TaxTMI 
TaxTMI 
2023 (3) TMI 1485
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....o. 5674/Mum/2017 (A.Y.2012-13) are reproduced below: - "On the facts and circumstances of the case and in law; the learned AO/ learned CT(A) has: Addition of administrative support charges as fees for technical services 1. erred in upholding the contention of the learned AO that administrative support services rendered by the Appellant to Jefferies India Private Limited ("JIPL") as 'fees for technical services' as per section 9(i)(vii) of the Act and therefore, taxing the administrative support charges amounting to Rs 7,142,498 in the hands of the Appellant; 2. erred in upholding the administrative support services rendered by the Appellant to JIPL as 'fees for technical services/ included services which is taxable in India under Article 12 of the double taxation avoidance agreement between India and United States of America (Treaty') on the basis that the Appellant 'makes available' technical knowledge, experience, skill, know-how, or process to JIPL; 3. erred in failing to appreciate that the administrative support services are routine in nature and none of the services provided by the Appellant have resulted in....
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....r consideration; 14. erred in dismissing the ground raised by the Appellant in connection with initiation of penal proceedings under section 271BA of the Act without appreciating the fact that the Appellant had filed the accountant's report in Form 3CEB for the year under appeal vide submission dated 1 October 2014." 4. At the time of hearing, before us, Ld. AR has submitted the relevant facts and submitted as under: - "1. The Appellant, now known as Jefferies LLC (formerly Jefferies & Co. Inc.), is a US Tax Resident. 2. The Appellant has entered into an intra-group agreement dated 20 April 2010 (see Page 51 of the Paperbook) inter alia with Jefferies India Pvt. Ltd. ("JIPL") under Clause 3 (see Page 52 of the Paperbook) read with Schedule A (see Page 58 of the Paperbook) whereof the Appellant provides administrative services covering various areas like Compliance Department, Finance Department, Human Resource Department, Information Technology Department, Internal Audit Department, Legal Department, Operation Department, Risk Department, Tax Department and Treasury Department. The aforesaid services are provided by the Appellant at cost and no mar....
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....s. Thus, there is an element of 'make available' involved in whatever administrative/ advisory service that may have been received by JIPL. 9.5. Thus, the amount received of Rs. 71,42,498 by way of Administrative Support charges is treated as income of the assessee in the nature of Fees for Included Services and taxed accordingly." b. Insofar as reimbursement of costs of Rs. 2,30,99,178 incurred on behalf of JIPL was held taxable as fees for technical services since these amounts were incurred by the Appellant to render the above referred administrative support services. The relevant portion of the order passed by the Assessing Officer is reproduced herewith: 10.1 The assessee has submitted that the expenses incurred by Jeffery LLC was on behalf of JIPL which was mainly incurred towards Bloomberg Finance L.P.. Dow Jones & Company Inc,, MERGERMARKET (US) LTD., Royale Logistics Ltd., Business Wire, Verizon Network Integration Corp.. Universal E-Business Solutions, LLC. Chris Fowler Integration Corp., J2 Global Communications. Inc.. Blue Matrix LLC. NYSE Market Inc., Penton Business Media. Inc., etc. These expenses have been paid via bank or wire tra....
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....n turn render "marketing and consultancy services" to JIPL and to further support his conclusion relied on Schedule B of the intra-group agreement dated 20 April 2010. b. Insofar as reimbursement of costs of Rs. 2,30,99,178 incurred on behalf of JIPL was, the CIT(A) (erroneously) held expenses have been incurred by the Appellant on travelling of the employees who have travelled to India for providing consultancy services and therefore, JIPL. derived the benefits from their expertise, knowledge. Hence, the travelling expenses were incurred for rendering consultancy services and accordingly, the same is taxable as fees for technical services in India. Submission of the Appellant: Ground No. 1 to 5 Rs. 71,42,948 received by the Appellant for rendering the administrative support services 6. At the outset the Appellant submits that the CIT(A) has made the following factually incorrect observations in his order: a. In pages 28 to 36 containing his "Decision" at several places the CIT(A) has erroneously referred to Jefferies International Ltd. (JIL) (another group company) instead of the Appellant. During the hearing a copy of the CIT(A) order ....
