TMI Blog2023 (8) TMI 445X X X X Extracts X X X X X X X X Extracts X X X X ..... re, we direct the Assessing Officer to delete the addition made towards TSIS services by treating the same as royalty. Management Fees taxed as fees for technical services (FTS) - HELD THAT:- Management fees received by the assessee from Indian group companies should not be treated as FTS and accordingly, not taxable in India. This ground is allowed in favour of the assessee. Claim made first time before DRP - Guarantee Fees - assessee claimed that the guarantee fees should not be taxed in India - claim could be made only through filing the revised return of income and since the assessee did not file any revised return the claim made through revised statement of income cannot be accepted - HELD THAT:- As decided in Pruthvi Brokers Shareholders (P.) Ltd. [ 2012 (7) TMI 158 - BOMBAY HIGH COURT] had held that any valid claim of assessee could be made for the first time either by way of filing a revised computation or before the appellate authorities. In assessee's case the claim is made for the first time before the DRP that the guarantee fees earned by the assessee is not taxable as per the DTAA. Thus if the assessee is entitled for a deduction, as per law and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s(TSIS fees) Rs. 54,13,100/- 3. The assessee while filing the return of income offered the income from license fee and guarantee fee. With regard to the management service fees and TSIS services fees, the assessee did not offer the same to tax for the reason that the same is not liable to be taxed as per Article 13 read with the protocol of the India - France DTAA alongwith Article 12 of India Finland DTAA / India USA DTAA. The Assessing Officer taxed the management fees and TSIS services fees as royalty / fee for technical service (FTS) and levied tax at 10% under the beneficial rate as per the DTAA. Before the DRP, the assessee made a claim that the guarantee fee is also not liable to be taxed in India. The DRP confirmed the addition made towards management fees and TSIS services by relying on its own order for A.Y. 2015-16. With regard to the fresh claim made by the assessee towards guarantee fee, the DRP did not admit the claim of the assessee by relying on the decision of Goetze India Ltd vs CIT 284 ITR 323 (SC). The assessee is in appeal before the Tribunal against the final order of assessment passed by the Assessing Officer pursuant to the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies viz. Edenred (India) Pvt Ltd, Royal Image Direct Marketing Private Limited and SurfGold.com (India) Private Ltd. The assessee entered into agreements with all the 3 companies wherein the scope of work and modality to provide TSIS services to its Indian group companies are mentioned identically for all three companies. The TSIS services broadly include posting services, support and maintenance services, development services, infrastructure and security services and professional services. The Assessing Officer issued a notice asking the assessee as to why the payment should not be taxed in India as royalty. The assessee filed a detailed reply stating that the services rendered does not involve any use of or the right to use any patent, trademark, design or model, plan, secret formula or process. The assessee submitted that the services rendered are strictly restricted to what is described in the TSIS agreement. The assessee further submitted that TSIS services are provided only to support the Indian group companies in carrying on business efficiently and running the business in line with the business model, policies and best practices followed by the Edenred group. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed order passed for A.Y. 2012-13 to 2015-16 order dated 23/12/2022 has considered the same issue and held that:- 8. We have heard the rival submissions and perused the material available on record. In the present case, vide draft assessment order, the AO held that TSIS Service Fee received by the assessee is taxable as royalty, while the Management Service Fee is taxable as fees for technical services. In further proceedings, the learned DRP came to the conclusion that services provided by the assessee are similar to the services provided by the group company of the assessee i.e. Edenred PTE Ltd. Accordingly, the learned DRP following its directions rendered in the case of group concern for the assessment years 2011 12 and 2012 13 directed that the consideration received by the assessee under both TSIS and Management Service Agreements are taxable in India. The learned DRP further directed that fees received by the assessee under the aforesaid agreements be taxed as royalty. It cannot be disputed that the learned DRP s direction was issued on 24/11/2015, and thus was appealable by the Revenue before the Tribunal. Since, the Revenue has not challenged the aforesaid findings of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent basis. The AO further held that the Indian company s access to mainframe computers through electronic connectivity on the basis of a contract for use establishes a business connection of the assessee with the Indian