TaxTMI 
TaxTMI 
2022 (4) TMI 1062
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....raised in other two appeals. Other grounds in all the three appeals are general in nature and hence do not require adjudication. 4. The main common issues in all the three appeals relate to addition made by the Assessing Officer ("AO") under section 143(3) of the Act on account of management fee and IC Labour charges received by the assessee from its subsidiary in India and on account of miscellaneous services rendered to certain third parties in India. 5. The assessee operates as a global services advisory and research company. Assessee assists corporations in developing and implementing leading edge sourcing strategies including captive outsourced and shared services approaches. The assessee is a LLC registered in United States of America (USA) and hence entitled to be governed by the provision of the Double Taxation Avoidance Agreement between entered into between India and USA ("India-USA DTAA"). 6. Since the underlying facts in issues are identical in all the three appeals we have considered the facts of the AY 2010-11 in ITA No. 2469/Del/2015. For AY 2010-11, the assessee filed its return of income declaring total income of Rs. 91,04,468/- in nature of royalty subjec....
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....nd consideration received for 'provision of services of technical or other personnel'' is fee for technical services ('FTS') as per Explanation 2 to section 9(l)(vii) of the Act and also Article 12 of Indo-USA DTAA. Therefore argument of the appellant that agreement is just about sharing of resources and does not amount to FTS is legally fallacious. Further, Article 12(4)(b)of Indo-USA DTAA requires that 'make available' should be satisfied. MOU of Indo-USA DTAA and various judicial decisions provide definition of 'make available' as a situation when recipient of services is enabled to apply the services on its own in future without recourse to the service provider. In present case, borrower member is simply deficient in number of consultants and can borrow consultants from other member if having surplus number. That means that borrower member or recipient of services is already in a position to apply those services and borrowing of more consultants simply results in enhancement of its capacity. In other words, the recipient is in a position to apply those services in future on its own even without borrowing more consultants from service providers. Therefore 'make avail....
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....mestic act and relevant DTAA subject to taxation on gross basis. The action of the AO on this count is upheld." 7.1 In respect of receipt from third parties, the Ld. CIT(A) partly allowed the claim of the assesee by deleting addition made in respect of consideration for web promotion, banner ads, branding on website, online listing services etc. and confirmed the addition in respect of consideration for subscription service to data base and custom research holding them to be in the nature of royalty. The finding of the Ld. CIT(A) is reproduced below: "7.4.1 Regarding consideration received for subscription service to data base and custom research, it is seen that the appellant has comprehensive data bases for BPO/ ITO etc., which contains research themes gathered from different sources. These reports help in projecting future scenarios. The database subscription service provides access to research reports, articles, white papers and other data which is made available to subscribers via an interactive website. The subscriber is granted a non-exclusive, non-transferable right and licence to use, modify, copy, distribute and display all or any portion of subscription mater....
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....ple of law that interest u/s 234A/B/C are mandatory and consequential in nature. The AO is directed to recompute these interests after giving effect to this order. The ground of appeal is disposed off accordingly." 8. Aggrieved the assessee is in appeal before us. 9. The first common issue (Ground 2) in three appeals relates to the taxability of management fee received by the assesee on account of management support services rendered to Everest India under the provisions of the Act and/or under India-USA DTAA as FTS / FIS. 9.1 The Ld. DR strongly relied on the order of the Ld. CIT(A) / AO and submitted that the management services rendered by the assesee to Everest India fall within the scope of the definition of FIS under the India-USA DTAA as these services satisfy the make available requirement enabling Everest India to make use of these services on its own in future. 9.2 The Ld. AR made a detailed submission on scope and applicability of FIS in context of the nature of services provided by the assesee under the Master Support Services Agreement. At the outset, the Ld. AR submitted that the assesee does not have a permanent establishment ("PE") in India and manageria....
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.... c. Financial and legal guidance d. Client Relationship Management e. Insurance f. Peer Review 2. Marketing a. Brand Awareness b. Marketplace analysis c. Competitive analysis d. Webinars e. Leadership forum f. Speaking engagements 3. Finance and Accounting a. Payroll b. General ledger c. Employee time and expense d. Revenue and expense accruals e. Payables f. Accounts Receivables g. Cash Management h. Financial Reporting i. Budgeting j. Line of credit access management 4. Human Resource management a. Recruiting b. Compensation c. Benefits administration d. Legal 5. Information Technology a. Laptop Maintenance b. Help desk support c. Desk side support d. User Id and password e. Remote access f. System/antivirus g. Intranet h. Inter site communication links, email, voice mail etc i. Standard computer platform j. New hardware and software k. Trainin....
