2023 (1) TMI 1207 - AT - Income Tax

Tribunal Rules on Non-Taxability of Fees Under India-France & India-USA DTAAs; Directs Reassessment & Corrections.

Edenred SA C/o SRBC Associates & LLP Versus Dy. Commissioner of Income Tax International Taxation Circle–2 (2) (1), Mumbai, Edenred SA C/o Walker Chandiok & Co. LLP Versus Dy. Commissioner of Income Tax International Taxation Circle–2 (1) (2), Mumbai, Asstt. Commissioner of Income Tax International Taxation, Circle–2 (2) (1), Mumbai

The Tribunal allowed the appeals for statistical purposes, directing the AO to reassess issues based on its findings. It concluded that TSIS and ... Income deemed to accrue or arise in India - TSIS Service Fee received by the assessee is taxable as royalty- India France DTAA - HELD THAT:- 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 [2021 (1) TMI 76 - ITAT MUMBAI] for the assessment year 2013-14. The coordinate bench of the Tribunal after considering the facts of the case 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 provisions of the Act or under the India Singapore DTAA. An the present case, from the nature of services provided by the assessee, it is evident that the services are performed by the assessee’s own personnel in France and the payment on account of search services was directly remitted by the Indian group companies to the assessee. As part of the TSIS Service Agreement, the Indian group companies only receive standard services and no licences in any software/right to use any software etc. is provided - there is no sharing of any confidential information by the assessee with the Indian group companies. The term ‘Royalty’ is not as widely defined in India France DTAA as in the India Singapore DTAA, which was taken into consideration by the coordinate bench of the Tribunal in the case of sister concern. Since it has not been disputed that the facts of the present case are similar to the case of the assessee’s group concern, wherein income arising from services of similar nature are held to be not taxable as royalty, therefore, 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. Management Service Fee received by the assessee in the nature of royalty - As per the assessee, the 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. From the perusal of documents available on record, it is evident that the services are general management services rendered by the assessee to its Indian group companies on a recurring basis and there is no use or right to use any copyright, patent, trademark, design, etc. Further, there is no sharing of any confidential information by the assessee with the Indian group companies. Though the assessee is a resident of France and therefore, is entitled to provisions of the India France DTAA, however, even under the provisions of the Act the fees received by the assessee for rendering the aforesaid services do not constitute royalty. As the impugned management services rendered by the assessee are to be examined only on the touchstone of royalty in the present appeal, therefore, we are of the considered view that Management Service Fee received by the assessee is not in the nature of royalty and thus, the AO is directed to delete the addition on this account. As a result, ground No. 3 raised in assessee’s appeal is allowed. Taxability of management service fees received by the assessee as fees for technical services - India France DTAA - HELD THAT:- As during the year under consideration, the assessee rendered the services to its Indian group companies under Management Services Agreement which was executed in the preceding assessment year. Under the agreement, the services provided by the assessee broadly include management services in the nature of public relations services, corporate social responsibility, partnership opportunities, networking coordination, financial services, legal services / advices, human resources. The assessee, inter-alia, claimed benefit under para 7 of the Protocol to the India France DTAA and submitted under the restrictive definition of ‘fees are included services‘ as provided in Article 12(4) of the India USA DTAA, the services provided by the assessee are not taxable. In order to decide the claim of the assessee, it is relevant to note the provisions of the Protocol to the India France DTAA. In the present case, the assessee is a resident of France and thus in view of para-7 of the Protocol to the India France DTAA has sought the benefit of the restricted scope of the definition of ‘fees for included services’ as provided under the India USA DTAA. We are of the considered view that CBDT Circular No. 3/2022 dated 03/02/2022 is not applicable to the present appeal. Therefore, in view of the aforesaid findings, we are of the considered opinion that the assessee is entitled to claim the benefit of the restricted definition under India USA DTAA in view of the Protocol to the India France DTAA. Since the assessee has been found not to have ‘made available’ any technical knowledge, experience, skill, or know-how, therefore, Management Service Fees received by the assessee cannot be taxed under the provisions of Article 13 of the India France DTAA read with para 7 of the Protocol to the India France DTAA and Article 12(4) of India USA DTAA. In view of the above, the alternative claim of the assessee under India Finland DTAA becomes academic. Further, once the taxability fails in terms of the treaty provisions, there is no occasion to refer to the provisions of the Act, as in terms of section 90(2). The taxability of impugned receipts, u/s 9(1)(vii) of the Act, is thus wholly academic. Hence, the AO is directed to delete the addition on this account. Accordingly, ground No. 2 raised in assessee’s appeal is allowed. Issues Involved:1. Assessment of total income.2. Taxability of Technology and Strategic Information Systems (TSIS) fees as royalty.3. Taxability of Management Service Fees as royalty or Fees for Technical Services (FTS).4. Computation of gross tax.5. Short grant of credit for Tax Deducted at Source (TDS).6. Levy of interest under section 234A of the Income Tax Act.7. Levy of interest under section 234B of the Income Tax Act.Detailed Analysis:1. Assessment of Total Income:The assessee challenged the assessment of total income for the years under consideration, arguing that the Assessing Officer (AO) erred in assessing income significantly higher than the returned income. The Tribunal noted this as a general ground and did not require separate adjudication beyond addressing specific issues raised.2. Taxability of TSIS Fees as Royalty:The AO considered TSIS charges taxable as royalty under both the Income Tax Act and the India-France Double Taxation Avoidance Agreement (DTAA). The Dispute Resolution Panel (DRP) upheld this view, citing similar cases within the assessee's group. However, the Tribunal referenced a coordinate bench decision in a similar case involving the assessee's group concern, Edenred PTE Ltd, where such fees were not considered royalty. The Tribunal concluded that the TSIS Service Fees should not be taxed as royalty, directing the AO to delete the addition.3. Taxability of Management Service Fees:The AO initially treated Management Service Fees as Fees for Technical Services (FTS). The DRP later categorized these fees as royalty. The Tribunal examined the nature of services provided under the Management Services Agreement, which included general management services without the transfer of any proprietary rights or confidential information. The Tribunal found that these services did not constitute royalty under the India-France DTAA. For the year 2015-16, the Tribunal also addressed the applicability of the Most Favoured Nation (MFN) clause in the Protocol to the India-France DTAA, allowing the assessee to benefit from the restrictive definition of FTS under the India-USA DTAA. The Tribunal concluded that the Management Service Fees were not taxable as royalty or FTS, directing the AO to delete the addition.4. Computation of Gross Tax:The assessee contested the computation of gross tax, claiming discrepancies. The Tribunal did not provide a separate adjudication on this issue, considering it general in nature and addressed through the resolution of other specific grounds.5. Short Grant of TDS Credit:The assessee claimed a short grant of TDS credit. The Tribunal restored this issue to the AO for verification and correction in accordance with the law.6. Levy of Interest under Section 234A:The assessee contested the levy of interest under section 234A, arguing that the return was filed within the prescribed time. The Tribunal remanded this issue to the AO for verification and de novo adjudication.7. Levy of Interest under Section 234B:The assessee argued against the levy of interest under section 234B, referencing the Supreme Court decision in DIT v. Mitsubishi Corporation, which exempts non-residents from such interest if their revenues are subject to tax withholding in India. The Tribunal allowed this ground in favor of the assessee.Conclusion:The Tribunal allowed the appeals for statistical purposes, directing the AO to reassess the issues based on the Tribunal's findings, particularly regarding the non-taxability of TSIS and Management Service Fees as royalty or FTS, and to correct the TDS credit and interest levies accordingly.