company in India. Accordingly, the AO came to the conclusion that income is taxable under the head royalty under section 9(1)(vi) of the Act. The AO also held that the income is also taxable as royalty under the provisions of India France DTAA. Accordingly, the AO added the income to the total income of the assessee as royalty taxable at 10% under the beneficial rate as per the DTAA. 9. We find that the taxability of income arising from similar services rendered by the assessee s group concern, namely, Edenred PTE Ltd came up for consideration before the coordinate bench of the Tribunal in Edenred PTE Ltd vs DCIT, in ITA No.2178/Mum./2017, for the assessment year 2013-14. The coordinate bench of the Tribunal after considering the facts of the case in para 6 of its order, decided the similar issue in favour of the assessee s group concern and held that income arising from the provision of services by the assessee cannot be treated as royalty either under the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while making a loyalty program for them. A perusal of the documents filed before the AO and DRP clearly indicate that (i) appellant has an infrastructure data centre, not information centre at Singapore, (ii) the Indian group companies neither access nor use CPU of the appellant, (iii) no CDN system is provided under the IDC agreement, no such use/access is allowed, (iv) the appellant does not maintain any such central data (u) IDC is not capable of information analytics, data management, (vi) appellant only provides IDC service by using its hardware/security devices/personnel; all that the Indian group companies received are standard IDC services and not use of any software, (vii) bandwith and networking infrastructure is used by the appellant to render IDC services; Indian companies only get the output of usages of such bandwith and network and not its use, (viii) consideration is for IDC services and not any specific program and (ix) no embedded/secret software is developed by the appellant. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Standard Chartered Bank (supra), the assessee bank entered into an agreement with a Singapore company SPL, for the provision of data processing support for its business in India and that data processing is down outside India. Application software by which data is transmitted to hardware at Singapore and processed by SPL at Singapore is owned by the assessee. Thus what is used by the appellant is the computer hardware owned by SPL. The Tribunal held that (i) payment in question can be said to be a payment for a facility which is available to any person willing to use the facility, (ii) system software which is embedded in the computer hardware by which the computer hardware functions is not owned by SPL and SPL only has a license to use the system software; (iii) consideration received by SPL is for using the computer hardware which does not involve use or right to use a process, (iv) there is nothing on record to establish that the hardware could be accessed and put 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 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to use. The applicant has to pay license fee for usage of software to the American company. The AAR held that 'Smarterchild' application software on the American company's server platform is scientific equipment licensed to be used for commercial purposes and therefore, payments made for producing and hosting Interactive Agent' applications would be covered by the expression 'royalties' as used in Article 12. However, we find that in the instant case, appellant only provides service by using its hardware/security devices/personnel and not use of any software and therefore the above case is distinguishable from the present appeal. In ThoughtBuzz (P) Ltd. (supra), the applicant, a Singapore company was engaged in providing social media monitoring service for a company, brand or product. It was a platform for users to hear and engage with their customers, brand ambassadors etc. across the internet. The applicant offered service on charging a subscription. The clients, who subscribe, 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 subscr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, we find merit in the plea of the assessee. Accordingly, respectfully following the aforesaid decision of the coordinate bench of the Tribunal, we direct the AO to delete the addition in respect of TSIS Service Fees received by the assessee. As a result, ground No. 2 raised in assessee s appeal is allowed. 9. It is noticed that the assessee has entered into an agreement with the Indian companies for rendering TSIS services dated 30/11/2017 and the terms of the agreement as per the submission of the ld AR are verbatim similar to the agreement which were in force for A.Ys. 2012-13 to 2015-16. It is also noticed that the DRP while upholding the treatment of TSIS fees as royalty, while following its own order for A.Y. 2015-16 did not bring out any contrary finding with regarding the nature of services rendered by the assessee or the terms as per the terms of agreement dated 30/11/2017. Therefore, in our considered view, the decision of the co-ordinate bench in assessee s own case for A.Ys. 2012-13 to 2015-16 is applicable to the year under consideration also. Therefore, respectfully following the above decision of the co-ordinate bench, we direct the Assessing Officer to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e management services fees received by the assessee is not in the nature of royalty. 