 2016 (2) TMI 415 - DELHI HIGH COURT ] wherein it is held that provisions of DTAA shall prevail over the provisions of the Act, if they more beneficial. As per the India-Singapore DTAA, the services in the nature of managerial, technical or consultancy nature are taxable as FTS if such services are made available to the service recipient. We find that in the instant case, the man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Samaiya And Mr. V. Vinod Kumar, DRs ORDER PER N.K. PRADHAN, A.M. The captioned appeals filed by the assessee are directed against the order u/s 143(3) r.w.s. 144C(13) of the Income Tax Act 1961 (the Act ) dated 10.01.2014 passed by the Dy. Director of Income Tax (International Taxation)-3(2), Mumbai (hereinafter the AO ). As common issues are involved, we are proceeding to dispose them off through a consolidated order for the sake of convenience. We begin with the AY 2010-11 2. The grounds of appeal filed by the assessee read as under: On the facts and circumstances of the case and in law, the AO, as per the direction of DRP has: 1. erred in assessing total income at ₹ 2,09,18,639/- as against NIL returned income; 2. erred in considering infrastructure data centre charges of ₹ 95,62,479/- to be taxable as royalty under the Act as well as under India-Singapore Double Taxation Avoidance Agreement (DTAA); 3. erred in considering management services fees of ₹ 73,61,951/- to be taxable as FTS under India-Singapore DTAA; 4. erred in considering referral fees of ₹ 39,94,209/- to be taxable as royalty under the Act as well as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )] : IDC Services ; Management Consultancy Services ; Referral Services for regional customers. During the course of assessment proceedings, the appellant submitted before the AO that during the year under consideration, it had entered into IDC agreement with its Indian group companies [EPIL; RID ; SurfGold]. In the return of income, the appellant claimed non-taxability of revenues from Infrastructure Data Centre ( IDC ), Management Services and Referral Services by claiming benefit under Article 12 of the India-Singapore Double Taxation Avoidance Agreement ( DTAA ). The summary of the revenues claimed by the appellant as non-taxable is as under: Nature of transaction Amount in Rs. EIPL RID SurfGold Total IDC charges 31,70,166 35,20,225 28,72,088 95,62,479 Management Service Fees NIL NIL 73,61,951 73,61,951 Referral Fee NIL NIL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered into Infrastructure and Hosting Data Centre (IDC) agreements with its Indian group companies and has received revenues from them and under the said IDC agreement the appellant essentially provides IT infrastructure management and mail box/website hosting services to its Indian group companies and these IDC services are performed by the appellant s personnel in Singapore. It is stated that the Indian group companies directly remit IDC service payments towards appellant s bank account in Singapore. Elaborating further, the Ld. counsel submits that (i) IDC is an ISO 27001 certified data centre owned by Edenred Pte. and located in Singapore ; IDC services are provided using the IDC and IT/security team in Singapore; (ii) IDC server is a metal hardware with no computing power ; it is connected to network devices (such as router, switch etc.) by using cables ; IDC server is then configured and loaded with critical programs; users are able to access the applications after firewall is configured ; (iii) IDC by itself cannot process data, it can only host websites, web applications, firewalls, mail boxes etc. It is further stated that the services under IDC agreement are classif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2012) 33 CCH 0261; M/s Vishwak Solutions Pvt. Ltd . (ITA Nos. 1935, 36/Mds/2010, CO No. 187/Mds/2013 ITA Nos. 67 1634/Mds/2012) dated 30 January 2015. Reliance is further placed on the decision in Bharati Axa General Insurance Co. Ltd . 326 ITR 477 (AAR); Standard Chartered Bank v. DDIT (International Taxation) (2011) 11 ITR 721; ExxonMobil Company India (P.) Ltd. v. Addl. CIT (2018) 92 taxmann.com 5 (Mumbai-Trib.); DCIT v. M/s Reliance Jio Infocomm Ltd . (ITA No. 936/Mum/2017). Explaining that the definition of royalty under Article 12 of the DTAA between Indian and USA and the DTAA between India and Singapore includes consideration for the use or right to use any industrial, commercial or scientific equipment , the Ld. counsel submits that the above rulings are squarely applicable to the appellant s case. It is further stated that the appellant has filed a management declaration certifying that no patents, IPR, secret process, trademark, copyright is registered in the name of the appellant. Further, it is clarified that by virtue of the confidentiality clause inserted in the IDC agreement, there is an explicit understanding that the website/applications/data ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement makes it abundantly clear that the Indian companies are using the IDC of the assesseecompany for their business in India. Thus the Ld. DR submits that the facilities being provided by the appellant are in the nature of royalty as per the provisions of the Act and as per the DTAA between India and Singapore and therefore, the addition of ₹ 95,62,479/- made by the AO towards IDC charges be confirmed. The Ld. DR, in support of his above contentions, relies on the decision in Cargo Community Network (P.) Ltd . 289 ITR 355 (AAR), IMT Labs (India) (P.) Ltd. 287 ITR 450 (AAR) and Thought Buzz (P.) Ltd . 346 ITR 345 (AAR). 6. