2024 (3) TMI 717 - AT - Income Tax

Sub-contracting charges and sales commission for editorial services not taxable as FIS under India-USA DTAA Article 12(4)

SPi Global US Inc Versus DCIT International Taxation Circle-3 (1) (2) New Delhi

ITAT Delhi held that sub-contracting charges received by assessee from SPi India do not satisfy the 'make available' condition under Article 12(4) of ... Taxability of income in India - FIS - sub-contracting charges paid by SPi India to the Assessee - condition of ‘make available’ of technical knowledge - India-USA DTAA - HELD THAT:- As decided in Assessee’s own case for A.Y 2019-20 [2023 (7) TMI 406 - ITAT DELHI] sub-contracting charges received by the assessee does not satisfy the make available condition as envisaged under Article 12(4) of the India-USA DTAA and hence are not chargeable to tax as FIS in India in the hands of the assessee. Accordingly, all the grounds of appeal are decided in favour of the assessee. Taxability of sales commission - The assessee renders services relating to e-publishing work in the nature of editorial services including page composition, language polishing, indexing, correcting faulty grammar and punctuation etc. We have held that the said sub-contracting charges do not come within the purview of “Fees for Included Services” (“FIS”) under the India-USA DTAA the connected service of sales and marketing support service also does not satisfy the make available conditions and hence, is not taxable. Accordingly, we allow ground of assessee and delete the addition. Levying interest u/s 234A - assessee submitted that as per the notification No.93/2020/F. No.370142/35/2020-TPL, dated 31/12/2020, the due date for furnishing income tax return for the impugned AY 2020-21 was extended to February, 15, 2021, therefore, the AO erred in levying interest u/s 234A for the A.Y.2020-21 as the assessee has filed the return of income on February, 2021, which is well within the extended due date - HELD THAT:- We remand the issue to the file of the AO with a direction to verify the extended due date for filing the return and the actual date of return filed by the Assessee and pass appropriate order in accordance with law. According, the ground No.5.1 of the assessee is partly allowed for statistical purposes. Levying of interest u/s 234B - Considering the submission made by the AR, we deem it fit to remand the issue of levying interest u/s 234B of the Act to the file of the AO to verify and re-compute the assessed income and the tax thereon in accordance with law. Accordingly, ground No.5.2 of the assessee is partly allowed for statistical purpose. Non-consideration of refund due to the assesse - assessee submitted that while arriving at the demand payable in the computation sheet, the AO erred in making an erroneous in adjustment towards amount refunded without appreciating the fact that no refund was granted to the assessee and sought for remanding in the issue to the file of the AO - HELD THAT:- Considering the submission made by the AR, we remand the issue involved in ground to the file of the AO to consider the submission Issues Involved:1. General Grounds2. Validity of final assessment order passed in consequence of DRP directions.3. Non-taxability of sub-contracting charges.4. Non-taxability of sales commission.5. Miscellaneous grounds including levying interest under section 234A and 234B.Summary:General Grounds:Ground No.1 is general in nature and requires no adjudication.Validity of Final Assessment Order:Ground No.2 and its sub-grounds pertain to the violation of Circular No.19 of 2019 regarding the DIN. The Assessee did not press these grounds, leading to their dismissal.Non-taxability of Sub-contracting Charges:Grounds No.3.1, 3.2, and 3.5 were not pressed by the Assessee and hence dismissed. Grounds No.3.3 and 3.4 were argued, with the Assessee contending that the lower authorities erred in treating sub-contracting charges as FIS under Article 12(4) of the India-USA DTAA without satisfying the 'make available' condition. The Tribunal followed its earlier decision in the Assessee's own case for A.Y.2019-20, holding that the sub-contracting charges do not satisfy the 'make available' condition and are not taxable as FIS. Consequently, the additions made by the AO were deleted.Non-taxability of Sales Commission:Grounds No.4.1 to 4.4 were not pressed by the Assessee and hence dismissed. Grounds No.4.5 and 4.6 argued that the lower authorities erred in concluding that services were made available to the recipient. The Tribunal held that since the main services do not satisfy the 'make available' condition, the connected sales and marketing support services also do not satisfy this condition and are not taxable. The additions were deleted.Miscellaneous Grounds:- Ground No.5.1: The issue of levying interest u/s 234A was remanded to the AO to verify the extended due date for filing the return and the actual date of return filed by the Assessee.- Ground No.5.2: The issue of levying interest u/s 234B was remanded to the AO for re-computation.- Ground No.5.3: The issue of non-consideration of refund was remanded to the AO to consider the Assessee's submission and pass an appropriate order.Conclusion:The appeal filed by the Assessee is partly allowed for statistical purposes.