12. We heard the parties and perused the material on record. We notice that the co-ordinate bench in assessee s own case for AYs 2017-18 and 2018-19 (supra) considered similar issue and held that 14. We have heard both the sides and perused the materials on record. With the assistance of Ld. representatives, we have perused' the decision of ITAT in assessee's own case for A.Y. 2012-13 vide IT A No.508/Mum/2016 7247/Mum/2017 dated 23/12/2022 wherein similar issue, following the judicial pronouncements earlier decided in assessee's own case was followed: 12. During the year, the assesses earned Management Service Fees amounting to ' Ps. 7,19,02,857, from its aforesaid Indian group companies under the Management Service Agreement. Under the agreement, the services provided by the assessee broadly include management services in the nature of external communication services, strategy and development services, finance services, legal services, general management, and coordination services, and zone management services. There is no dispute regarding the fact that under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt, ground No. 3 raised in assessee's appeal is allowed. 15. Regarding the contention of the Ld.DR that MFN is not applicable in the case of the assessee by referring the CBDT circular cited above, we notice that in the case of GR1 Renewable Industries S.L. (supra), the coordinate bench of Pune Bench of the Tribunal held that CBDT circular dated 03/02/2022, cannot be invoked for the assessment year 2016-17 which is much prior to the CBDT circular of the year 2022. The finding of the Tribunal is as under : 13. Notwithstanding the above, it can be seen that the CBDT has panned out a fresh requirement of separate notification to be issued for India importing the benefits of the DTAA from second State to the DTAA with the first State by virtue of its Circular, relying on such requirement as supposedly contained in section 90(1) of the Act. In our considered opinion, the requirement contained in the CBDT circular No. 03/2022 cannot primarily be applied to the period anterior to the date of its issuance as it is in the nature of an additional detrimental .stipulation mandated for taking benefit conferred by the DTAA. It is a settled legal position that a piece of legislat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntical facts, grounds 3, 4 are allowed. 13. The facts and the nature of services rendered by the assessee being identical for the year under consideration, we hold that the management fees received by the assessee from Indian group companies should not be treated as FTS and accordingly, not taxable in India. This ground is allowed in favour of the assessee. Guarantee Fees Ground No.5 14. The assessee, while filing the return of income has offered the guarantee fees received to the extent of Rs. 42,07,277/- to tax. Before the DRP, the assessee filed a revised statement of income in which, the assessee claimed that the guarantee fees should not be taxed in India. The assessee in this regard submitted that during the year under consideration Edenred India and Accentiv has entered into an arrangement for working capital facilities with Kotak Mahindra Bank Ltd, Chennai and Citibank, Chennai, respectively. The assessee being the parent company has provided a corporate guarantee to the subsidiaries with respect to such facilities obtained from respective banks. The assessee further submitted that the corporate guarantee is given in the normal course of business to facil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that any valid claim of the assessee could be entertained by the appellate authorities. It is also noticed that the Hon'ble Jurisdictional High Court in the case of CIT v. Pruthvi Brokers Shareholders (P.) Ltd. [2012] 23 taxmann.com 23/208 Taxman 498/349 ITR 336 (Bom.) had held that any valid claim of assessee could be made for the first time either by way of filing a revised computation or before the appellate authorities. In assessee's case the claim is made for the first time before the DRP that the guarantee fees earned by the assessee is not taxable as per the DTAA. Considering the judicial precedence and the facts of the present case we are of the view that, if the assessee is entitled for a deduction, as per law and facts, same should not be denied merely because the claim was not made in the return of income. Since the lower authorities have not examined the issue on merits, we remit the issue back to the Assessing Officer for a fresh examination of taxability of guarantee fees in India and decided in accordance with law, after giving a reasonable opportunity of being heard / make submissions to the assessee. It is ordered accordingly. This ground is allowed for s ..... 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