TMI Blog2021 (1) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxability receipt towards management services fee by treating it as fees for technical services (FTS) - HELD THAT:- As relying on assessee own case [ 2020 (7) TMI 644 - ITAT MUMBAI ] management fee received by the assessee cannot be treated as FTS under Article 12(4) of the India Singapore Tax Treaty. Therefore, we hold that the amount received by the assessee towards management fee is not taxable at the hands of the assessee. This ground is allowed. Taxability of receipt referral fee by treating it as royalty and FTS - HELD THAT:- As decided in own case [ 2020 (7) TMI 644 - ITAT MUMBAI ] 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 - we hold that the amount received by the assessee not being in the nature of royalty or FTS either under the Act or under the tax treaty, is not taxable at the hands of the assessee. This ground is allowed. - ITA No. 2178/MUM/2017 - - - Dated:- 23-10-2020 - Shri Saktijit Dey (JM) And Shri N.K. Pradhan (AM) For the Assessee : Shri Rajan Vora/Pranay Gandhi (ARs) For the Revenue : Shri Ganesh Bare (DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined that for providing such services, assessee has entered into an agreement with the core companies. Explaining further, it was submitted, under IDC services the assessee provides information technology, infrastructure management and mail box/website hosting services. It was submitted, the services are performed by assessee s own personnel in Singapore and the payment on account of such services were directly remitted by the Indian group companies to assessee s bank account in Singapore. To justify its claim of non taxability, the assessee submitted, while providing IDC services, neither any processing is undertaken in Singapore nor the assessee maintains any central database for information. It was submitted, infrastructure data centre is not capable of information analytics, data management and web hosting main management. It was submitted, as part of IDC services, Indian group companies only receive standard services and no licenses in any software/right to use any software etc. is provided. Further, there is no sharing of any confidential information by the assesse with the Indian group companies. The Assessing Officer, however, was not convinced with the submissions of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s before learned DRP. Relying upon its decision in assessee s own case in assessment year 2012-13, learned DRP upheld the decision of the Assessing Officer. In terms with the directions of learned DRP the Assessing Officer passed the impugned assessment order bringing to tax the amount of ₹ 1,86,50,124/- by treating it as royalty. 7. As could be seen from the facts discussed herein before, the issue in dispute is, whether the payment received by the assessee from provision of IDC services can be treated as royalty under Article 12 of India Singapore DTAA. As we find, identical issue came up for consideration before the Tribunal in assessee s own case for assessment years 2010 11 to 2012 13. In fact, learned DRP has decided the issue in favour of the revenue by relying upon its decision in assessee s own case in assessment year 2012-13. However, while deciding the appeals of the assessee on identical issue in assessment years 2010-11 to 2012-13 the Tribunal, in the order referred to earlier in the order, has held that the payment received by the assessee from provision of IDC services is not in the nature of royalty. The observations of the Tribunal in this regard are as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant. Against the above factual backdrop, let us discuss below the case laws relied on both sides. 6.1 We begin with the case laws relied on by the Ld. counsel. A plethora of precedents on the subject in which we are presently concerned compels us, in order to avoid prolixity, to refer only a few decisions below. In the case of Bharati Axa General Insurance Co. Ltd. (supra), the appellant, an Indian company carrying on business of general insurance entered into a service agreement with a Singapore company AXA ARC for receiving assistance such 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 servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to use by the assessee by means of positive acts, (v) therefore, it cannot be said that the payment by the assessee to SPL is royalty within the meaning of Article 12 of the treaty. In ExxonMobil Company India (P.) Ltd. (supra), the assessee had paid certain amount to EMCAP , Singapore towards global support fees. The AO opined that payment made by the assessee was in the nature of FTS as defined in Explanation 2 to section 9(1)(vii) of the Act. The Tribunal observed that as per terms of agreement, EMCAP had to provide management consulting, functional advice, 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 Tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be, can login to its website to do a search on what is being spoken about various brands and so on. The AAR held that the amount received from offering the particular subscription based service is taxable in India as royalty in terms of paragraph 2 of Article 12 of the DTAC between India Singapore. However, we find that in the instant case, the appellant is only providing IDC service which includes administration and supervision of central infrastructure, mailbox hosting services and website hosting services and therefore, the ratio laid down in the above 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. 