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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, ACCOUNTNAT MEMBER & SHRI SANDEEP SINGH KARHAIL
The present appeal has been filed by the assessee challenging the final assessment order dated 31/12/2021, passed under section 143(3) r/w section 144C(13) of the Income Tax Act, 1961 (‘the Act’), for the assessment year 2018–19.
In this appeal, the assessee has raised following grounds:
NTT Asia Pacific Holdings Pte. Ltd. ITA No.325/Mum./2022
“Based on the facts and circumstances of the case, NTT Asia Pacific Holdings Pte. Ltd. (hereinafter referred to as "the Appellant') respectfully craves to prefer an appeal against the assessment order dated 31 December 2021 issued under Section 143(3) read with Section 144C (13) of the Income-tax Act, 1961 (the Act) by the Assistant Commissioner of Income-tax (International Taxation) 2(1)(2), Mumbai (hereinafter referred to as the 'Assessing Officer') in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel (hereinafter referred to as the "DRP”) on the following grounds which are without prejudice to one another.
1. Ground No.1 - Income earned by Appellant by way of management fee-Not FTS- Not Taxable. 1.1 On the facts and in the circumstances of the case and in law, the learned Assessing Officer and the Hon'ble DRP, without appreciating the evidence and submissions filed, erred in holding that the management fee received by the Appellant is taxable as fees for technical services (FTS) under Income Tax Act, 1961 (the Act) as well as under India - Singapore Double Tax Avoidance Agreement (DTAA). The Learned Assessing Officer and the Hon'ble DRP failed to appreciate that as the Appellant did not make available any technical knowledge etc to Dimension Data India Private Limited ('DD India') the management fee received by the Appellant could not be taxed as FTS under Article 12 of the DTAA. 1.2 On the facts and in the circumstances of the case and in law, learned Assessing Officer and the Hon'ble DRP erred in not following the order of the Hon'ble Mumbai Bench of Income Tax Appellate Tribunal in Appellant's own case for AY 2014–15 wherein after relying on its orders for earlier years, it was held that the management fee was not in the nature of fees for technical services but business profits which could not be taxed in the absence of a permanent establishment.
2. Ground No.2 - Interest on loan is taxed at wrong rate On the facts and in the in the circumstances of the case and in law, the learned Assessing Officer erred in considering the income from interest on loan as taxable at the rate of 10% instead of 5% provided in section 115A(1)(a)(iiaa) read with Section 194LC of the Act. Consequently, the additional tax demand so raised is wholly unjustified and liable to be deleted.
3. Ground No. 3- Short grant of credit of refund of earlier years adjusted against wrong demand of AY 18-19 3.1 On the facts and in the circumstances of the case and in law, the learned Assessing Officer erred in not grating credit of refund of earlier years adjusted against wrong demand of ant year under consideration while computing the total demand. Consequently, the demand so raised is wholly unjustified, ought to be deleted.
4. Ground no.4 – Levy of Interest u/s 234A of the Act 4.1 On the facts and in the circumstances of the case and in law, the learned Assessing Officer erred in levying interest under Section 234A of the Act Page | 2
NTT Asia Pacific Holdings Pte. Ltd. ITA No.325/Mum./2022 without appreciating that the Appellant had filed its return within the due date prescribed under Section 139(1) of the Act. i.e., November 30, 2018. Consequently, the levy of interest being wholly unjustified, ought to be deleted.
5. Ground No. 5-Levy of Interest u/s 234B of the Act 5.1. On the facts and in the circumstances of the case and in law, the learned Assessing Officer erred in levying interest under section 234B of the Act and the said levy of interest being wholly unjustified, ought to be deleted.
6. Ground No 6-Levy of surcharge and education cess On the facts and in the circumstances of the case and in law, the learned Assessing Officer erred in levying surcharge and education cess while computing the total tax payable on the alleged income without appreciating that the rates of tax as per the Tax Treaty would be applicable to the income of the Appellant (being a tax resident of Singapore) on which no additional surcharge and education cess could be imputed. Consequently, the levy of surcharge and education cess being wholly unjustified, ought to be deleted.”
The issue arising in ground No. 1, raised in assessee’s appeal, is pertaining to taxability of management fees received by the assessee as fees for technical services under the provisions of the Act as well as under India Singapore Double Taxation Avoidance Agreement (‘DTAA’).
