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TMI Blog2022 (4) TMI 1062X X X X Extracts X X X X X X X X Extracts X X X X ..... all the three appeals are general in nature and hence do not require adjudication. 4. The main common issues in all the three appeals relate to addition made by the Assessing Officer ("AO") under section 143(3) of the Act on account of management fee and IC Labour charges received by the assessee from its subsidiary in India and on account of miscellaneous services rendered to certain third parties in India. 5. The assessee operates as a global services advisory and research company. Assessee assists corporations in developing and implementing leading edge sourcing strategies including captive outsourced and shared services approaches. The assessee is a LLC registered in United States of America (USA) and hence entitled to be governed by the provision of the Double Taxation Avoidance Agreement between entered into between India and USA ("India-USA DTAA"). 6. Since the underlying facts in issues are identical in all the three appeals we have considered the facts of the AY 2010-11 in ITA No. 2469/Del/2015. For AY 2010-11, the assessee filed its return of income declaring total income of Rs. 91,04,468/- in nature of royalty subject to tax on gross basis under India-USA DTAA. Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical or other personnel'' is fee for technical services ('FTS') as per Explanation 2 to section 9(l)(vii) of the Act and also Article 12 of Indo-USA DTAA. Therefore argument of the appellant that agreement is just about sharing of resources and does not amount to FTS is legally fallacious. Further, Article 12(4)(b)of Indo-USA DTAA requires that 'make available' should be satisfied. MOU of Indo-USA DTAA and various judicial decisions provide definition of 'make available' as a situation when recipient of services is enabled to apply the services on its own in future without recourse to the service provider. In present case, borrower member is simply deficient in number of consultants and can borrow consultants from other member if having surplus number. That means that borrower member or recipient of services is already in a position to apply those services and borrowing of more consultants simply results in enhancement of its capacity. In other words, the recipient is in a position to apply those services in future on its own even without borrowing more consultants from service providers. Therefore 'make available' clause as contained in Article 12(4)(b) of Indo-USA DTA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld." 7.1 In respect of receipt from third parties, the Ld. CIT(A) partly allowed the claim of the assesee by deleting addition made in respect of consideration for web promotion, banner ads, branding on website, online listing services etc. and confirmed the addition in respect of consideration for subscription service to data base and custom research holding them to be in the nature of royalty. The finding of the Ld. CIT(A) is reproduced below: "7.4.1 Regarding consideration received for subscription service to data base and custom research, it is seen that the appellant has comprehensive data bases for BPO/ ITO etc., which contains research themes gathered from different sources. These reports help in projecting future scenarios. The database subscription service provides access to research reports, articles, white papers and other data which is made available to subscribers via an interactive website. The subscriber is granted a non-exclusive, non-transferable right and licence to use, modify, copy, distribute and display all or any portion of subscription material for business purpose only by and among employees of subscriber. Ownership and copyright to subscription mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... giving effect to this order. The ground of appeal is disposed off accordingly." 8. Aggrieved the assessee is in appeal before us. 9. The first common issue (Ground 2) in three appeals relates to the taxability of management fee received by the assesee on account of management support services rendered to Everest India under the provisions of the Act and/or under India-USA DTAA as FTS / FIS. 9.1 The Ld. DR strongly relied on the order of the Ld. CIT(A) / AO and submitted that the management services rendered by the assesee to Everest India fall within the scope of the definition of FIS under the India-USA DTAA as these services satisfy the make available requirement enabling Everest India to make use of these services on its own in future. 9.2 The Ld. AR made a detailed submission on scope and applicability of FIS in context of the nature of services provided by the assesee under the Master Support Services Agreement. At the outset, the Ld. AR submitted that the assesee does not have a permanent establishment ("PE") in India and managerial services rendered by the assesee to Everest India are not covered within the meaning of FIS under Article 12(4) of the India-USA DTAA. The se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nars e. Leadership forum f. Speaking engagements 3. Finance and Accounting a. Payroll b. General ledger c. Employee time and expense d. Revenue and expense accruals e. Payables f. Accounts Receivables g. Cash Management h. Financial Reporting i. Budgeting j. Line of credit access management 4. Human Resource management a. Recruiting b. Compensation c. Benefits administration d. Legal 5. Information Technology a. Laptop Maintenance b. Help desk support c. Desk side support d. User Id and password e. Remote access f. System/antivirus g. Intranet h. Inter site communication links, email, voice mail etc i. Standard computer platform j. New hardware and software k. Training on IT resources l. Licenses and compliance m. Computer and phone networks 6. Training a. Global training conferences b. Monthly training sessions c. Ad hoc training as required 7. Legal a. Contract review b. Litigation management c. Other legal services as required 9.5 We agree with the contention of the assesee that managerial services are outside the scope of the meaning of FIS under Article 12(4) of the India- USA DTAA. Wherever the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation for which are royalty payment is made; or (2) as described in paragraph 4(b), if they make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Thus, under paragraph 4(b), consultancy services which are not of a technical nature cannot be included services. {emphasis supplied} Paragraph 4(b) Paragraph 4(b) of Article 12 refers to technical or consultancy services that make available to the person acquiring the services, technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plant or technical design to such person. (For this purpose, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person). This category is narrower than the category described in paragraph 4(a) because it excludes any service that does not make technology available to the person acquiring the service. Generally speaking, technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this ground is allowed in favour of the assesee. 