TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 642
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....") is bad in law. 2. Taxability of income earned from certain group services 2.1. That on the facts and in the circumstances of the case and in law, the Ld. AO erred in holding that the income earned from provision of various group services (such as treasury services, business area services and market area services) is taxable in India as fees for technical services ("FTS") under the provisions of Article 12 of the India-Finland Double Taxation Avoidance Agreement ("DTAA") without appreciating that such income is not chargeable to tax as FTS as per the provisions of section 9(i)(vii) of the Act in the first instance. 2.2. Without prejudice to the above and on the facts and in the circumstances of the case and in law, the Ld. AO erred in holding that the income earned from various group services is taxable as FTS under the provisions of Article 12 of the DTAA by not appreciating that income earned from these services performed entirely in Finland and none of the employees of the Assessee have visited India to provide these services. Therefore, income from these services would not be taxable in India in view of the provisions of Article 12(5) of the DTAA. ....
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.... under Computer Assisted Scrutiny Selection (in short 'CASS') on the issue of large refund claimed by non- resident. During the year under consideration the assessee had earned revenue under the following heads in India: i. Recharge of group services fees, business area service fee and other centralized services ii. Guarantee fees iii. Reimbursement of External Training Cost 4. The Ld. AO proposed certain additions to the assessee and the assessee approached the Ld. DRP objecting to the same, which issued certain directions on 30.12.2024 to the Ld. AO, who incorporated the same and made an addition of Rs.38,48,97,421/-. The addition was proposed on account of services provided under the Master Service Agreement (in short 'MSA') which included provisions of certain centralised services to the subsidiaries of the assessee including but not limited to global communication and digital marketing, sales process and tool development, strategy and business intelligence, human resources, legal, treasury, finance and tax etc., which were named as group services. The Ld. AO examined Article 12 para 1 of the DTAA between India and Finland, the allocati....
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....factual and legal framework established in prior assessments, the Ld. Panel upheld the Ld. AO's decision, reiterating its stance for AYs 2018- 19, 2020-21 and 2021-22. The objections raised by the assessee were dismissed and the Ld. AO added an amount of Rs.16,28,920/- to the total income which was assessed at Rs.38,65,26,341/-. 6. Aggrieved with the assessment order, the assessee has filed the appeal before the Tribunal. Before us, the Ld. AR appeared and stated that the issues are covered against the assessee by the order of the Coordinate Bench of ITAT, Kolkata in ITA No. 300/KOL/2022 for AY 2018-19 and 269/KOL/2023 for AY 2020-21 in the assessee's own case. However, the assessee was agitating the same so as to keep the issues alive. Our attention was drawn to the written submission filed regarding the income from certain group services fee which is reproduced as under: "3. The Appellant is engaged in the business of rendering group services, treasury services, business area services and market services to Outotec India Private Limited ("OIPL"), Metso India Private Limited ("MIPL") and Metso Outotec India Private Limited ("MOIPL") pursuant to a Master Services Ag....
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....dingly, where FTS is paid by a resident of India to a resident of Finland, such fees would be deemed to arise in India as per the first sentence in paragraph 5 of Article 12 of the India-Finland DTAA. However, where such fees relate to services performed in Finland, the second sentence in paragraph 5 of Article 12 would override the first sentence and such income shall be deemed to arise in Finland and thus, would not be taxable in India. 7. The 'performance' condition mentioned in the second sentence in paragraph 5 of Article 12 of the India-Finland DTAA was not present in the old India-Finland DTAA (which was replaced by the currently applicable DTAA with effect from April 1, 2011). Copy of the India-Finland DTAA is enclosed at Page Furthermore, a similar performance condition only finds place in only one more DTAA entered into by India i.e., the India-Israel DTAA (wherein it has been mentioned that FTS shall be deemed to arise in a Contracting State when the services are rendered in that State and the payer is that State itself, a political sub-division, a local authority or a resident of that State). In fact, even after the new India-Finland DTAA has come into effect, ....
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....s submitted that the aforesaid issue has not yet attained finality and the aforesaid orders are the subject matter of appeals filed by the Appellant and Outotec (Finland) Oy before the Hon'ble High Court of Calcutta. Copy of the admission order passed by the Hon'ble High Court of Calcutta is enclosed at page 62 to 77 of the paperbook. 12. In view of above, it is humbly submitted that the income earned by the Appellant from performance of group services outside India does not arise in India and therefore, cannot be brought to tax in India the hands of the Appellant in India in terms of the provisions of Article 12(5) of the India- Finland DTAA." 7. In view of the fact that the issue has been decided against the assessee on the basis of the directions in the past years in its own appeals in ITA N0. 300/KOL/ 2022 & ITA No. 269/KOL/2O23 as per paras 7 and 8 thereof and also in the cases of the group concerns as mentioned in para 10 of the written submissions, we find no infirmity in the directions of the Dispute Resolution Panel/the order of the Ld. AO and dismiss Ground No. 2 of the appeal. 8. As regards the issue relating to guarantee fees received by the assessee, the....