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. We find that (i) under the said IDC agreement, the appellant, essentially provides IT infrastructure management and mail box/website hosting services to its India group companies; these IDC services are performed by the appellant s personnel in Singapore ; the Indian group companies directly remit IDC service payments towards the appellant s bank account in Singapore, (ii) IDC is an ISO 27001 certified dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as business support, market information, technology support services and strategy support etc. from the latter. The AAR held that (i) though the services rendered by AXA ARC may well be brought within the scope of the definition of FTS under the IT Act as they answer the description of consultancy services or some of them may be categorized as technical services but the qualifying words make available technical knowledge, experience, skill, know-how, which enables the recipient of services to apply the technology contained therein in Article 12.4 of the DTAA make material difference, (ii) all technical or consultancy services cannot be brought within the scope of this definition unless they make available technical knowledge, knowhow etc. which in turn facilitates the person acquiring the services to apply the technology embedded therein, (iii) services provided by AXA ARC to the applicant do not fulfill the requirements of the definition of FTS in the DTAA, (iv) even assuming that they are technical or consultancy services, it cannot be said that the applicant receiving the services is enabled to apply the technology contained therein, (v) also there is nothing in the IT support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , administrative, technical, professional and other supporting services to the assessee; however, there was nothing in agreement to conclude that in course of such provision of service, EMCAP had made available any technical knowledge, experience, skill, knowhow or process which enabled assessee to apply technology contained therein on its own. Therefore, the Tribunal held that payment made by the assessee could not be considered as FTS as defined under Article 12(4)(b) of the India-Singapore DTAA. In M/s Reliance Jio Infocomm Ltd . (supra) for AY 2016-17, the Tribunal observes that though the India-Singapore Tax Treaty is amended by Notification No. SO 935(E) dated 23.03.2017, however, the definition of royalty therein has not been tinkered with and remains as such. 6.2 Now we turn to the case laws relied on by the Ld. DR. In the case of Cargo Community Network (P.) Ltd . (supra), the assessee, a non-resident company has its registered office at Singapore. It is engaged in the business of providing access to an internet based air cargo portal known as Ezycargo at Singapore. The applicant received payments from an Indian subscribers for providing password to access and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ruling is not applicable to the facts of the appellant s case. 6.3 From the enunciation of law in Bharati Axa General Insurance Co. Ltd ; ExxonMobil Company India (P.) Ltd ; Standard Chartered Bank v. DDIT ; DCIT v. M/s Reliance Jio Infocomm Ltd narrated at para 6.1 hereinbefore, it is quite luculent that revenues under the IDC agreement ought not to be taxed in the hands of the appellant as royalty under the Act and/or India-Singapore DTAA. Therefore, we delete the addition of ₹ 95,62,479/- made by the AO towards IDC charges and allow the 2nd ground of appeal. 7. Then we turn to the claim of management service fees of ₹ 73,61,951/- made by the appellant as non-taxable. During the year under consideration the appellant has received management fee from SurfGold. The services provided under the Management Agreement broadly include : Consultancy services to support the sales activities of SurfGold Legal services Financial advisory services Human resource assistance The Ld. counsel submits that both the AO as well as the DRP have held the management services to be fees for technical services (FTS) under the Act and the India-Singapor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant is providing facilities for computer infrastructure as per the IDC agreement, which has been held to be royalty, the said management services would also be taxable as FTS as per clause 12(4)(a) of the said DTAA, the Ld. counsel clarifies that the IDC services are not taxable as royalty as per the submissions made earlier. Further, it is explained by him that Article 12(4)(a) of the said DTAA will apply only where the predominant purpose of the arrangement under which the payment of the service fee and such other payment are made must be the application or enjoyment of the right, property, or information described in Article 12(3). In view of the above, the Ld. counsel submits that the revenues under the management agreement ought not to be taxed in the hands of the appellant as FTS under the provisions of the India-Singapore DTAA. 8. On the other hand, the Ld. DR submits that as per the said agreement the appellant company employees personnel with substantial experience in marketing and sales expertise relating to the business as well as office administration and management and the Indian entity is desirous of engaging the assessee to provide management services in conn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... information for which a payment described in paragraph 3 is received; or b. make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein; or c. consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. Thus as per the India-Singapore DTAA, the services in the nature of managerial, technical or consultancy nature are taxable as FTS if such services are made available to the service recipient. We find that in the instant case, the management services are provided only to support SurfGold in carrying on its business efficiently and running the business in line with the business model, policies and best practices followed by the Edenred group. These services do not make available any technical knowledge, skill, knowhow or processes to SurfGold. 9.1 Now we discuss the case laws relied on both sides. We begin with the reliance placed by the Ld. counsel. In the case of De Beers Mineral (P.) Ltd., the Hon ble Karnataka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of the narrow language employed in the India-Singapore DTAA. Providing comments and suggestions after reviewing the strategies and plans developed by the Applicant, giving suggestions to the Applicant to improve the product developed by it so as to bring it in line with the common practices followed by other AXA entities across the globe, providing HR support assistance, assisting the Applicant in choosing cost effective re-insurance partners, reviewing the actuarial methodologies developed by the Applicant and providing suggestions and inputs to achieve standard actuarial practices and processing guidelines in connection with the settlement of claims, marketing and risk analysis, fall short of the requirements laid down in the definition of fees for technical services in DTAA between India and Singapore. It will be too much to say that by providing such services (assuming they are technical or consultancy