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....s. The categories of technical and consultancy services are to some extent overlapping because a consultancy service could also be a technical service. However, the category of consultancy services also includes an advisory service, whether or not expertise in a technology is required to perform it. Under paragraph 4, technical and consultancy services are considered included services only to the following extent: (1) as described in paragraph 4(a), if they are ancillary and subsidiary to the application or enjoyment of a right, property or information for which are royalty payment is made; or (2) as described in paragraph 4(b), if they make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Thus, under paragraph 4(b), consultancy services which are not of a technical nature cannot be included services. {emphasis supplied} Paragraph 4(b) Paragraph 4(b) of Article 12 refers to technical or consultancy services that make available to the person acquiring the services, technical knowledge, experience, skill, know-how, or processes, or consist of the dev....
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.... involved. Everest India is not enabled to apply any technology on its own without recourse to the service provider i.e. the assesee. These services have not resulted in any enduring benefit to Everest India by way of any knowledge which could be applied by it on its own in future without depending on the assessee. These are general managerial services which are received by the assesee on recurring basis. Therefore, the test laid down under Article 12(4)(b), in our considered view, are not satisfied in the present factual scenario. 9.8 Thus, management fee received by the assesee from Everest India is not taxable as FIS under the provisions of India-USA DTAA. Accordingly, this ground is allowed in favour of the assesee. 10. The second common issue (Ground 3) in three appeals relates to the taxability of IC Labour Charges received by the assesee on account of supply of manpower to Everest India under the provisions of the Act and/or under India-USA DTAA as FTS/FIS. 10.1 The Ld. DR relied upon the order of the CIT(A) in support. The Ld. AR submitted that the services rendered by the assesee are purely in the nature of manpower supply services and do not satisfy the two fold ....
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....ed on the decision of the Hyderabad ITAT in ACIT vs. IIC Systems (P.) Ltd. [2010] 127 TTJ 435 (Hyd.) wherein the ITAT held under: "7. We have considered the rival submissions arid perused the material available on record. There is no dispute with regard to the facts of the case and the only dispute involved in these matters relate to the nature of the payments made, so as to determine whether, the TDS provisions are attracted or not. Thus, the primary question that arises is whether the payments in question made by the assessee to the ACSC, were by way of fee for technical services or merely by way of payment for supply of personnel. The next question is whether the payments in question can be considered as fee for 'included service' or not. The ultimate question that arises is whether the payments in question are taxable as business profit in the hands of the recipient as per art. 7 of the DTAA between India and USA. Before we go into the main issue, we may note that the CIT(A) clearly held that the liability to deduct tax at source under section 195 of the Act is dependent upon the taxability of the income in the hands of the recipient. When the payment made by t....
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....services which are not technical in nature, cannot be treated as 'fee for included services'. We also notice that the fact that in the instant case the agreement of the assessee with ACSC is only for manpower supply or supply of technical personnel and it is well accepted even by the AO in para 2 of the impugned orders passed under section 201(1) r/w section 195 of the Act. The DTAA between India and USA also clarifies that the provision of services may require technical input by a person providing the person (sic-service), which does not per se mean that technical knowledge or skill are made available to the person purchasing the service. Similarly, use of the product which embodies technology shall not per se be considered to make the technology available and rendering of the service must enable the payer to apply such technology. Moreover, even if there is a transfer of developed work, software etc., it is not the ACSC but the assessee who transfers the right. It appears that neither the assessee company nor the ACSC are engaged in computer programming activity, which is evident from paras 1 and 2 of the orders of the AO and even the developed work never belonged to the ....
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....reating the payments as chargeable to tax in India, is not justified. In our view, the CIT(A) was justified in holding that the services rendered by the ACSC for which remittances in question have been made by the assessee are akin to those of a recruitment or placement agency, and would not come within the purview of 'fee for inducted services' within the meaning of art. 12(4)(b) of the DTAA between India and USA. Even if the payments would constitute fees for technical services under section 9(l)( vii) of the IT Act, in view of section 90(2) of the Act, the Indian company has option to be governed by the provisions of the tax treaty, if the same are more beneficial to it. Accordingly, the payments so made by the assessee company to ACSC will not be chargeable to tax in India, in view of the provisions of the DTAA between India and USA. We are also Supported in this behalf by the view taken by the Department, vide order of the CIT(A)-XXXI, Mumbai dt. 27th Dec, 2007, a copy of which is filed by the assessee at pp. 116 to 141 of the paper book with regard to the taxability of similar receipts in the case of the recipient involved in these very matters, viz. ACSC for the asst....
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....nyone in the public can subscribe to the database and on payment of requisite fee access these general purpose reports. The database and server of assessee is in USA. The database subscription is granted through a website, which allows download of published reports, annual market updates, white papers, data cuts. The published reports and database is copyright protected. The subscriber gets a non-exclusive, non-transferable right and license to use the published report. The subscription material can be used by subscriber for business purpose only by and among subscriber's employees. The ownership of and the copyright to subscription material as well as the database remains vested in assessee, the subscriber cannot copy, reproduce, distribute, republish, display, post, or transmit in any form or by any means any of the subscription material or alter, modify, or change, the subscription material without the prior written permission of the assesee. Subscriber is permitted to use subscription material without alteration of factual content and properly attribute the name of assessee as the source of such information. Further, subscriber is legally bound to give copyright notice and boun....