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....ct of the directions is reproduced hereunder:- "The A.O. has held that the income is taxable by virtue of sub clause 3 of article 21 of Indo Finnish DTAA. This interpretation appears to be wrong. For the sake of clarity sub section 3 is reproduced once again: "3. Notwithstanding the provisions of paragraphs 1 and 2 of this Article, items of income of a resident of Contracting State not dealt with in the foregoing Articles of this Agreement and arising in the other Contracting State may be taxed in that other state. In this case, income of the Assessee which is a resident of Finland, is arising in Finland as bank/Parent Company guarantee has been given in Finland. The service was provided in Finland. Hence, the income has arisen in Finland. The income has not arisen in India, hence, as per sub clause 3 of article 21, income is not taxable in India" 19. Reliance in this regard is also placed on the decision of the coordinate bench of the Hon'ble Mumbai ITAT in the case of M/s Capgemini S.A vs ADIT (Mumbai ITAT) [ITA 7198/Mum/2O12], wherein the assessee, a French company had given guarantee to BNP Paribas, a French Bank, whose Indian branch had exte....
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....covered under the definition of business. In the instant case, it is humbly submitted that the Appellant gives similar guarantees to its various subsidiaries on a regular basis and as a continuous activity in order to protect its business interests which is also evident from Appellant's Articles of Association which are enclosed at page 58 to 61 of the paperbook. Thus, the act of providing guarantees on a regular and continuous basis has a direct effect on the profitability of the Appellant. Accordingly, the transactions between the Appellant and MIPL/MOIPL constitute regular business transactions, carried out with a profit motive and therefore, the guarantee fee earned by the Appellant is in the nature of its business income 26. Reliance in this regard is place on the decision of the High Court of Madras in the case of Amalgamations (P.) Ltd. v. Commissioner of Income- tax 108 ITR 895 [affirmed by the Hon'ble Supreme Court in Commissioner of Income-tax vs. Amalgamation (P.) Ltd. [1997] 92 Taxman 132 (SC)] wherein the Hon'ble High Court referred its earlier decision in Amalgamations (P) Ltd. v. CIT [1969] 73 ITR 380 (Mad), wherein it was held that furnishing guarantees for....
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....d to have accrued or arisen in India. This interpretation is also in consonance with a decision of the Supreme Court of India in the case of Hon'ble Supreme Court in the judgment of Ishikawajma-Harima Heavy Industries Ltd. vs DIT [288 ITR 408]. 30. In the instant case, as no operations were carried out in India in connection to the provision of guarantees, the question of attributing income to Indian operations does not arise at all. Accordingly, no portion of the guarantee fee earned by the Company can be deemed to have accrued or arisen in India. Therefore, the guarantee fee earned by the Appellant does not fall within the scope of total income, as outlined in section 5(2) of the Act, and the same is not chargeable to tax as per the provisions of the Act. 31. Applying the ratio of the aforesaid cases to the facts in the instant case, it is humbly submitted that the guarantee fees received by the Appellant cannot be brought to tax in the hands of the Appellant in India. Rebuttal to finding of the ITAT in Appellant's own case of AY 2018-19 and AY 2020-21 32. It is pertinent to add that the issue of income from guarantee fee is decided against the....
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....trinsically linked with the business of the Indian entity i.e. MOIPL. Correspondingly, the Appellant is also engaged in the similar business that of the Indian entity and therefore the provision of guarantee by the Appellant is in the furtherance of its own business. 34. Further, as mentioned above, Appellant gives similar guarantees to its various subsidiaries on a regular basis and as a continuous activity which establishes that the Appellant is not safeguarding the interest of its subsidiary but is engaged in the regular business of providing guarantee and the same should be considered to be in the nature of its business income. 35. However, it may be noted that the taxability of business income under the India-Finland DTAA is governed by the provisions of Article 7 which provide that business profits earned by a Finland resident can be taxed in India only if such resident carries on business in India through a PE in India in terms of Article 5 of the DTAA. In the present case since the Appellant does not have a PE in India the guarantee fee received by the Appellant from MIPL/MOIPL cannot be taxed in its hands in India under Article 7 read with Article 5 of th....