BAIN & COMPANY, INC.,USA vs. DCIT INTL. TAXATION CIRCLE, NEW DELHI

GROUNDS PERTAINING TO REIMBURSEMENT OF THIRD-PARTY VENDORS 5. That the Ld. AO/ DRP erred on facts and in law in holding that the reimbursements of Rs. 11,64,85,266/- received by the Appellant from Bain India under cost reimbursement agreement are in nature of FIS under Article 12(4)(a) and Article 12(4)(b) of the DTAA without appreciating these payments are mere reimbursement of expenses on account of services provided by third party incurred by the Appellant for and on behalf of Bain India, without any mark-up or service element.

6. That the Ld. AO/ DRP erred on facts and in law in holding that the reimbursements of received by the Appellant from Bain India under cost reimbursement agreement are in nature of 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.

7. That the Ld. AO/DRP erred in characterizing the reimbursement on account of third- party vendors 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.

8. That the Ld. AO/ DRP erred on facts and in law in not appreciating that the services in relation to such reimbursement are provided by third party vendors which are in the nature of provision of secondary

Page 3 of 28 information and are non-technical in nature and does not make available' any technical knowledge, know-how, skill, etc. to Bain India as contemplated under Article 12(4)(b) of the India-USA DTAA.

9. That the Ld. AO/DRP erred on facts and in law in not following the principles of judicial propriety by disregarding the decision of this Hon'ble Tribunal rendered in the case of Bain India wherein it was held that reimbursements made by Bain India to the Appellant on account of third-party vendors are not taxable in India and thus not liable to tax deduction. GROUNDS PERTAINING TO REIMBURSEMENT OF MISCELLANEOUS EXPENSES

10. That the Ld. AO/DRP erred on facts and 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 knowledge, know-how, skill, etc. made

Page 4 of 28 available to Bain India and thus, would not qualify as FIS under Article 12(4)(b) of the India-USA DTAA.

15. That the Ld. AO/DRP erred on facts and in law in holding that the receipt of reimbursements of expenses from Bain India have no independent existence and the reimbursement are related to the consultancy and support services rendered by the Appellant to Bain India.

GROUNDS PERTAINING TO SUPPORT SERVICES

16. That the Ld. AO/DRP erred on facts and circumstances of the case and in law in holding that the payment received for provision of support services under the support services agreement amounting to Rs.33,36,43,225/- are FIS under Article 12(4)(a) of the DTAA without appreciating that these are not ancillary or subsidiary to the enjoyment of rights/information received by Bain India under the royalty agreement.

17. That the Ld. AO/DRP erred in characterizing the support 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.

18. That the Ld. AO/ DRP erred on facts and in law in concluding that the support services provided by the Appellant to Bain India under the support service agreement are consultancy in nature.

19. That the Ld. AO/DRP erred on facts and in law in holding that the support services provided by the Appellant to Bain India under the support service agreement are FIS under Article 12(4)(b) of the DTAA

Page 5 of 28 failing to appreciate that these services are not technical in nature and does not 'make available' any technical knowledge, know-how, skill, etc. to Bain India as contemplated under the DTAA.

20. That the Ld. AO/DRP erred on facts and in law in holding that the Appellant has accepted similar additions in the past assessment years while opting to settle the past years' appeals under Direct Tax Vivad Se Vishwas Scheme.

21. That the Ld. AO erred on facts and in law in charging interest under Section(s) 234A and 234B of the Act.

22. That the Ld. AO erred on facts and in law in initiating penalty proceedings under section 274 read with section 270A of the Act.

per which the assessee gets receipt of reimbursements from Bain India for the expenses incurred on certain services provided by the Assessee on behalf of Bain India. These reimbursement are on cost-to-cost basis without any markup and Reimbursement on account of third-party cost

(a) Royalty from Bain India- INR 27,57,87,105/- (offered to tax)

Page 8 of 28 India- INR 33,74,42,652/- (claimed as non-taxable)

(d) Receipt on account of professional support services provided to Bain India- INR 33,36,43,225/- (claimed as non-taxable)

12 includes only certain technical and consultancy services. Technical services would mean, services requiring expertise in a technology. Whereas, consultancy services would mean advisory services. The categories of technical and consultancy services are to some extent overlapping, because, a consultancy service could also be a technical services. However, the category of consultancy services also includes an advisory service, whether or not expertise in technology is required to perform it. The nature of services provided under the agreement, such as, client engagement, market research, strategic research and planning etc., in our view, certainly, do not fall under the category of technical services.

