TaxTMI 
TaxTMI 
2025 (8) TMI 1776
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....ING SERVICES 2. That the Ld. AO/ Dispute Resolution Panel ('DRP') erred on facts and in law in holding that the fee for management consulting services amounting to Rs. 49,79,77,135/-received by the Appellant from Bain & Company India Private Limited, its wholly owned subsidiary (hereinafter referred to as 'Bain India') is in the nature of 'Fees for Included Services' ('FIS') under Article 12(4)(a) of the India-USA Double Taxation Avoidance Agreement ('DTAA') without appreciating that management consultancy services are not ancillary or subsidiary to the enjoyment of rights/information received by Bain India under the royalty agreement. 3. That the Ld. AO/DRP erred in characterizing management consultancy services as FIS under Article 12(4)(a) of the DTAA for the first time this year, contrary to settled position in preceding years despite there being no change in the facts and circumstances of the case. 4. That the Ld. AO/DRP erred on facts and in law in holding that the management consultancy services provided by the Appellant to Bain India under consulting service agreement are FIS under Article 12(4)(b) of the DT....
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....d in law in holding that the reimbursements of Rs. 22,09,57,384/- received by the Appellant from Bain India are in nature of FIS under Articles 12(4)(a) and 12(4)(b) of the DTAA without appreciating that these payments are mere reimbursement of expenses incurred by the Appellant for and on behalf of Bain India, without any mark-up or service element. 11. That the Ld. AO/DRP erred on facts and in law in treating the reimbursements of Rs. 22,09,57,384/- received by the Appellant from Bain India as FIS under Article 12(4)(a) of the DTAA without appreciating that the activities in relation to such reimbursement are not ancillary or subsidiary to the enjoyment of rights/information received by Bain India under the royalty agreement. 12. That the Ld. AO/DRP erred in characterizing the reimbursement as FIS under Article 12(4)(a) of the DTAA for the first time this year, contrary to settled position in preceding years despite there being no change in the facts and circumstances of the case. 13. That the Ld. AO/ DRP erred on facts and in law in not appreciating that the payments made for which such reimbursements were made were not in lieu of any technical knowled....
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....n initiating penalty proceedings under section 274 read with section 270A of the Act. 3. Facts of the case, in brief, the Assessee is a foreign company and is a tax resident of the USA amenable to Indo-USA DTAA. It is engaged in the business of providing consultancy services to multinational companies, which include areas such strategy, performance improvement, organization enhancement, mergers & acquisitions, and private equity. The Assessee also provides support services to its subsidiaries, for which it is compensated at an arm's length basis. 4. The Assessee has an Indian subsidiary M/s Bain India with which it has entered into the following agreements which are summarised below: i) Royalty Agreement dated June 1, 2006 as per which the Assessee has granted Bain India the right to use its intangible asset base which includes the brands registered in the name of the Assessee and worldwide databases. In lieu of this, the Assessee charges royalty at the rate of 5% of the accrual basis revenue served for management consulting services provided by Bain India. ii) Consultancy Services Agreement ("CSA") dated April 1, 2010 as per which the Assessee and Bain ....
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.... Bain India- INR 33,36,43,225/- (claimed as non-taxable) 6. The Assessee offered the royalty receipt as taxable income under the provision of the India- US Tax Treaty (DTAA) read with Section 115A of the Income-tax Act, 1961(Act). The other receipts were not offered to tax due to the availability of treaty benefit under the DTAA. The dispute in the present appeal is limited to receipts on account of consultancy services, professional support services and reimbursement of expenses. 7. The Ld. Assessing Officer (AO) held that the amount received by the Assessee on account of provision of management consultancy services and professional support services are in the nature of fee for included services (FIS) under Article 12(4)(a) of the DTAA as they are ancillary or subsidiary to the enjoyment of rights/information received under the royalty agreement entered between the Assessee and Bain India. Further, the AO treated the reimbursement of expenses also as FIS under Article 12(4)(a) of the DTAA on the basis that reimbursement has no independent existence and is related to either consulting or professional support services and therefore, these are also ancillary or subsidiary to th....
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....re the amount received for provision of consultancy services during the present year is under the same CSA dated April 1, 2010 which existed in AY 2018-19 and AY 2019- 20. 12. Per contra, the ld DR vigorously relied on the orders of the AO and the DRP. The ld DR however could not controvert the assertion that the facts in the impugned year is identical to the facts of AY 2018-19 and 2019-20. 13. We have heard the rival submissions and have perused the relevant material on record. We find that the coordinate bench of ITAT in assessee's own case for AY 2018-19 and AY 2019-20 in ITA 567/Del/2022 dated 29.08.2023 has held that the consultancy services rendered by the Assessee to Bain India are not technical in nature and that these services do not make available any technical knowledge, experience, skill, knowhow etc. as is the requirement under the DTAA and that the same cannot be treated as FIS under Article 12(4)(b) of the DTAA. The relevant part is as under: 16. So firstly it has to be seen whether the services rendered are of the nature of technical or consultancy. To understand the true import of the expression of technical or consultancy, it is necessary to refer ....
