TaxTMI 
TaxTMI 
2024 (8) TMI 1424
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....However, for convenience the grounds of both the appeals are reproduced below; ITA No.784/Del/2023:- 1. On the facts and circumstances of the case and in law, the Ld. AD and the Hon'ble DRP erred in making an addition of INR 23,35,13,560 towards reimbursement of cost for providing IT/Support services considering the same to be taxable in India without appreciating the facts of the case that the amount received by the Appellant is a cost-to-cost reimbursement and there is no income clement embedded in it. 2. On the facts and circumstances of the case and in law, the Ld. AO and the Hon'ble DRP erred in making an addition of INR 23,35,13,560 to the income of the Company on account of reimbursement of cost for providing IT Support services by treating the same as fees for included services (FIS) under Article 12 of the India- USA Double Taxation Avoidance Agreement ('DTAA) 3. On the facts and circumstances of the case and in law, the Ld. AD and the Hon'ble DRP erred in merely assuming that there is make available of technical knowledge by the Appellant to the service recipient and training being provided by the Appellant to the service reci....
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....governed by the provisions of the India-USA DTAA which fact is undisputed. It is pertinent to give a brief description of the IT related services provided by the Assessee to its AE(s), which are as provided below: a) IT Application services The Company provides support services to Invesco Group companies in relation to various application platforms and their respective systems. The applications used by Invesco Group are substantially procured from third party. An IT Application cost will largely include the cost of applications, cost of maintaining such applications and the cost of team/personnel providing continuous support service to the Invesco Group in relation to various applications. b) IT infrastructure services An IT Infrastructure service cost will include the cost of central servers, data networks, voice networks, central storage, audio visual systems, cost of maintaining such infrastructure and the cost of team /personnel providing continuous support service to the Invesco Group. The Company provides support services by ensuring availability of right infrastructure to Invesco Group companies. c) IT Security services A....
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....al knowledge, skill, know-how etc. In this regard, it was explained that by virtue of the Master Inter-Company Services Agreement(s) ("MSA") dated 20.05.2019 signed with the Indian AE [Invesco (India) Private Limited], the Assessee was to provide a myriad of IT related Support services to its AE due to a continuing need for assistance in such areas. It shall be pertinent to note that the arrangement as per the MSA was to continue for an indefinite period and for the services provided, the Assessee was compensated via a Service fee being the cost-to-cost reimbursement. It may be noted that by virtue of the MSA the Assessee has been providing its services since 2018 and continues to provide the same till date. As for further reference, the preamble and compensation clause and Annex II to the MSA are reproduced below: "This Agreement is made between Invesco (India) Private Limited (formerly known as Hyderabad IT Support Services Private Limited), (hereinafter referred to as the "Recipient"), a company organised and existing under the laws of India and having its registered address at 15th Floor, Block 6. North Tower, DivyuSree Orion Raidurgam Village. Serilingampa....
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....operly reflects the benefit attributed to the Services." "Annex II " Information Technology (IT) support services For the avoidance of doubt, please note that each Appendix contains a non- exhaustive description of the types of services to be utilised for the benefit of the Recipient The Service Fee shall be determined and allocated to the Parties based on the allocation keys as detailed in the attached appendices. The Provider shall charge the recipient in a currency agreed between the parties. All sums not paid at the due date of payment shall be subject to interest at a rate of the currency LIBOR plus 1%" 2.3 It was specifically pleaded by Assessee, that in the process of provision of IT services, none of its personnel visited India in connection with the rendition of such services. Thus, in the absence of any transfer of technical know-how to its AE(s), the 'make available' clause under Article 12(4)(b) of the India-USA DTAA is not satisfied and hence the case of the Assessee cannot be covered under "Fees for Included Services or FTS as contemplated under the India-USA DTAA. 2.4 However, the AO was not satisfied and framed a Dr....