17. Further, even assuming that they fall under the category of consultancy services, however, the most crucial condition to be satisfied to qualify as FIS under Article 12(4)(b) is the make available condition. In the facts of the present appeal, the departmental authorities have not brought any material on record to demonstrate that while rendering services, the assessee had made available technical knowledge, expertise, skill, knowhow etc. to Bain India to apply such technology, knowhow etc. independently without the aid and assistance of the assessee. The fact that Bain India is still dependent on the assessee for such services is established from the fact that since the year 2010, the assessee had been providing such services to Bain India on year to year basis. Had assessee made available the technical knowledge, knowhow skill etc. to Bain India, there would not have been any occasion for the assessee to provide such services on year to year basis as the making available or transfer of such technical knowledge, knowhow, skill etc. would have enabled Bain India to apply them on its own without requiring the assessee to continue with providing them.

18. It is further relevant to observe, as per Example 7 of the Memorandum of Understanding to India-USA DTAA, a receip cannot be treated as FTS merely because the service provider

Page 13 of 28 while providing consultancy services has used substantial technical skill and expertise. Because, while providing such services, the America Company is not making available to the Indian Company, a technical expertise, 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.

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.

16. 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.

In ground no.3, the assessee has challenged the addition of Rs.10,98,97,261 as FIS under Article 12(4)(b) of Indian-US DTAA.

20. Briefly, the facts are, in course of assessment proceedings, the Assessing Officer noticed that in the year under consideration, the assessee has received an amount of Rs.10,98,97,261 from Bain India towards reimbursement of client related expenses under a cost reimbursement agreement. After calling for the necessary details and examining them, the Assessing Officer concluded that the nature of receipts is FIS under Article

12(4)(b) of the Tax Treaty. Accordingly, he added it to the income of the assessee. Though, the assessee raised objections against such addition, however, learned DRP did not interfere.

21. Reiterating the stand taken before the departmental authorities, learned counsel submitted that the receipts are in the nature of reimbursement of actual cost without any mark up. He submitted, the amount represents third party cost incurred by the assessee for procuring services of market/industries research on behalf of Bain India and reimbursements are on cost to cost basis. He submitted, the services provided by the third party to the assessee are industry research services which included services and cost pertaining to call with subject matter and industries research incurred for and behalf of the clients. There is no technical skill or knowhow employed in industries research services. He, thus, submitted, the conditions of section 12(4)(b) of the Tax Treaty are not satisfied. 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 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

Page 16 of 28 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 the Tax Treaty or royalty. Therefore, it was held by the Tribunal that there was no requirement on the part of the payer i.e. Bain India to withhold tax.

Page 17 of 28 33,36,43,225/- as consideration for support services, again stated that the issue of characterizing the receipts for 'support services' as FIS under Article 12(4)(b) has been decided in favour of the Assessee by this Hon'ble ITAT in Assessee's own case for AY 2019-20 vide order dated 12.10.2023 passed in ITA No. 1620/Del/2022. The ld AR further stated that the facts in AY 2019-20 including the nature of services were identical to the facts in the present year where the amount received for provision of support services during the present year is under the same SSA dated April 01, 2010 which existed in AY 2019-20.

19. 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 2019-20.

