2023 (9) TMI 107 - AT - Income Tax

Tribunal Partly Allows Appeals: Taxability of IT Services and Guarantee Fees Upheld; Some Issues Sent Back for Review.

The appeals were partly allowed, with certain issues remitted back to the Assessing Officer (AO) for further consideration and adjudication. The Tribunal ... Income accrued in India - Determination of taxable income under the head “IT Services” - levy of taxation on the alleged receipt for sale of IT Services as FTS - as per assessee no permanent establishment in India and the services were performed outside India in Finland, thus these receipts in lieu of IT Services are not taxable as FTS in the hands of the assessee - HELD THAT:- As decided in assessee own case [2019 (6) TMI 777 - ITAT KOLKATA] Tribunal has recorded the finding that no doubt the assessee has no permanent establishment in India and these services were also rendered outside India but the services has been used in India and, therefore, it is taxable in India. The ITAT as well as DRP has made reference to Article 12(5) of India-Finland DTA in this connection. During the course of hearing, we asked the ld. Counsel for the assessee to show how these services available for everybody and anybody can claim it over the counter. These are specific services for the entities of the assessee only, which are to be used in their respective organisation between different countries. Therefore, as far as the user of the services in India is concerned, their fees paid for such user in India deserve to be taxed in India. DRP has observed that there is no clause to make available in the treaty between India and Finland. According to which, it was not necessary upon the assessee to make the technology available to Indian entity and only then the receipt would be taxable. Without making it available, if the technology has been used, then also, on those receipts, the assessee has to pay taxes. Whether receipt received in the shape of guarantee fees deserves to be taxed in India within the meaning of Article 21 of India- Finland Treaty? - According to the ld. DRP, the activities of giving of guarantee are only a routine activity. It is an obligation to its subsidiary being the owner of the subsidiary. Hence it is more likely to be a shareholders’ obligation/service than business activity. The ld. DRP has held that it is not a business activity and we do not find any error in this finding of the ld. DRP. Because except its subsidiary, the assessee has not given Bank Guarantee to anybody else, which can establish that it was engaged in the business of providing Bank guarantee. It was just only safeguarding the business interest of a subsidiary and providing them this type of guarantee. The commission income earned on providing such guarantee is taxable under the head “income from other sources”. The ld. DRP has rightly dealt with the issue and rightly directed the ld. Assessing Officer to tax it under the head “income from other sources” as per Article 21. Additional ground of appeal - interest receipts on refund - as under Article 11 of DTA, this interest income ought to have been assessed @ 10%, which has not been considered by the revenue authorities - On due consideration of the record, we find that there is no discussion on this point in the impugned order of the ld. DRP as well as of the ld. Assessing Officer. Therefore, we remit this issue to the file of ld. Assessing Officer for re-adjudication. The ld. Assessing Officer shall take into consideration the order of the ITAT [2023 (3) TMI 353 - ITAT KOLKATA] in the assessee’s own case. Issues Involved:1. Determination of taxable income under the head 'IT Services.'2. Taxability of income from fee for Corporate Guarantee.3. Assessment of interest on refund under Article 11 of the DTAA.4. Granting of TDS Credit.Summary:1. Determination of taxable income under the head 'IT Services':The assessee provided IT Services to Indian customers and contended that the income from these services, performed in Finland, is not taxable in India as per Article 12 of the India-Finland DTAA. The Assessing Officer (AO) disagreed, proposing the addition. The Dispute Resolution Panel (DRP) upheld the AO's view, stating that the services, though performed in Finland, were used in India, making the income taxable in India under Article 12(5) of the DTAA. The Tribunal reaffirmed this, citing the assessee's case for A.Y. 2015-16, where it was held that the income from services used in India is taxable in India.2. Taxability of income from fee for Corporate Guarantee:The assessee received guarantee fees from Outotec India Pvt Ltd and argued that this income should be classified as business income, not taxable in India due to the absence of a permanent establishment (PE). The DRP found that providing guarantees was not a routine business activity but an obligation to its subsidiary, thus classifying the income as 'income from other sources' taxable under Article 21 of the India-Finland DTAA. The Tribunal upheld the DRP's decision, noting that the guarantee was provided to safeguard the subsidiary's business interests, not as a regular business activity.3. Assessment of interest on refund under Article 11 of the DTAA:The assessee claimed that interest on refund should be taxed at 10% as per Article 11 of the DTAA. The Tribunal noted that there was no discussion on this issue in the orders of the AO or the DRP. Consequently, the matter was remitted back to the AO for re-adjudication, considering the ITAT's order in the assessee's own case for A.Ys. 2018-19 and 2019-20.4. Granting of TDS Credit:The assessee claimed a TDS Credit of Rs. 32,58,306/-, but the AO granted only Rs. 24,79,026/-. The Tribunal remitted this issue back to the AO for re-verification and adjudication, directing the AO to provide a specific finding if the reduced amount is justified.Conclusion:The appeals were partly allowed, with specific issues remitted back to the AO for further consideration and adjudication. The Tribunal emphasized the need for due opportunity of hearing and adherence to previous ITAT orders in the assessee's case.