The brief facts of the case, as emanating from the record, are: The assessee is a company incorporated in and is a tax resident of Singapore. The assessee filed its return of income on 30/11/2018 declaring total income of Rs. 19,82,500. The assessee on 01/04/2014 entered into Business Support Services agreement for rendering the management services to its subsidiary company i.e. Dimension Data India Ltd. During the year under consideration, the assessee has earned an income of Rs. 106,91,17,403 by way of management fees as per the aforesaid agreement. The assessee has not offered this income to tax on the ground that it has not ‘made available’ any technical knowledge, experience, skill, know-how or process, which has NTT Asia Pacific Holdings Pte. Ltd. ITA No.325/Mum./2022 enabled its subsidiary company to apply the technology contained therein as per Article 12(4) of the DTAA. As per the assessee, the recovery of expenses was on cost to cost basis without any income element and hence, not liable to tax. During the course of assessment proceedings, it was observed that the assessee was providing management services involving operational budgeting, sales forecasting, information technology support, cash management, review, preparation and analysis of financial systems statements, review of cash flow analysis and overall cash balances, detailed review of all sales transactions, inventory ageing, customer licensing review, payments and payable review, detailed review, analysis of actual forecast and budgets, supervising country managers and regional sales personnel and operations, monitoring sales transactions to preserve pricing structures of the group entities, etc. The Assessing Officer (‘AO’) vide draft assessment order dated 27/02/2021, treated the entire amount of management fees received by the assessee as fee for technical services under the provisions of the DTAA.
The assessee filed detailed objections before the learned Dispute Resolution Panel (‘learned DRP’). Vide directions dated 28/12/2021 issued under section 144C(5) of the Act, the learned DRP following its directions rendered in assessee’s own case for assessment year 2017–18 rejected the objections filed by the assessee, after noting that the material facts remain same during the year under consideration,. In conformity, the AO passed the impugned final assessment order dated 31/12/2021, under section 143(3) r/w section 144C(13) of the Act. Being aggrieved, the assessee is in appeal before us. Page | 4
NTT Asia Pacific Holdings Pte. Ltd. ITA No.325/Mum./2022
During the course of hearing, learned Authorised Representative (‘learned AR’) submitted that similar issue has been decided in favour of the assessee by coordinate bench of the Tribunal in assessee’s own case for preceding assessment year.
On the other hand, learned Departmental Representative (‘learned DR’) vehemently relied upon the orders passed by the lower authorities.
We have considered the rival submissions and perused the material available on record. We find that the coordinate bench of the Tribunal in assessee’s own case in NTT Asia-Pacific Holdings PTE Ltd vs ACIT, in ITA No. 1212/Mum./2021, for assessment year 2017–18, vide order dated 04/07/2022, decided similar issue in favour of assessee by observing as under:
“7. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
8. While on this issue, it will be useful to refer to the following observations made by a coordinate bench, in the case of Shell Global International Solutions BV Vs ITO [(2015) 64 taxmann.com 3 (Ahd)], as follows: “17. As for the connotations of 'make available' clause in the treaty, this issue is no longer res integra. There are at least two non-jurisdictional High Court decisions, namely Hon'ble Delhi High Court in the case of DIT v. Guy Carpenter & Co Ltd. [2012] 346 ITR 504 and Hon'ble Karnataka High Court in the case of CIT v. De Beers India (P.) Ltd. [2012] 346 ITR 467/208 Taxman 406/21 taxmann.com 214 in favour of the assessee, and there is no contrary decision by Hon'ble jurisdictional High Court or by Hon'ble Supreme Court. In De Beers India (P.) Ltd. case (supra), their Lordships posed the question, as to "what is meaning of 'make available'", to themselves, and proceeded to deal with it as follows: '......The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology "making available", the technical knowledge, skill?, etc., must remain with the person Page | 5
NTT Asia Pacific Holdings Pte. Ltd. ITA No.325/Mum./2022 receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is 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. In other words, payment of consideration would be regarded as "fee for technical/included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied.' 18. ………….. In the case of Boston Consulting Group (supra), it was stated that "advising on "marketing strategies" is held to be outside the scope of technical services" and that as for the "business of rendering strategy consulting services, such as business strategy, marketing and sales strategy, portfolio strategy" carried on by the assessee "the nature of these services is materially similar". All these services were held to be outside the scope of fees for technical services taxable under the Indo-US tax treaty. In the case of Bharat Petroleum Corpn. Ltd. v. Jt. DIT [2007] 14 SOT 307 (Mum.), another coordinate bench of this Tribunal, inter alia, held that market study covering study of supply and demand analysis, domestic refining capacity, price forecast etc did not constitute fees for technical services as it did not transmit the technical knowledge. In the case of Ernst & Young (P.) Ltd. In re [2010] 189 Taxman 409/323 ITR 184 (AAR), the Authority for Advance Ruling, inter alia, observed that "some of the services enumerated have the flavor of managerial services" but "services of managerial nature are not included in Article 13 (of Indo-UK tax treaty, which is in pari materia with the treaty provision before us) unlike many other treaties". We are in considered agreement with the views so expressed by the Authority for Advance Ruling. On the same lines are various decisions of this Tribunal in the cases of ICICI Bank Limited v. Dy. CIT [2008] 20 SOT 453 (Mum.) and McKinsey & Co. Inc v. Asstt. DIT [2006] 99 ITD 549 (Mum.). What essentially follows, therefore, is that as long as the services rendered by the assessee are managerial or consultancy services in nature, which do not involve or transmit the technology, the same cannot be brought to tax as fees for technical services.