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....ministrative support services provided by the Appellant to JIPL, the portion under the table starting with clause (a) at the bottom of page 33 and ending on page 34 is a reproduction of Schedule B, provides a list of services provided by JIPL to the other group companies. Schedule B can be found at Page 60 of the paperbook and can be traced back to Clause 5 of the intra-group agreement dated 20 April 2010 which reads as under: "For the purposes of this agreement, the marketing and consultancy services shall include, but are not limited to the following: (a) the marketing of the corporate finance services provided by JIL, Jefco or JHKL, as the case may be, and the assistance to promote contact between JIL, Jefco or JHKL and existing and potential clients in India; (b) the provision of an advisory service to JIL, Jefco or JHKL regarding any development within the relevant markets in India; (c) liaising with clients and providing feedback to JIL, Jefco or JHKL regarding the provision of corporate finance services by JIL, Jefco or JHKL, as the case may be; (d) providing assistance as necessary or requested in connection with obtaining and co....
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....It is evident from the above that: i. Marketing and consultancy services are provided by JIPL to the group companies. ii. Appellant does not provide any marketing or consultancy services. iii. Appellant provides administrative support services listed in Schedule A. 7. Now adverting to whether the administrative services provided to JIPL in the areas of Finance, Human Resource, Treasury, Tax, Risk, Operations, Information Technology are taxable or not. a. It is undisputed that the Appellant is governed by the provisions of the Indo US DTAA. b. The Appellant submits that the administrative support services are not covered by Art.12(4) as they are not technical or consultancy services that make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. c. These services are provided on a year-on-year basis and are repetitively required by JIPL. Which fact clearly demonstrates that that the services do not make available the technical knowledge otherwise, the same would not be paid repeatedly. The fees paid for administration ....
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....he alternative, it is submitted that the amount of Rs. 71,42,398 received by the Appellant is on a cost-to-cost basis and hence there is no income element and is therefore not taxable under section 9(1)(vii) of the Act. This is also confirmed by the order passed by CIT(A) in case of JIPL wherein he has found that the amount of Rs. 71,42,398 is in the nature of cost allocation and the same was allocated based on certain allocation keys, which have been agreed upon by the CBDT in the APA executed with JIPL applicable for A.Y. 2018-19 to 2022-23 and AY 2014-15 to 2017-18 (rollback years). Therefore, the amount of Rs. 71,42.398 is not taxable being reimbursement of cost incurred. In this regard, the reliance is placed on the following judgments wherein it has been held that reimbursement of cost is not taxable as fees for technical services since there is no element of income in the same: a. DIT vs. AP Moller Maersk (392 ITR 116) (SC) (Para 11) b. DIT vs. Krupp Udhe GMBH (354 ITR 173) (Bom.) (Para 6 and 7) c. CIT vs. Goldman Sachs India Finance Pvt. Ltd. (Bom.) (Para 3) d. Siemens Akstiongesellschaft (310 ITR 320) (Bom.) (Para 33) Ground No.....
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....paragraph 10.1 of the Assessment Order which reads as under: 10.1 The assessee has submitted that the expenses incurred by Jeffery LLC was on behalf of JIPL which was mainly incurred towards Bloomberg Finance L..P.. Dow Jones & Company Inc., MERGERMARKET (US) LTD., Royale Logistics Ltd., Business Wire, Verizon Network Integration Corp... Universal E-Business Solutions. LLC. Chris Fowler Integration Corp., J2 Global Communications. Inc.. Blue Matrix LLC. NYSE Market Inc., Penton Business Media. Inc., etc. These expenses have been paid via bank or wire transfer to third parties on behalf of JIPL and they have been reimbursed a cost by JIPL to Jeffery LLC via wire transfer Accordingly, this is a mere reimbursement of expenditure incurred by the assessee on behalf of JIPL" iii. It is submitted that the above submission has not been disputed by the AO after verifying the third-party bills submitted by the Appellant Para 10.1 of the assessment order. iv. It is further submitted that the CIT(A) himself on Pg. 30 to 32 of its order has reproduced the full details of the thirdparty invoices totalling to Rs. 2,30,99.178 therefore, the aforesaid finding of ....
