TMI Blog2023 (9) TMI 1448X X X X Extracts X X X X X X X X Extracts X X X X ..... ench has been affirmed by the Hon ble Jurisdictional High Court while deciding Revenue s appeal in judgment [ 2023 (5) TMI 1313 - DELHI HIGH COURT] Since, the issue in dispute is squarely covered in favour of the assessee by the decision of the Tribunal and Hon ble Jurisdictional High Court, we find no reason to interfere with the decision of learned first appellate authority in declaring the receipts from centralized services to be not in the nature of FTS/FIS. Ground is dismissed. - SHRI SAKTIJIT DEY, HON BLE VICE-PRESIDENT AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER For the Assessee by Sh. Amit Arora, CA Sh. Vishal Missra, CA For the Department by Sh. Vizay B. Vasanta, CIT(DR) ORDER Captioned appeals by the Revenue arise out of two separate orders, both dated 22.03.2023, of learned Commissioner of Income Tax (Appeals)-43, New Delhi, pertaining to assessment years 2018-19 and 2019-20. 2. The only effective ground raised by the Revenue, which is common in both the appeals, reads as under: (i) Whether the Ld. CIT(A) has erred in law in holding that the entire payments received by the assessee from its Indian customers on account of Centralized Services did not constitute Fee for Tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore us. 4. We have heard the parties and perused the materials on record. Before us, learned counsel appearing for the assessee as well as learned Departmental Representative have agreed that the issue arising in the present appeals are squarely covered by the decision of the Tribunal and Hon ble High Court in assessee s own case in assessment years 2016-17 and 2017-18 5. Having considered the submissions of the parties, we find, while deciding identical issue in assessee s own case in ITA No.397 398/Del/2022 for assessment years 2016-17 and 2017- 18, the Tribunal, in order dated 15.09.2022, after analyzing in detail the nature and character of receipts has held that they cannot be treated as FTS/FIS, either under the provisions of the Act or under the treaty provisions. The observations of the Coordinate Bench in this regard are as under: 6. We have given a thoughtful consideration to the order so the authorities below. We find force in the contention of the counsel because identical grievance have been heard and decided by this Tribunal (supra) in favour of the assessee and against the revenue. The relevant findings read as under: 21. If one critically examines the determinative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental of the monitoring equipment. Accordingly, the cleaning services are not included services within the meaning of paragraph 4(a). 22. As could be seen from the aforesaid illustration, though, both the services are interlinked, however, the predominant purpose of the arrangement is provision of cleaning services, hence, will not be ancillary or subsidiary to the rental of monitoring machine. Hence, the cleaning services are not to be regarded as FIS under Article 12(4)(a) of the Tax Treaty. 23. The factual position, in a way, is quite similar in the present case. The aforesaid illustration to some extent can be made applicable to the facts of the present appeal. Even if one agrees with learned Commissioner (Appeals) that the License Agreement and Centralized Services Agreement are related to each other and the Centralized Services Agreement actually flows out of the License Agreement but still the issue which requires examination is, whether the Centralized Services Agreement is ancillary or subsidiary to the License Agreement. In our view, the answer to the aforesaid question would be in the negative. Clearly, predominant purpose of the Centralized Service Agreement and the ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at this stage during the course of appellate proceedings before the Tribunal. Keeping in view that the issues sought to be raised by the Revenue in these additional grounds are purely legal and all the facts relevant to consider and adjudicate the same are on record, we. however, find no merits in the objection raised by the learned, counsel for the assessee and admitting the additional grounds raised by the Revenue, we now proceed to consider and decide the issues raised in these additional grounds also on merits. In support of the Revenue s case that the impugned amount received by the assessee from the Indian hotels/clients was in the nature of royalty or fees for included services as per the DTAA between India and America, reliance thus has been placed by it mainly on the provisions of Articles 12(3)(a) as well as 12(4)(r/) and 12(4)( b). Article 12(3){b) being specifically applicable only to payments received for the use of or the right to use of any equipment of industrial, commercial or scientific nature, in any case, is not applicable to the facts of the present case. It is, therefore, relevant to consider as to whether the payment received by the assessee from the Indian h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hotel /clients was an integral part of this arrangement and such use was allowed at no cost as expressly provided in the relevant agreements. Moreover the rationale behind providing such use at no cost has been explained on behalf of the assessee which is found to be satisfactory by us for the detailed reasons given in the foregoing portion of this order. Having regard to all these aspects, we have come to a conclusion that the various services rendered by the assessee to enable it to complete efficiently and effectively the job undertaken by it as an integrated business arrangement to provide the services relating to advertising, publicity and sales promotion including reservations of the Indian hotels worldwide in mutual interest cannot be relied upon by picking and choosing the same in isolation so as to say that part of the consideration received by the assessee, as attributable to the said services, was in the nature of royalties or fees for included services . Such an approach adopted by the Revenue authorities, in our opinion, was neither permissible in law nor practicable in the facts of the case and the conclusion drawn by them on the basis of such approach to cover the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was further held by the Tribunal that the scope of fees for technical services under Article 12(4)(b ) does not cover consultancy services unless these services are technical in nature. 