8. Facts being identical, respectfully following the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... professionalism and an element of expertise are present at the back of such services, they have to be treated as technical and consultancy services. Further, he held, by providing services the assessee has also made available technical experience, skill, knowhow or processes to the Indian group company. Thus, ultimately, he held that the amount received by the assessee for providing management services is in the nature of FTS both under section 9(1)(vii) as well as under Article 12 of India Singapore DTAA. 10. The learned DRP while considering assessee s objections on the issue, relied upon its decision on identical issue in assessee s own case in assessment year 2012-13 and upheld the decisions of the Assessing Officer. 11. Having perused the material on record, we find, identical issue arising in assessee s own case for assessment years 2010-11 to 2012-13 came up for consideration before the Tribunal in the order referred to in the earlier part of the order. While deciding the issue the Tribunal has held as under: 9. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. We find that the ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 High Court has observed as under : The technical or consultancy services rendered should be aimed at and result in transmitting of technical knowledge etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, 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 on the provider. In the case of Intertek Services (307 ITR 418), the AAR has observed on the term make available as under : By making available the technical skills or know-how, the recipient of service will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider. In other words, to fit into the terminology 'make available', the technical knowledge, skills etc. must remain with the person receiving the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ology, 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 services that answer the description of technical services as defined in the Treaty. 9.2 Then we turn to the case laws relied on by the Ld. DR. in US Technology Resources Pvt. Ltd. (supra), in terms of management service agreement between the assessee and the USA company, the latter provides highly technical services which are used by the assessee for making managerial decision, financial decision, risk management decision etc. The service of technical input, advice, expertise etc. rendered by the USA company are technical in nature as provided in clause 4(b) of the Article 12 of the DTAA. It is found that this case is reversed by the Hon ble Kerala High Court in 97 taxmann.com 642 dated 09.08.2018, wherein it is held that fees for management services received by US company would not be taxable in India as there is no transfer of technical knowledge by US company to Indian company. In Shell India Markets (P.) Ltd. (supra), the applicant is an Indian company, it has a network of retail fuel stations in India. SIPCL is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Therefore, we delete the addition of ₹ 73,61,951/- made by the AO towards management services fees and allow the 3rd ground of appeal. 12. Facts being identical, respectfully following the decision of the coordinate Bench in assessee s own case, as referred to above, we hold that the management fee received by the assessee cannot be treated as FTS under Article 12(4) of the India Singapore Tax Treaty. Therefore, we hold that the amount received by the assessee towards management fee is not taxable at the hands of the assessee. This ground is allowed. 13. In ground No. 4, the assessee has challenged the taxability of ₹ 1,08,56,405/- received towards referral fee by treating it as royalty and FTS. 14. During the year under consideration, the assesses had received an amount of ₹ 1,08,56,405/- towards referral fee from Indian group company M/s SurfGold.Com (India) Private Ltd. As per an agreement with the Indian group company the assessee refers its global clients interested in availing customer relationship man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owledge, 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 responsible for persuading the customers to avail the services of the Indian group company, nor negotiating or collecting fee charged by Indian group company from the referred customers. As consideration for such referral services, a percentage of the amount realized from the referred customers (i.e. 30% on gross amount realized) was paid to the applicant. The AAR held that referral fee received in Singapore by the applicant, a Singaporean company fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould 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. 16. Facts being identical, respectfully following the aforesaid decision of the coordinate Bench in assessee s own case, we hold that the amount received by the assessee not being in the nature of royalty or FTS either under the Act or under the tax treaty, is not taxable at the hands of the assessee. This ground is allowed. 17. In ground No. 5, the assessee has challenged the levy of education and secondary and Higher Education Cess. In view of our decision in Ground No. 2, 3 and 4, herein before, this issue has become purely a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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