10. The second common issue (Ground 3) in three appeals relates to the taxability of IC Labour Charges received by the assesee on account of supply of manpower to Everest India under the provisions of the Act and/or under India-USA DTAA as FTS/FIS. 10.1 The Ld. DR relied upon the order of the CIT(A) in support. The Ld. AR submitted that the services rendered by the assesee are purely in the nature of manpower supply services and do not satisfy the two fold test provided in Article 12(4)(b) of the India-USA DTAA. The substance of the Inter-Company Consultant Sharing agreement is not to deliver or achieve a particular output but to provide the manpower in case it is available and required by group entities. The consideration is received only for supply of manpower for certain for certain hours/days and nothing more. The arrangement exists between group entities only to optimize the group manpower cost. The manpower lent by the assessee works does not work under the supervision of assesee nor is the assesee responsible for outcome of any project of Everest India for which the manpower has been lent. During the subject AYs, they have n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion can be considered as fee for 'included service' or not. The ultimate question that arises is whether the payments in question are taxable as business profit in the hands of the recipient as per art. 7 of the DTAA between India and USA. Before we go into the main issue, we may note that the CIT(A) clearly held that the liability to deduct tax at source under section 195 of the Act is dependent upon the taxability of the income in the hands of the recipient. When the payment made by the, assessee company is not chargeable to tax as per the provisions of IT Act in the hands of the recipient, or as per the provisions of DTAA between India and USA, the question of liability to deduct tax does not arise. We are impliedly fortified in this behalf by the ratio of the decision of the apex Court in the case of Hindustan Coca Cola Beverage (P) Ltd. v. CIT [2007] 293 ITR 226 (SC), wherein it was held, that when the recipient has already paid the taxes, the provisions of section 201(1) of the Act are not attracted. That being so, as per the ratio of the said decision, when no tax is liable to be paid by the recipient, the, provisions of section 195 are not attracted and the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s technology shall not per se be considered to make the technology available and rendering of the service must enable the payer to apply such technology. Moreover, even if there is a transfer of developed work, software etc., it is not the ACSC but the assessee who transfers the right. It appears that neither the assessee company nor the ACSC are engaged in computer programming activity, which is evident from paras 1 and 2 of the orders of the AO and even the developed work never belonged to the assessee company or the ACSC as referred by the AO in his orders. In the circumstances, as correctly held by the CIT(A), the question of treating the payments as 'fees for included service' would not arise at all. The orders of the AO fastening the liability to TDS on the assessee are based on the agreement between the assessee and the IBM in order to determine the nature of the services rendered by the ACSC to the assessee. We agree with the CIT(A) that what was required to be looked into is whether there is an element of technical services in the agreement between the assessee and the ACSC, which gives rise to income that can be brought to tax in India. It is because the payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly, the payments so made by the assessee company to ACSC will not be chargeable to tax in India, in view of the provisions of the DTAA between India and USA. We are also Supported in this behalf by the view taken by the Department, vide order of the CIT(A)-XXXI, Mumbai dt. 27th Dec, 2007, a copy of which is filed by the assessee at pp. 116 to 141 of the paper book with regard to the taxability of similar receipts in the case of the recipient involved in these very matters, viz. ACSC for the asst: yr. 2004-05. In the absence of any appeal preferred by the Department, that view taken by the CIT(A) in that order appears to have become final. Even though the learned Departmental Representative tried to bring forth certain points of distinctions between the payments made by the assessee in the present case and the receipts considered for the assessment year 2004-05 in the above case of ACSC by referring to the relevant agreements, we find no merit in the arguments of the learned Departmental Representative based on the same. Further, we are in agreement with the elaborate reasoning given by the CIT(A) in the impugned order, and consequently we find no justification to interfere with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subscriber cannot copy, reproduce, distribute, republish, display, post, or transmit in any form or by any means any of the subscription material or alter, modify, or change, the subscription material without the prior written permission of the assesee. Subscriber is permitted to use subscription material without alteration of factual content and properly attribute the name of assessee as the source of such information. Further, subscriber is legally bound to give copyright notice and bound not to remove and reproduce and include all copyright notices or confidential or proprietary legends in and all copies of subscription materials. Subscription to online database is same as purchasing online industry specific newsletters, journals, books, magazines. In substance, the transaction is that of purchase and sale of published report. The client gets access to view a particular published report subscribed by it and not to the full database owned and maintained by assessee. The Ld. AR relied upon jurisdictional Delhi HC judgment in DIT vs. Infrasoft Ltd. [2013] 39 taxmann.com 88 (Delhi) and several other cases of Delhi ITAT wherein a clear distinction has been carved out between right t ..... 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