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....y the Assessee and hence no skill, technology, know-how is made available by the Assessee to its Indian AE(s). In view of the necessary condition of make available not being satisfied, the reimbursements could not partake the character of FTS/FIS. In addition, the Assessee distinguished its case from the case laws relied upon by the AO in its Draft Assessment Order. 2.7 The DRP, however, upon considering the submissions of the Assessee, vide order dated 15.12.2022, rejected the same. In this regard, the DRP was of the opinion that the case of the Assessee clearly falls within the ambit of FTS under the Act and the India- USA DTAA. 2.8 Ld. Counsel Sh. Deepak Chopra, submitted that the DRP erred insofar as it observed that the Assessee provides training to personnel of its global AE(s) and the services provided by it includes technical guidance, support including advice for the maintenance of various services and that without such technical guidance and support, such IT services cannot be rendered. Thus the sole issue that arises for consideration in the present case is whether the IT Management and other support services provided by the Assessee could partake the character of ....
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...., are made available to the person purchasing the service, within the meaning of paragraph 4(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. 3.2 Ld. Counsel has submitted that the services rendered by Assessee are routine IT management services and do not make available any technical knowledge or skills to its Indian AE(s). In this context we find that the services provided by assessee are routine and most importantly are recurring. 3.3 Now in this regard, admittedly this was a continuing contract and the services were provided year after year since 2018. We thus find substance in the contention of Ld. Counsel that in case technical knowledge was made available to the AEs then such AEs would not have required such services year after year. In our considered opinion, if the assessee had enabled the service recipient to apply the technology on its own, then why would the service recipient require such service year after year every year. The facts on record show that the recipient of the services is not enabled to provide the same service without recourse to the service provider. i.e, the assessee. ....
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....s that the Assessee was providing training to the personnel of Invesco Group and thus the 'make available condition stands satisfied in the present case the Ld. Counsel submitted that the Assessee only supports and administers IT training and same does not lead to transmission of specialized knowledge or skill. In this regard reliance is placed on the decision of the Hon'ble jurisdictional High Court in the case of SFDC Ireland Limited v. Commissioner of Income Tax & Another [Neutral Citation 2024: DHC: 1910-DB/ wherein it has been held as under- "42. Insofar as the products for SFDC India's internal use were concerned, they stood restricted to those which would enable SFDC India to demonstrate the functionality of SFDC products in trade shows and exhibitions, to train its customers and employees on the use of those products and products to administer and manage customer accounts. None of these aspects would appear to be imbued with a technical hue. Imparting training or educating a person with respect to the functionality and attributes of a software or application would clearly not amount to the rendering of technical service under the DTAA. More importantly,....
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....king a decision of commercial nature is a consultancy service. The AAR has further considered the definition of the word 'Consultancy' as defined in the Oxford English dictionary and has observed that a consultant is a person who gives professional advice or services in a specialized field. However, the AAR failed to appreciate that the word 'Consultancy' appearing in the Article is to be interpreted in the context of consultancy which makes available technical knowledge, etc. and not of managerial nature. The reading of the Article clearly indicates that the consultancy service must be which makes available technical knowledge, etc. Sub-para (c) to Article 13(4) restricts such services to those which make available technical knowledge or consist of development and transfer of a technical plan or technical design. Thus, a harmonious reading of the provision of Article 13 in its entirety, clearly establishes the intent of the DTAA in making income chargeable to tax only if the services availed pertain to technical services or consultancy services. Technical services in this context mean services requiring expertise in a technology. By Consultancy Services, in this co....
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....ain the contention of the Ld. Counsel. 8. Ld. Counsel has also stressed that otherwise too, the fee received by the Assessee is in the nature of reimbursement as it is simply allocation of costs without any mark-up and thus same not be treated as income of the Assessee. In this regard reliance is placed on the decision of the Hon'ble High Court of Delhi in the case of Planetcast International Pte. Ltd. v. ACIT-(2023) 152 taxmann.com 422 (Delhi Trib.) wherein it has been held as under:- "59. We have considered rival submissions and perused the materials on record. From the assessment order, it is discernible that the receipts are in the nature of cost-to-cost reimbursement of payments made to Singapore government. Hence, the receipts did not have any profit element embedded therein. In fact, the Assessing Officer has not disputed the aforesaid factual position. In case of DIT (International Taxation) v. A.P. Moller Maersk AS [2017] 78 taxmann.com 287/246 Taxman 309/392 ITR 186/[2017] 5 SCC 651. the Hon'ble Supreme Court has observed that once the character of the payment is found to be in the nature of reimbursement of expenses without having any profit element e....