76. In the case of Raymond Ltd. v. Dy. CIT [2003] 86 ITD 791. Mumbai Bench of ITAT held that the normal, plain and grammatical meaning of the language employed using the expressions making available and making use of is that the mere rendering of services is not roped in unless the person utilizing the services is able to make use of the technical knowledge etc. by himself in his business or for his own benefit and without recourse to the performer of the services in future. The technical knowledge, experience, skill etc. must remain with the person utilizing the services even after the rendering of the services has come to an end. The fruits of the services should remain available to the person utilizing the services in some concrete shape such as technical knowledge, experience, skill etc. 77. As already observed, a close reading of the relevant agreements especially the payment clause, the predominant nature of the services rendered, the integrated arrangement between assesseecompany and Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Nayveli Lignite Corpn. Ltd. (supra) and that of Hon ble Andhra Pradesh High Court in the case of Klayman Porcelains Ltd. (supra) fully support this view. Even the decision of Authority for Advance Ruling in the case of Rotem Co. In re |2005| 279 1TR 165 ^ (AAR - New Delhi) is to the similar effect wherein after discussing the various judicial pronouncements, it was held that the principle which emerges from the various decisions is that in a contract for manufacture, installation, sale or supply of goods, the element of services will always be present and where such services are inextricably linked with manufacture, installation, sale or supply, they cannot be evaluated for the purpose of FTS. It is only where services are separable and independent that the FTS will be assessable. In the present case, the services sought to be treated as fees for technical services or fees for included services were of ancillary or auxiliary in nature and being integral part of the job undertaken by the assessee-company, the same were neither independent of nor separable from the said job undertaken by the assessee in relation to publicity, advertisement and sales promotion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e already been discussed by us. As expressly provided in the relevant agreements, it was agreed that no cost is to be paid by the Indian hotels/clients to the assessee-company for such use and the entire payment/consideration was on account of the services rendered in relation to advertisement, publicity etc. This was the arrangement between the parties as is evident from the relevant terms and conditions of the agreements and this is the way in which both the sides had apparently understood and acted upon such arrangement. It was thus neither desirable nor possible to apportion any portion of the consideration received by the assesseecompany from the Indian hotels/clients towards use of trademark, trade name etc. by the Indian hotels/clients. Having regard to all these facts and circumstances of the case borne out from the record including especially the relevant agreements between the parties, we find it difficult to accept the stand taken by the Revenue that the payments received by the assessee-company from the Indian hotels/clients in pursuance of the said agreements or any part was in the nature of royalties within the meaning of Article 12(3)(a). 81. As regards Article 12(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Commissioner (Appeals), being conscious of the fact that the centralized service fee received by the assessee cannot be treated as FIS under Article 12(4)(b) due to failure of make available condition, has made an unsuccessful attempt to bring it within the ambit of Article 12(4)(a) of the Treaty and in the processes has misrepresented certain facts. 25. Be that as it may, the fact on record reveal that the taxability of centralized services fee as FIS is a recurring issue between the assessee and the Revenue from the past years. It is relevant to observe, while deciding the issue in assessment year 2010-11, the Tribunal in ITA No.202/Del./2016, dated 28.09.2017, has held as under: 5. We have heard the ld. Authorized Representative of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. 6. Ld. DR for the revenue relied upon the order of the AO. However, the ld. AR for the assessee relied upon the order passed by the ld. CIT (A). 7. For the sake of ready reference, the findings returned by the ld. CIT(A) allowing the appeal is reproduced as under 8. I hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , but business income and assessee not having any PE in India such business income was not taxable in India- j There was nothing on record to show that the agreement was a colourable device- Such findings of fact having not been challenged as perverse, no substantial question of law arose out of the order of the Tribunal 9. So, following the decision rendered by Hon ble Delhi High Court in case of Director of Income-tax vs. Sheraton International Inc. (supra), we are of the considered view that the revenue received by the assessee for providing centralized services is not in the nature of Fee for Technical Services (FTS) u/s 9( I )(vi) Explanation 2, but it is a business income. Since the assessee is not having any PE in India, its business income earned is not taxable in India. under:- 10. So, in view of what has been discussed above, we find no illegality or perversity in the impugned order passed by the Id. CIT (A), hence present appeal filed by the Revenue is hereby dismissed. 26. The aforesaid decision was upheld by the Hon ble Jurisdictional High Court while dismissing Revenue s Appeal. The same view was reiterated by the Tribunal while deciding assessee s appeal in assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nderstood by the Indian clients. The case of JC Bamford Excavators Ltd. (supra) is also factually distinguishable. Therefore, in our considered opinion, the decisions cited by learned Departmental Representative would be of no help to advance the case of the Revenue. 29. In view of the aforesaid, we direct the Assessing Officer to delete the addition. 7. Respectfully following the decision of the coordinate Bench (supra, we direct the AO to delete the addition. 6. Notably, the aforesaid decision of the Coordinate Bench has been affirmed by the Hon ble Jurisdictional High Court while deciding Revenue s appeal in judgment dated 22nd May, 2023 in ITA 294/2023. The observations of the Hon ble Delhi High Court in the judgment are as under: 8. Mr Ruchir Bhatia, learned senior standing counsel, who appears on behalf of the appellant/revenue, concedes that the issue raised in the instant matter is covered in the respondent/assessee's own case in other AYs. 8.1 In this context, Mr Bhatia has placed before us, the order dated 05.04.2023 passed in ITA 197/2023 and ITA 200/2023. 9. The Tribunal, in short, has held that centralized services fee earned by the respondent/assessee is not taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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