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....ein it is held that the charges paid for availing a standard facility cannot be regarded as fees for technical services as there is no human intervention which is sine qua non for taxability under section 9(1)(vii) of the Act. a. Kotak Securities Ltd. vs CIT (383 ITR 1) (SC) (Para 8 and 9) b. Elsevier Information Systems GMBH vs. DCIT (106 taxmann.com 401) (Mum.) (Para 17) c. Kitara Capital Pvt. Ltd. vs. ITO (ITA No. 130/M/2014) (Para 10) 12. It is further submitted that the standard facility provided by the third parties do not make available any technical knowledge, experience, skill, know-how, or processes within the meaning of Article -12 of India-US DTAA therefore, the same is also not taxable by virtue of the provisions of the DTAA. In this regard, the Appellant relies on the judgments referred to in Para 11." 5. On the other hand, Ld DR briefly submitted the facts and referred to Page No. 33 of appellate order. By referring to the above findings of Ld.CIT(A), he submitted that the services rendered by the assessee denotes that the administrative services and other services offered by the assessee are regularly utilized by the JIPL and i....
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....efco and JHKL shall wishes to provide one or more of the administrative services to JIPL as set out in schedule A to this agreement. The JIPL is willing to identify potential clients for each of JIL, Jefro and JHKL for such corporate finance services as each of those intragroup companies mentioned above (in technical terms, provide marketing services to its group concerns) and in turn the group companies (JLLC, Jefco and JHKL) may engage in and to provide various administrative, day to day management and similar consulting functions in relation thereto. The fact that even the assessing officer has confirmed that the assessee has provided the administrative services to the JIPL and he is of the opinion that the services are received by the Indian entity in the course of their normal business activities and it has benefitted by employing best talent in the business to improve their business and their project. Therefore, it is continuous in nature, hence it amounts to make available. It is fact on record that the assessing officer is not disputing the fact that the assessee has provided the administrative and day to day management services to the JIPL. 8. We observe, as per clause ....
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....oyees who can carry out the aforesaid functions. Therefore, all the services relating to investment banking activities are carried out by the intra group companies through the intermediary company i.e., JIPL as per the requirements of customers/clients in India. 11. From the above, we observe that the assessee provides the administrative and day to day management services to the JIPL, this fact is confirmed by the observation and relevant material placed before us that the Indian entity JIPL does not have any support team and administrative set up to carry out the business independently. All the support services are provided by the intra-group entities and particularly, the administrative and day to day management services are provided by the assessee. The Ld.CIT(A) has confused with the two schedules viz., Schedule A and Schedule B and came to wrong conclusion by observing the bill copies submitted before him for reimbursement of certain charges for which the assessee has outsourced certain services for the whole group and whatever the services are utilized by the assesse are alone charged to the JIPL. Therefore, in our considered view, the services provided by the assessee in ....
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.... 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 Training on IT resources l Licenses and compliance m Computer and phone networks 6. Training a Global training conferences b Monthly training sessions c Ad hoc training as required 7. Legal a Contract review b Litigation management c Other legal services as required 9.5 We agree with the contention of the assesee that managerial services are outside the scope of the meaning of FIS under Article 12(4) of the IndiaUSA DTAA. Wherever the intention of the legislature is to include managerial services within the scope of FTS/ FIS, the same has been expressly mentioned therein. This contention of the assesee finds support by the jurisdictional Delhi Court judgment in the case....