9. Clearly, therefore, unless the recipient of the services, by virtue of rendition of services by the assessee, is enabled to provide the same services without recourse to the service provider, the services cannot be said to have made available the recipient of services. A mere incidental advantage to the recipient of service is not enough. The test is the transfer of technology, but then it is not even the case of the revenue that there is a transfer of technology, and what is highlighted is the incidental benefit to the assessee, which is treated as an enduring advantage. As observed in the binding judicial precedents referred to above, in order to invoke „make available‟ clause, “to fit into the terminology "making available", the technical knowledge and skill must remain with the person receiving the services even after the particular contract comes to an end” and “the technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider”. Technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. In our considered Page | 6
NTT Asia Pacific Holdings Pte. Ltd. ITA No.325/Mum./2022 view, that condition is not satisfied on the facts of the present case. We, therefore, hold that that „make available‟ clause in the Indo-Singapore tax treaty cannot be invoked on the facts of the present case- as no case is even made out by the revenue that as a result of rendition of these services to the Indian entity, there is any transfer of skill or technology. It is not a question of, as the learned DRP put it, enriching “the service recipient, making him wiser to face similar challenges in future on his own and acquiring the skills to deal with these issues”, but the test is whether the rendition of these services per se enables the recipient to provide the similar services, without recourse to the service provider, in future. An incidental benefit or enrichment which may add to the capabilities is not sufficient; the critical factor triggering the taxability in the source jurisdiction is the transfer of skills. That is what the Hon‟ble Karnataka High Court has held in the case of De Beers (supra), and this judicial precedent, in the absence of anything to the contrary having been held by Hon‟ble jurisdictional High Court, is binding on this forum. That condition about the transfer of skills and absorption of kill by the recipient of service, in our humble understanding, is not satisfied. Once the taxability fails in terms of the treaty provisions, there is no occasion to refer to the provisions of the Income Tax Act, 1961, as in terms of Section 90(2), “where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee”. The taxability of impugned receipts, under section 9, is thus wholly academic. We leave it at that.
10. In view of the above discussions, as also bearing in mind the entirety of the case, we uphold the plea of the assessee, and direct the Assessing Officer to exclude the sum of Rs.121,14,85,623 from his taxable income as fees for technical services. The assessee thus gets the relief accordingly.”
As noted above, learned DRP, after noting that material facts remain same during the year under consideration, followed its earlier directions rendered in assessee’s own case for assessment year 2017–18. The learned Departmental Representative also could not show us any reason to deviate from the aforesaid order and no change in facts and law was alleged in the relevant assessment year. The issue arising in the present appeal is recurring in nature and has been decided in favour of the assessee by the decision of the coordinate Bench of the Tribunal for preceding assessment year. Thus, respectfully following the order passed by the coordinate Bench of the Tribunal
NTT Asia Pacific Holdings Pte. Ltd. ITA No.325/Mum./2022 in assessee’s own case cited supra, we uphold the plea of the assessee and delete the impugned addition in respect of management fees received by the assessee. As a result, ground no. 1, raised in assessee’s appeal is allowed.
As regards grounds No. 2, 3 and 4, learned AR submitted that assessee has filed rectification application under section 154 of the Act before the AO, which is still pending consideration. Copy of the aforesaid rectification application 04/01/2022, was furnished by the learned AR during the course of hearing. Since, these issues are already under consideration before the AO, therefore, we direct the AO to decide these issues as per law after necessary factual verification. As a result, grounds No. 2, 3 and 4 raised in assessee’s appeal are allowed for statistical purpose.
Ground No. 5 pertains to levy of interest under section 234B of the Act, which is consequential in nature. Therefore, the said ground is allowed for statistical purpose.
The learned AR wish to not press grounds No. 6, 7 and 8 raised in assessee’s appeal. Accordingly, the said grounds are dismissed as not pressed.