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2024 (9) TMI 1506
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....2023 for the assessment year 2015- 16 is arising out of the order of the Commissioner of Income Tax (International Taxation), Chennai passed u/s. 263 of the Income Tax Act, 1961 (hereinafter the 'Act') vide order dated 06.01.2023. The assessee has also filed stay applications seeking stay of outstanding demand for the assessment years 2014-15, 2016-17 & 2017-18. ITA No.259/CHNY/2023 2. At the outset, the ld.counsel for the assessee stated that, first of all, he is arguing on merits and thereafter he will argue on the issue of validity of reassessment proceedings i.e., jurisdictional issue. The ld.counsel for the assessee drew our attention to the following Ground Nos. 5 to 8 raised on merits:- 5. The learned AO and the DRP have erred in law by making an addition to the total income of the Appellant merely based on details of proposed remittances in the form of extracts of Form 15CA filed by the payer entities. 6. The learned AO and the DRP have erred in law by treating the amount as 'fees for included services' under Article 12(4) the India-USA Double Taxation Avoidance Agreement ('DTAA'). 7. Notwithstanding the above, the learned AO and the DRP hav....
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....not offered to tax in the return of income and why it should not fall under the category of 'fee for included services [FIS]' under the Act and the India-USA tax treaty. The company replied vide letter dated 28.02.2022 stating that the service provided by the company is not taxable as FIS under Article 12 of the India-US Tax Treaty and reiterated that it cannot reconcile the amount merely on the basis of exact data of Form No.15CA filed by the payer entity. The assessee vide response dated 25.03.2020 inter-alia stated the following:- "It is not possible to reconcile merely based on the extracts of remittance data filed by the Indian payer entities with its banker(s) unless it is provided with complete/necessary details/documents in relation to such remittances. The details of remittances are filed by Indian payers with its banker and the payee is not privy any filings made by the payer entities with its banker. Form 15CA is filed prior to remittance of funds with a tentative estimate of the date of payment of such funds and hence, it is not mandatory that such payment was made on such date or made at all in entirety. Notwithstanding the above, as....
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....tions and gone through the facts and circumstances of the case. We noted that the assessee is engaged in the business of designing, engineering, and manufacturing systems for various automotive clients as well as rendering IT support services. The assessee company entered into an IT support services agreement to provide routine operational and maintenance support services. The Assessing Officer while preparing assessment order taxed the receipts from remittances received on account of services provided by the company amounting to Rs. 1,26,58,51,703/- was brought to tax despite claimed by the assessee that services provided by the company is not taxable as FIS under Article 12 of the India-US Tax Treaty and also reiterated that these receipts could not be reconciled merely on the basis of exact data of Form No. 15CA filed by the payer entity. The DRP also rejected the claim of the assessee. Now before us, the ld.Counsel argued that the Assessing Officer as well as the DRP erred in observing that the services rendered under the services agreement are in the nature of business support services in the field of treasury, corporate quality, planning and logistics, legal, human resources,....
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....arties, or otherwise use all or any portion of the Services in any way other than in connection with the conduct of the Business in the ordinary course of business. (b) Performance of Excluded Services VASI will, at its sole cost and expense, perform (or cause to be performed) all Excluded Services that are necessary to the continued operation of the Business or performance of the Services. Notwithstanding anything in this Agreement to the contrary, Visteon will have no obligation to perform (or cause the Visteon Service Providers to perform) any Service to the extent that such Service is dependent in any respect upon the performance of an Excluded Service that a Service Recipient fails to perform (or fails to cause to be performed). (c) Correction of Processing Errors VASI is responsible for, and will cause the other Service Recipients to assume responsibility for: (i) the accuracy and completeness of all data of information submitted by a Service Recipient to the applicable Service Provider for processing or transmission in connection with the Services ("Data"); and (ii) any errors in and with respect to Data or information obtained from the Service Provider to ....
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....relevant, in a manner consistent with current practices of Visteon and/or the applicable Visteon Service Provider, and appropriately upgrade or enhance such equipment, software, and operational features maintained or controlled by the Service Recipients, as may be necessary to remain compatible with any systems used by Visteon and/or the applicable Visteon Service Provider as of and after the Effective Date in connection with providing the Services in a manner consistent with provision of such Services before Effective Date." The ld. Counsel further took us through the Clause 9 of the services agreement, wherein ownership of the intellectual property are described in Clause 9, which reads as under: "9. Ownership of Intellectual Property and IT-Assets 9.1 Intellectual Property (a) Any Intellectual Property owned by Visteon or any Visteon Service Providers, or third- party licensors or other service providers that may be operated or used by Visteon or any Visteon Service Provider in connection with the provision of the Services under this Agreement will remain the property of Visteon or the applicable Visteon Service Provider or third-party licensors or ....
