2014 (1) TMI 608 - AAR - Income Tax

Advance Ruling on Payments under Management Service Agreement: Admissibility & Tax Implications

The Authority held that the Applicant's advance ruling application regarding payments under the Management Service Agreement with Aircom India was ... Admissibility of the application - Held that:- Only when the issues are referred in the return and notice under section 143(2) is issued, the question raised in the application will be considered as pending for adjudication before the Income-tax Authorities - In the case of assessee, return of income was filed before filing application to the Authority for Advance Rulings - Notice under section 143(2) was issued after the application was filed before the Authority - Following Hyosung Corporation Korea [2013 (8) TMI 487 - AUTHORITY FOR ADVANCE RULINGS] - The question cannot be said to be already pending before the Income-tax Authorities, as no notice under Section 143(2) was issued before filing the application though return was filed - The application is, admitted under section 245R(2) of the IT Act, 1961 – Decided in favour of assessee. Issues:1. Characterization of payments under Management Service Agreement as 'fees for technical services' under India-UK Treaty.2. Determination if payments under MSA constitute 'royalty' under India-UK Treaty.3. Treatment of payments as business income if not FTS or royalty.4. Withholding tax applicability under section 195 of the Income-tax Act.Analysis:1. The Applicant sought an advance ruling on whether payments under the Management Service Agreement (MSA) with Aircom India would be considered 'fees for technical services' (FTS) under Article 13(4) of the India-UK Treaty. The Revenue objected based on the timing of the application concerning the return of income filings. However, the Authority held that the application was admissible as the issues were not referred in the return, and no notice under section 143(2) was issued before the application, following the precedent set in the case of Hyosung Corporation Korea.2. Another issue raised was whether the payments made by Aircom India to the Applicant for services under the MSA would amount to 'royalty' as per the India-UK Treaty. The Authority found that the question was not pending before the Income-tax Authorities, as no notice under section 143(2) was issued before the application, thus admitting the application under section 245R(2) of the Income-tax Act.3. In case the services were not classified as FTS or royalty, the Applicant inquired if the payments should be treated as business income, considering the absence of a permanent establishment in India. The Authority examined the facts and held that the question was not pending adjudication, allowing the application to proceed.4. The final issue addressed was whether withholding tax under section 195 of the Income-tax Act applied to the payments made by Aircom India to the Applicant and at what rate. The Authority considered the admissibility of the application and the absence of pending issues before the Income-tax Authorities, allowing for a comprehensive ruling on the withholding tax implications.