“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 the services performed, it would certainly have enabled Bain India to employ such technical knowledge, know- how, skill etc. in performing such services independently without seeking aid and assistance of the assessee. There would have been no necessity for Bain India to continuously avail such services from the assessee since the year 2010 till the current assessment year. Had it been a case of transfer of technology in such a long duration Bain India certainly would have acquired the technical knowledge, know-how, skill etc. to perform such services on its own, without requiring the assessee to provide them. The very fact that Bain India is still dependent upon the assessee for the support services, establishes the fact that the assessee has not made available technical, know-how, skill etc. relating to such services to Bain India, the service recipient.

17. At this stage, we must also observe that at the time of hearing, learned counsel appearing for the assessee has made a statement at bar that prior to the impugned assessment year, in Page 19 of 28

no other assessment year the Assessing Officer has treated the receipts from support services as FIS and brought it to tax. Thus, on overall consideration of facts and materials on record, we are of the view that the Revenue has not brought on record any materials to establish the fulfillment of make available condition of Article 12(4)(b) of India - USA DTAA.

Respectfully following the ITAT decision as above, we are of the considered view that in the present case, the support services rendered by the Assessee to Bain India do not make available any technical knowledge, experience, skill, 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 has considered the objection raised by the department and negated the said argument.

20. Before parting, we must observe that while bringing to tax the receipts from business consultancy services and reimbursement of expenses, the Assessing Officer had observed that in respect of similar additions made in earlier assessment year, the assessee had settled the dispute under the Vivad Se Vishwas Scheme, 2020, thereby tacitly accepting the additions.

Respectfully following the ITAT decision as above, we are of the considered view that in the present case that the Assessee option for settlement under the Direct Tax Vivad Se Vishvas Scheme for AY 2011-12 to AY 2014-15, AY 2016-17 & AY 2017- 18 (in relation to payments received under CSA and reimbursement of expenses incurred for third party service providers) does not tantamount to tacit acceptability of the additions by the Assessee on the above issues.

23. Ground No. 21-22 are consequential in nature.

ITA No. 3056/DEL/2023 [A.Y 2021-22]

25. We find that the facts and grounds of appeal for AY 2021-22 are identical to AY 2020-21, with the exception of the amounts involved and ground no. 2, 21-23 and 25-27. Therefore, the decision rendered for AY 2020-21 are equally applicable to the present year and are not being

Page 22 of 28 for consultancy services, receipt for professional services and reimbursement of expenses do not fall under Article 12(4)(a) and Article 12(4)(b) of Indo-USA DTAA and hence the same is not taxable in India.

Page 23 of 28 Engineering Analysis Centre of Excellence Private Limited v.

Commissioner of Income-tax [2023] 157 taxmann.com 458 (SC).

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] where a similar position has been adopted.

"72. However, when it comes to the expression "use of, or the right to use", the same position would obtain under explanation 2(v) of section 9(1)(vi) of the Income Tax Act, inasmuch as, there must, under the licence granted or sale made, be a transfer of any of the rights contained in sections 14(a) of 14(b) of the Copyright Act, for explanation 2(v) to apply. To this extent, there will be no difference in the position between the definition of "royalties" in the DTAAs and the definition of "royalty" in explanation 2(v) of section 9(1)(vi) of the Income Tax Act.

30. We are inclined to agree with the assessee that the decision of hon’ble Delhi High Court in CIT V Relx Inc supports the case of the assessee wherein it was held as under:

"11. We find that similar would be the position which would obtain when subscription fee is examined on the anvil of article 12 of the DTAA. If the Department were to describe subscription fee as 'royalty' they would necessarily have to establish that the payments so received by the assessee was consideration for the use of or the right to use any Page 25 of 28 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."

"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 copyright to the concerned subscribers of the e-journals. All that the respondent/assessee did was to sell the copyrighted publication to the concerned entities, without conferring any copyright in the said material.

25.3 The Tribunal, in our view, rightly deleted the addition made under this head, given the judgment rendered by the Supreme Court in the case of Engineering Analysis."

Order pronounced in open court on 22.08.2025.