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.... 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 development and transfer of a technical plant or technical design to such person. (For this purpose, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person). This category is narrower than the category described in paragraph 4(a) because it excludes any service that does not make technology available to the person acquiring the service. Generally speaking, technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc., are made available to the person purchasing the service, within ....
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....urther, the coordinate bench decided similar issues in the case of Edenred Pte Ltd v. DDIT [2020] 118 taxmann.com 2 (Mumbai - Trib.) and held as under: - "9. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. We find that the services provided under the management agreement broadly include (i) consultancy services to support the sales activities of Surf Gold, (ii) legal services, (iii) financial advisory services and (iv) human resource assistance. There is no dispute here that under the provisions of section 9(1)(vii) of the Act, rendering of management services will be taxable as FTS. However, Edenred, by virtue of section 90(2) of the Act, is eligible to rely on the provisions of the IndiaSingapore DTAA, should the same be more beneficial than the provisions of the Act. In this regard, we fruitfully rely on the judgment of the Hon'ble Delhi High Court in the case of New Skies Satellite BV & Ors (ITA No. 473/2012) wherein it is held that provisions of DTAA shall prevail over the provisions of the Act, if they more beneficial. At this moment, we refer to Article 12(4) of the In....
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.... : "By making available the technical skills or know-how, the recipient of service will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider. In other words, to fit into the terminology 'make available', the technical knowledge, skills etc. must remain with the person receiving the services even after the particular contract comes to an end. The services offered may be the product of intense technological effort and lot of technical knowledge and experience of the service provider would have gone into it. But, that is not enough to fall within the description of services which make available the technical knowledge, etc. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in future without depending on the provider." In the case of M/s Bharati Axa General Insurance Co. Ltd., the AAR has ruled as under : "9. The definition of FTS as contained in clause (b) of Article 12.4 is explicitly designed to restrict the scope and ambit of the technical and consultancy services.....
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....ble Kerala High Court in 97 taxmann.com 642 dated 09.08.2018, wherein it is held that fees for management services received by US company would not be taxable in India as there is no transfer of technical knowledge by US company to Indian company. In Shell India Markets (P.) Ltd. (supra), the applicant is an Indian company, it has a network of retail fuel stations in India. SIPCL is a group company of assessee incorporated in UK. It is in the business of providing consultancy services to various group companies. The applicant has entered into Cost Contribution Agreement (CCA) with SIPCL for provisions of General Business Support Services (BSS). While providing General BSS, SIPCL works closely with the employees of the applicant and supports/advices them. Thus, General BSS is made available to the applicant. However, we find that subsequently, after considering the decision in the case of Shell India (supra), the Mumbai ITAT in the case of Linklaters LLP (ITA No. 1690/Mum/2015) dated 31.01.2017 held that from none of legal advisory services it can be said that technical knowledge, skill, experience, knowhow or process remained with the clients to whom services were rendered....
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.... day management of JIPL considering the fact that JIPL does not have any infrastructure to carry out any administration and day to day management. These facts are confirmed by the lower authorities and also facts on record. Therefore, these services are outside the ambit of FIS and FTS. Hence we are incline to allow the grounds raised by the assessee. 14. Coming to the next issue of reimbursement of expenses, the assessee has raised ground numbers 6 to 9. Ld AR has brought to our notice various third party invoices which are for the services rendered to JIPL and the assessee has reimbursed the same without their being any mark up. It was submitted that the expenses were incurred by the assessee on behalf of the JIPL, which are towards Bloomberg Finance LLC, Dow Jones & Company Inc, Merger Market US Ltd, Royale Logistics Ltd, Business Wire, Verizon Network Integration Corp, Universal E Business Solutions LLC, Chris Fowler Integration Corp, J2 Global Communications Inc etc., These expenses are clearly certain services required by the JIPL and we have already indicated in the previous paragraph that the JIPL does have any administrative office, all the necessity day to day manageme....