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....escribed in 'Exhibit A- IT Services Description', in this services including Engineering IT Services, Business application services, Manufacturing IT solutions services, Data management services, End user computing services, Central IT support, Security services, Network services, Server services, Telecom services, IT staff support services, and consequently fees and expenses, how these are to be determined. The ld.Counsel drew our attention to the Appendix A, wherein usage of business applications and their functionalities are described at Pages 156 to 158 and in Appendix C -Responsibility chart as enclosed at pages 160 to 163 of assessee's paper book. The ld.Counsel also drew our attention to Exhibit B-Services Agreement for IT Projects, which is enclosed in assessee's paper book at pages 164 to 170 and further, copies of invoices are also enclosed. 6. In view of the above, ld.Counsel first of all took us through the Indo-US DTAA, which is enclosed at Pages 88 to 108 of assessee's paper book and referred Article 12(4), which reads as under: Article 12 Royalties and fees for included services "4. For Purposes of this Article, 'fees for included services' means pa....
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....mputer software development. Under paragraph 4(b), technical and consultancy services could make technology available in a variety of settings, activities, and industries. Such services may, for examples, relate to any of the following areas: 1. Bio-technical services; 2. Food Processing 3. Environmental and ecological services; 4. Communication through satellite or otherwise; 5. Energy conservation; 6. Exploration or exploitation of mineral oil or natural gas; 7. Geological surveys; 8. Scientific services; and 9. Technical training. 7. We have heard rival contentions and gone through facts and circumstances of the case. We noted that the AO while passing draft assessment order u/s. 144C of the Act, proposed addition on account of receipts from remittances during financial year 2013-14 relevant to this assessment year 2014-15 on account of providing IT support services, maintenance services, etc., to its sister concerns in India for the reason that the operations of the assessee company is highly complicated and systems have been codified and methods to be adopted as per business need. The ....
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....services to its clients. Except for the Security Services, Network services, Server services, Telecom Services and IT Staff Support Services, services rendered under Other heads is in the nature of Technical services and fall under the category of Fees for Technical Services under section 9(1)(vii)(b) of the IT Act, 1961 and as Fees for Included Services as per Article 12(4) of the India-US DTAA as the services rendered, as seen above, satisfied the 'make available' clause." 8. We noted that the DRP simpliciter confirmed the action of AO by observing that the assessee has not been able to demonstrate that the services rendered do not lead to 'make available' technical knowledge, experience, skill, know how or process to the assessee. Further, there is no information on what was the nature of services rendered and the information contained therein have to be head as 'fees for included services' as per Article 12(4)(a) of the Indo-USA DTAA. Hence, the panel confirmed the action of the AO in treating the payments received by the assessee during the year under consideration as 'fees for technical services u/s. 9(1)(vii)(b) of the Act and 'fee for included services' under Article 12(....
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....wherein the technical knowledge, skill etc., must remain with the person receiving the services even after the particular contract comes to an end. Want to back of that, in the present case there is no such clause in the service agreement which we have gone through and substantially reproduced in our order. The nature of services provided by assessee which the company merely centralizes the IT related services to achieve a standardized IT environment and payment towards access to developed standard business / engineering applications, data management by providing disaster recovery / back up services, helpdesk support services, user administration, maintenance of IT infrastructure support services, telecom services do not make available any technical knowledge, experience, skills, etc., to the recipient, since the recipient cannot at any time independently manage the IT environment and requires continuous re-course to the company for the said services. Hence the service provided by the assessee company do not fall within the ambit of 'fee for included services' as defined under Article 12 of India US DTAA and hence, not taxable in India. 10.1 Admittedly, the assessee is a non-res....
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....ot follow that he is making use of the technology which the service provider utilises for rendering technical services. The crux of the matter is after rendering of such technical services by the service provider, whether the recipient is enabled to use the technology which the service provider had used. Therefore, unless the service provider makes available his technical knowledge, experience, skill, know-how or process to the recipient of the technical service, in view of the clauses in the DTAA the liability to tax is not attracted." and finally at para 31 held as under:- "31. Therefore, the assessees not being possessed with the technical knowhow to conduct this prospecting operations and reconnaissance operations, engaged the services of Fugro which is expert in the field. By way of technical services Fugro delivered to the assessees the data and information after such operations. The said data is certainly made use of by the assessees. Not only the said data and information was furnished in the digital form, it is also provided to the assessees in the form of maps and photographs. These maps and photographs which were made available to the assessees cannot be cons....
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....lowed and issue is decided in favour of the assessee. 10.3 Another case cited by ld.counsel for the assessee of ITAT, Delhi Bench in the case of GE Energy Management Services Inc., vs. ADIT reported in [2022] 135 taxmann.com 173, wherein the Delhi Tribunal noted that the assessee company entered into an agreement with the Indian company to provide off-shore maintenance and support services. As per agreement, the assessee's broad scope of work was to provide off-shore maintenance and support services from outside India and no part of services was defined under the agreement were rendered by the assessee from India. The Tribunal in these facts, held as under:- 27. From the above explanation provided in the MOU that forms an integral part of tax treaty that service only, if it makes available technical knowledge, experience, skill, know-how or processes to the service recipient. The receiver of this service can be said to acquire the relevant skills used by service provider only if he acquires those skills in such a way that he can himself use them independently without getting any assistance or being dependent on the service provider in future. 28. The facts of t....