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...., knowledge or skill etc. but is merely transferring commercial information to the Indian Company by utilizing technical skill. Thus, keeping in perspective the aforesaid factors as well as the ratio laid down in the judiciary precedents cited before us, we have hesitation in holding that the receipts in dispute are not in the nature of FIS under Article 12(4)(b) of India-USA DTAA We order accordingly. 14. Respectfully following the ITAT decision as above, we are of the considered view that in the present case, none of the conditions provided in DTAA were satisfied and following the principle of consistency, consultancy services rendered by the Assessee to Bain India are not technical in nature cannot be treated as FIS under Article 12(4)(b) of DTAA and accordingly we direct the AO to delete the said addition. Ground 2 to 4 are allowed. 15. The ld AR, on Ground Nos. 5-15 with respect to the reimbursement of expense pertaining to third party vendors amounting to Rs. 11,64,85,266 and other miscellaneous expenses amounting to Rs. 22,09,57,384/-, submitted that the issue of characterizing the reimbursement of third-party costs as FIS under Article 12(4)(b) has been decided in fav....
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....ied. More so, when the assessee is providing such services under cost reimbursement agreement since 2010. He submitted, while deciding the issue relating to the nature and character of very same receipts and whether it requires withholding of tax in case of Bain India, the Tribunal in ITA No. 2845/Del/2016 dated 10th November 2021 has held that receipts being in the nature of cost to cost reimbursement for marketing and other services rendered by third party, is not taxable in India. Therefore, withholding of tax is not required. Thus, he submitted, the decision of the Tribunal squarely covers the issue in favour of the assessee. 22. Learned Departmental Representative relied upon the observations of the Assessing Officer and learned DRP. 23. We have considered rival submissions and perused the material on record. 24. It is observed, while considering the issue relating to the nature and character of identical receipts and whether it requires withholding of tax, the Tribunal in case of the payer i.e. Bain India in assessment year 2009-10, in the order referred to above, has held that the payment cannot be treated either as FIS under Article 12(4)(b) of th....
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....d 12.10.2023 has held that receipts on account of support services are not FIS as under: "16. On a detailed analysis of the services rendered, it appears that some of the services rendered may not fall in the category of technical or consultancy services. However, some of the services rendered may fall either under technical or consultancy services. But the most crucial aspect, which requires examination is, whether in course of rendition of such services, the assessee has made available any technical knowledge, know-how, skill etc. to Bain India so as to enable Bain India to employ such technology, know-how, skill etc. without the aid and assistance of the assessee. In this context, it must be borne in mind that the agreement for providing support services was executed between the assessee and Bain India on 1st day of April, 2010. Whereas, the present appeal relates to assessment year 2019-20. Thus, it is patent and obvious that from the year 2010 onwards, the assessee is providing support services to Bain India on regular basis. Had it been a case of transfer of technology from the assessee to Bain India by making available technical knowledge, know-how, skill etc. qua t....
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....kill, know-how etc. as contemplated under the DTAA and that the amount received for provision of support services rendered by the Assessee to Bain India cannot be treated as FIS under Article 12(4)(b) of the DTAA. Accordingly, we direct the AO to delete the addition. Ground 16 to 19 is allowed. 21. On Ground No. 20 with respect to tacit acceptability under Direct Tax Vivad se Vishwas Scheme in the past assessment years in relation to CSA and reimbursement of expenses incurred for third-party service provider, the ld AR submitted that in Assessee's own case for AY 2019-20 this hon'ble tribunal in order dated 12.10.2023 passed in ITA No. 1620/Del/2022 has considered the objection raised by the department and negated the said argument. 22. Per contra, the ld DR vigorously relied on the orders of the AO and the DRP. 23. We have heard the rival submissions and have perused the relevant material on record. We find that the coordinate bench of ITAT in assessee's own case for AY AY 2019-20 in ITA 1620/Del/2022 dated 12.10.2023 has held as under: 20. Before parting, we must observe that while bringing to tax the receipts from business consultancy services and reimb....
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....In this regard, the Appellant received INR 14,57,058 from the Societe in the relevant assessment year. The ld AR argued that the Ld. AO has erroneously characterized this receipt of INR 14,57,058/- as royalty income of the Appellant under the DTAA. The ld AR submitted that in terms of Article 12(3) of the DTAA, the term 'royalty' is the consideration for the use or right to use any copyright of a literary, artistic or scientific work relying on the Hon'ble Supreme Court in Engineering Analysis Centre of Excellence Private Limited v. Commissioner of Income-tax [2023] 157 taxmann.com 458 (SC). 28. The ld AR argued that in terms of the provisions of the DTAA read with the judicial precedents, 'royalty' shall be constituted only in case where a non-resident gives an India resident party to use or right to use of a copyright. The ld AR placed his reliance on the decision of Hon'ble High Court of Delhi CIT v. Relx, Inc. [2024] 160 taxmann.com 109 (Delhi) wherein it has been held that subscription fee cannot be royalty. Reliance was placed on the decision of Hon'ble High Court of Delhi in CIT v. Springer Nature Customer Services Centre GmbH [ITA 306/2023] wh....
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....y have to establish that the payments so received by the assessee was consideration for the use of or the right to use any copyright or a literary, artistic or scientific work as defined by article 12(3) of the DTAA. Granting access to the database would clearly not amount to a transfer of a right to use a copyright. We must bear in mind the clear distinction that must be recognised to exist between the transfer of a copyright and the mere grant of the right to use and take advantage of copyrighted material. Neither the subscription agreement nor the advantages accorded to a subscriber can possibly be considered in law to be a transfer of a copyright. In fact, it was the categorical assertion of the assessee that the copyright remains with it at all times." 31. Similarly, the Hon'ble High Court of Delhi in CIT v. Springer Nature Customer Services Centre GmbH [ITA 306/2023] adopted a similar position. Relevant paragraphs are extracted below: "25.2 Furthermore, in our opinion, the subscription amount cannot be treated as royalty, having regard to the fact that there is nothing on record to suggest that the respondent/assessee has granted the right in respect of copyri....