2025 (3) TMI 461 - AT - Income Tax

UK entity's advisory services to Indian company don't qualify as Fee for Technical Services under India-UK DTAA Article 13(4)

ITAT Delhi held that fees received by UK entity for services under group service agreement and advisory services to Indian company do not constitute Fee ... Accrual of income in India - fee received towards services rendered under group service agreement - FTS as provided under Article 13(4) of India UK DTAA - HELD THAT:- As facts being identical respectfully following the order of the Tribunal for the assessment years 2018-19 and 2019-20 we hold that the receipts towards services rendered under Intra Group Service Agreement would not fall within the definition of FTS as provided under Article 13(4) of India UK DTAA and hence not taxable at the hands of the assessee in India. Coming to fee received towards advisory services rendered by the assessee to RCIPL it is observed that the assessee has rendered the following services of Identifying potential buyer for the client, Provided support in preparation of management presentation and other material for distribution to potential buyers, all of which was based on the inputs received from the client and supported in coordination of marketing exercise and Supported RCIPL in advising on potential transaction options and evaluation of pros and cons of such options. On a reading of the assessment order and the DRP directions, we found that none of the authorities have given any reasoning as to how the advisory services rendered by the assessee to RCIPL during the year under consideration satisfies make available clause and is taxable as FTS under Article 13 of the India UK DTAA. In our considered view none of the above services rendered by the assessee to RCIPL suggest that such services provided by the assessee resulted in transfer of technical knowledge, knowhow, skill etc. and fulfills the make available clause under Article 13(4)(c) of India UK DTAA. Therefore, the reasoning and the findings given by the Tribunal for the assessment years 2018-19 and 2019-20 applies even for the fees for advisory services and, therefore, we hold that such receipts also would not fall within the definition of FTS as provided under Article 13(4) of India UK DTAA. Ground nos. 2 & 3 are allowed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment were:1. Whether the final assessment order dated January 20, 2023, and the DRP directions were void ab initio and issued beyond the timeline provided under the Income-tax Act, 1961.2. Whether the amounts received by the assessee for services rendered under the group services agreement and advisory services were rightly classified as Fees for Technical Services (FTS) under Article 13 of the India-UK Double Taxation Avoidance Agreement (DTAA).3. Whether the services rendered by the assessee made available technical knowledge to the recipient, thus qualifying as taxable FTS under Article 13 of the DTAA.ISSUE-WISE DETAILED ANALYSIS1. Jurisdiction and Timeliness of the Assessment OrderThe appellant initially contested the jurisdiction and timeliness of the assessment order and DRP directions, arguing that they were issued beyond the statutory timeline and were void ab initio. However, these grounds were not pressed by the appellant during the proceedings, and thus, the Tribunal dismissed them without further consideration.2. Classification of Services as Fees for Technical Services (FTS)Relevant Legal Framework and PrecedentsArticle 13 of the India-UK DTAA defines FTS as payments for services that make available technical knowledge, experience, skill, know-how, or processes. The Tribunal referred to its prior decisions in the assessee's cases for assessment years 2018-19 and 2019-20, where similar issues were adjudicated.Court's Interpretation and ReasoningThe Tribunal noted that for a service to be classified as FTS under Article 13, it must make available technical knowledge to the recipient, enabling them to apply such knowledge independently. The Tribunal emphasized the 'make available' clause, which requires a transfer of technology or skill that allows the recipient to perform the service independently in the future.Key Evidence and FindingsThe Tribunal observed that the services rendered by the assessee under the group services agreement and advisory services were primarily advisory and supportive, lacking the transfer of technical knowledge or skill. The services included human resource management, internal audit, corporate events management, group finance, legal compliance, and marketing support, none of which involved transferring technology or skills to the recipient.Application of Law to FactsThe Tribunal applied the definition of FTS under Article 13(4) of the India-UK DTAA to the facts, concluding that the services rendered did not fulfill the 'make available' condition. The services were advisory and supportive in nature, not resulting in the transfer of technical knowledge or skills.Treatment of Competing ArgumentsThe Tribunal considered the arguments of the Revenue, which supported the classification of the services as FTS. However, the Tribunal found that neither the Assessing Officer nor the DRP provided sufficient reasoning to demonstrate how the services made available technical knowledge to the recipient.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal ReasoningThe Tribunal reiterated its prior reasoning: 'The expression 'make available' has been subjected to judicial interpretation in various decisions. Technological skill, know-how etc. to render the services should get transferred to the service recipient in a manner so that the service recipient is able to perform the same services independently on its own in future, without the aid and assistance of the service provider.'Core Principles EstablishedThe judgment reinforced the principle that for services to be classified as FTS under the DTAA, they must involve the transfer of technical knowledge or skills that enable the recipient to independently apply such knowledge or skills.Final Determinations on Each IssueThe Tribunal concluded that the receipts from services rendered under the group services agreement and advisory services did not fall within the definition of FTS under Article 13(4) of the India-UK DTAA. Consequently, these receipts were not taxable in India. The grounds concerning the classification of services as FTS were allowed in favor of the assessee.As the Tribunal decided ground no. 2 in favor of the assessee, the without prejudice ground raised by the assessee in ground no. 2.1 was not adjudicated and left open.In conclusion, the appeal of the assessee was partly allowed, with the Tribunal holding that the services rendered did not qualify as FTS under the DTAA, thus not subject to taxation in India.