services), the Applicant receiving the services is enabled to apply the technology contained therein i.e. the technology, knowledge, skills, etc. possessed by the service provider or technical plan developed by the service provider. We do not find anything in the IT support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and gun. It also provides operational and other support services for the benefit of companies of Perfetti group situated in various countries. It has entered into a service agreement with the group company (Perfetti India). The AAR held that when the expertise in running the industry run by the group is provided to the Indian entity in the group to be applied in running the business, the employees of the Indian entity get equipped to carry on that business model on their own without reference to service provider, when the service agreement comes to an end. It is not as if for making available, the recipient must also be conveyed specially the right to continue the practice put into effect and adopted under the service agreement on its expiry. It is found that this case is reversed and set aside for fresh adjudication by the Hon ble Delhi High Court in 52 taxmann.com 161 dated 30.09.2014 and hence cannot be made applicable. 9.3 We find that in view of the factual matrix delineated at para 9 above, the case laws narrated at para 9.1 hereinbefore i.e. De Beers Mineral (P.) Ltd ; Intertek Services ; M/s Bharati Axa General Insurance Co. Ltd. are applicable to the instant case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nical services ( FTS ), if such services are made available to the services. In this regard, it is stated that the referral services/other services are provided only to support SurfGold in carrying on it business and additionally, these services do not make available any technical knowledge, skill, know-how or processes to SurfGold on account of the following reasons : Surf Gold or its clients would not be able to apply the technology or make use of the technical knowledge by itself and will have to take assistance of the appellant for the abovementioned services in future; There is no transmission of the technical knowledge, experience, skill etc. from the appellant to SurfGold or its clients and SurfGold or its clients will have to continue availing these services from Edenred on a regular basis. Further, it is stated that meaning of the term make available is explained in the decision in Raymond Limited v. DCIT (86 ITD 791), Intertek Testing Services (307 ITR 418) (AAR), Anapharma Inc (305 ITR 394) (AAR), Sandvik Australia Pty. Ltd . (141 ITD 598) (Pune ITAT), M/s Bharati Axa General Insurance Co Ltd . (supra). Finally, the Ld. counsel expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the India-Singapore DTAA, the services in the nature of managerial, technical or consultancy nature are taxable as FTS, if such services are made available to the service recipient. In the instant case, referral services/other services are provided to support Surf Gold in carrying on its business. These services do not make available any technical knowledge, skill, knowhow or processes to SurfGold because there is no transmission of the technical knowledge, experience, skill etc. from the appellant to SurfGold or its clients. In the case of Cushman Wakefield (S) Pte. Ltd . (supra), the applicant a foreign company based in Singapore is engaged in the business of rendering real estate services to its local and international clients. The applicant has developed certain international client relationships and in accordance with global policy of the group, various offices provide referral services to other Cushman Wakefield (C W) Offices. The applicant entered into a referral agreement with Indian group company whereby the applicant refers/recommends potential customers desirous of obtaining real estate consulting and associated services in India. Further the applicant was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees was received by foreign concern for introducing clients to assessee-Indian company, providing international real estate advisory and management services, since referral services were rendered entirely outside India, it would not fall within the scope of total income of said foreign concern as per section 5(2) and (ii) referral fees paid by assessee-Indian company for availing referral services which were rendered by foreign concern entirely in USA would constitute business profits of foreign company under Article 7 of the India-USA DTAA; in absence of PE in India, it was not taxable in India. The distillation of precedents must now be applied by us to the facts of the present case. We are of the considered view that in the context of the above factual scenario and position of law, the revenues under the referral agreement is not taxable in the hands of the appellant as royalty under the Act and/or India-Singapore DTAA or FTS under the India-Singapore DTAA. Therefore, we delete the addition of ₹ 39,94,209/- made by the AO towards referral fee and allow the 4th 5th ground of appeal. 13. The 6th ground of appeal concerns with not granting credit for TDS of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal for AY 2012-13. The AO is directed to verify the contentions of the appellant that in AY 2012-13, he erred in (i) recovering refund of ₹ 37,03,301/- which has never been received by the appellant, (ii) erred in recovering in interest of ₹ 3,51,813/- u/s 244A when the alleged refund was never received and neither was the interest thereon received by the appellant, (iii) levying interest of ₹ 4,46,063/- u/s 234D when the related amount has never been received by the appellant. We direct the AO to pass consequential order on the above for AY 2012-13, after due verification. 17. Facts being identical, our decision for the AY 2010-11 applies mutatis mutandis to AYs 2011-12 2012-13. 18. However, before we part with the matter, we must deal with one procedural issue as well. While hearing of these appeals was concluded on 17.01.2020, this order thereon is being pronounced today, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the fact that rule 34(5) of the Income Tax Appellate Tribunal Rules 1963, which deals with pronouncement of orders. Let us in this light revert to the prevailing situation in the countr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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