2019 (7) TMI 1309 - AT - Income Tax

Tribunal rules management fee as business profit, not technical services, exempts interest levy

Dimension Data Asia Pecific Pte. Ltd. (Formerly known as Datacraft Asia Pte Ltd.) Versus Dy. Commissioner of Income Tax (I.T) Circle–2 (1) (2), Mumbai

The Tribunal partly allowed the appeal in favor of the assessee, ruling that the management fee received was classified as business profit, not fees for ... Taxability of the management fee received as fees for technical services - India–Singapore DTAA - business profit or FTS - nature of management fee earned from its Indian subsidiary DDIL - Existence in PE in India - HELD THAT:- The AO while completing the proceedings for the assessment year 2011–12 in pursuance to the directions of the Tribunal [2017 (5) TMI 720 - ITAT MUMBAI] and Hon'ble Jurisdictional High Court [2018 (7) TMI 1256 - BOMBAY HIGH COURT] has also held that the management fee received by the assessee is in the nature of business profit and not fees for technical services. Therefore, following the decision of the Tribunal in assessee’s own case for the assessment year 2012–13 and 2013–14 [2018 (12) TMI 57 - ITAT MUMBAI] we hold that the management fee received by the assessee from DDIL is not in the nature of fees for technical services but business profit. Having held so, it is necessary to examine whether such business profit is taxable in India. In this regard, the contention of the learned Authorised Representative is, as per Article–5(6)(b) of India–Singapore Tax Treaty if the employees of the assessee for rendering services to the AE in India for a period of more than 30 days, it will constitute PE. He submitted, in the relevant previous year, only two employees of the assessee have stayed in India for rendering services for 18 man–days and 15 solar–days. Thus, he submitted, in neither of the cases, the stay of the employees in India has exceeded 30 days. That being the case, no PE existed in India to bring to tax the business profit earned by the assessee. In our view, the aforesaid claim of the assessee has neither been considered by the Assessing Officer nor by learned DRP, as; they have treated the management fee received by the assessee as fees for technical services. In view of the aforesaid, we direct the Assessing Officer to examine assessee’s claim that there is no PE in India in terms of Article–5(6)(b) of the India–Singapore Tax Treaty. In case assessee’s claim is found to be correct, no part of the management fee would be taxable in India. Therefore, subject to the aforesaid verification, the grounds raised are allowed. Interest u/s 234B - HELD THAT:- As decided in favour of the assessee by the Tribunal while deciding assessee’s appeals for the assessment years 2011–12, 2012–13 and 2013–14. While deciding the issue, the Tribunal has held that liability to pay advance tax is not on a non–resident as the liability is on the payer to deduct tax at source under section 195 of the Act while making such payment. Following the decision of the Co– ordinate Bench in assessee’s own case, we hold that interest under section 234B is not chargeable. Issues:1. Nature of management fee received by the assessee - business profit or fees for technical services.2. Existence of Permanent Establishment (PE) in India for taxability of business profit.3. Levy of interest under section 234B of the Income-tax Act.Analysis:Issue 1: Nature of Management FeeThe appeal challenges the assessment order treating the management fee as fees for technical services. The assessee, a Singapore tax resident, provided advisory services to its Indian subsidiary, earning a management fee. The Assessing Officer considered it fees for technical services, taxable at 10% under the India-Singapore Tax Treaty. The DRP upheld this decision. The assessee argued that the fee was business profit, not fees for technical services, citing past tribunal decisions. The Tribunal agreed, holding the management fee as business profit, not taxable as fees for technical services.Issue 2: Permanent Establishment (PE)The assessee claimed no PE in India as its employees stayed less than 30 days. The Assessing Officer and DRP did not consider this claim, assuming the fee as technical services. The Tribunal directed the Assessing Officer to verify the PE claim under Article 5(6)(b) of the India-Singapore Tax Treaty. If no PE existed, no part of the management fee would be taxable in India.Issue 3: Levy of Interest under Section 234BThe assessee challenged the levy of interest under section 234B. The Tribunal, following past decisions, held that liability to pay advance tax is on the payer to deduct tax at source, not on a non-resident like the assessee. Thus, interest under section 234B was deemed not chargeable, making its levy inconsequential in light of the decision on the first issue.In conclusion, the appeal was partly allowed, with the Tribunal ruling in favor of the assessee on the nature of the management fee and the non-chargeability of interest under section 234B. The Assessing Officer was directed to verify the existence of a PE in India for taxability of the business profit.