DCIT (IT) 2(1)(1), MUMBAI vs. CREDIT SUISSE AG, MUMBAI

Briefly put, the relevant facts are that the assessee before us is an entity incorporated in Switzerland and is a tax-resident of Switzerland. The assessee is a part of the Credit Suisse group, a global bank providing various financial services in the field of investment and personal banking to its clients across the globe. The assessee has a bank branch office in India which is registered with the Reserve Bank of India. The assessee also has a branch in Dubai (hereinafter referred to as ‘CSDB’). In so far as the dispute before us is concerned, the same relates to taxability of a sum of Rs. 18,27,90,578/- received by assessee’s Dubai branch (CSDB) from the Indian company, which is an associate enterprise. Before the Assessing Officer, assessee canvassed that the said sum was received by CSDB for referring an Indian resident client to the Indian Company for bringing out issue of convertible bonds. The assessee contended that such referral fee received by CSDB was a ‘business income’ not liable to tax in India because CSDB did not have a ‘permanent establishment’ in India as recognised in Article 5 of the Indo-Swiss Double Taxation Avoidance Agreement (DTAA). The Assessing Officer however did not accept the stand of the assessee and instead held that the referral fee was liable to be taxed in India having regard to Section 5(2)(b) of the Act read with section 9(1)(i) of the Act. As per the Assessing Officer, since the referral fee was payable to CSDB in relation to the execution of transaction between Indian Company and referred client, such referral fee is deemed to accrue or arise in India. In other words, as per the Assessing Officer, by virtue of the source of the ‘referral fee’ being located in India, the same was taxable in India. In coming to such conclusion, the Assessing Officer differed with the assessee on the nature of the impugned fee, which according to 7357/Mum/2017 & CO No.278/Mum/2017 M/s. Credit Suisse AG him was in the nature of ‘fee for technical services’ and not ‘business income’ as contended by the assessee. For the said reasons, the Assessing Officer brought to tax a sum of Rs. 18,27,90,578/- to tax in hand of the assessee as ‘fee for technical services’ earned by CSDB in the draft assessment order passed u/s.144C(1) read with section 143(3) of the Act dated 25.03.2015. Against the said order, the assessee raised various objections before the DRP, inter-alia, assailing the stand of the Assessing Officer of not treating the ‘referral fee’ as ‘business income’ but ‘fee for technical services’ and also contended that such fee was not taxable in the hands of the assessee in India. The order of the DRP has captured the various submissions of the assessee in detail, which we are not repeating here because the DRP has ultimately upheld the plea of the assessee of non- taxability of the said receipts in India on a short point, which is to the effect (i) that the referral fee income in question is not in the nature of ‘fee for technical services’; and (ii) that, the referral fee was not attributable to assessee’s Permanent Establishment (PE) in India, and thus such ‘referral fee’ was not liable to be taxed in India as per Article 7 of the Indo-Swiss Double Taxation Avoidance Agreement (DTAA). In sum and substance as per the DRP, CSDB undertook the referral activity and it had no PE in India and so far as assessee’s PE in India is concerned, such income could not be attributable to its activities in India. Accordingly, the Assessing Officer passed the final assessment order u/s.144C(13) r.w.s. 143(3) dated 11/01/2016 excluding the sum of Rs. 18,27,90,578/- from the total income, which is being agitated by the Revenue before us.

In this background, the learned DR has referred to the above stated Grounds of the appeal whereby, firstly, it is canvassed that the DRP was 7357/Mum/2017 & CO No.278/Mum/2017 M/s. Credit Suisse AG wrong in holding that the referral fee received from Indian Company did not constitute ‘fee for technical services’. Secondly, the Revenue has also canvassed error on the part of the DRP in holding that the referral fee could not be considered to be attributable to assessee’s PE in India. Notably, at the time of hearing, the Grounds of appeal raised by the Revenue have been reiterated by the Ld. CIT-DR but no specific argument, on facts or in law, has been led before us to assail the directions of the DRP. The learned DR has merely referred to the stand of the Assessing Officer, as manifested in the draft assessment order, specially the fact that the referral fee income has been held to be in the nature of ‘fee for technical services’.

On the other hand, learned representative for the assessee has defended the directions of the DRP, and, in particular pointed out that the following decisions clearly support the inference of the DRP that the ‘referral fee’ in question cannot be construed to be in the nature of ‘fee for technical services’ and that the same is merely in the nature of commission income.

The stand of the assessee is that considering the fact that the ‘referral fee’ is in the nature of commission income, the DRP made no mistake in treating it as not taxable in India in view of the Article 7 of the Indo-Swiss Double Taxation Avoidance Agreement (DTAA).

We have carefully considered the rival submissions. As the aforesaid discussion shows, the short controversy before us relates to the nature and 7357/Mum/2017 & CO No.278/Mum/2017 M/s. Credit Suisse AG chargeability to tax of referral fee of Rs.18,27,90,578/- received by assessee’s Dubai Branch (CSDB) from the Indian Company. The charge of the Assessing Officer is that having regard to Section 5(2)(b) read with section 9(1)(i) of the Act, the said income is includible in the scope of total income chargeable to tax in India. To put it differently, as per the Assessing Officer, ‘referral fee’ is deemed to accrue or arise in India and therefore, the same is taxable in India. This has been inferred on the strength of the fact that the fee has been paid by the Indian Company after execution of the work of the referred client based in India and therefore, the source of the fee is located in India. Allied to the aforesaid stand, the perception of the Assessing Officer is that said referral fee is in the nature of ‘fee for technical services’. The expression ‘fees for technical services’ finds meaning in Explanation(2) below Section 9(1)(vii) of the Act; broadly speaking, the Explanation prescribes that ‘fees for technical services, means any consideration for rendering of any managerial, technical or other consultancy services, including the provision of services of technical or other personnel, but does not include consideration for any construction, assembling, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head ‘salaries’. At this stage, we may briefly touch upon the nature of the impugned referral fee earned by the assessee. The relevant discussion in the orders of the authorities below reveal that CSDB referred an India resident client to the investment banking division of the Indian company; Indian company worked on the assignment of the issue of Convertible Bonds for the referred client, and 50% of the fee earned by the Indian Company was paid to CSDB in terms of global policy of the group, which is the amount of Rs.18,27,90,578/- in question. In the 7357/Mum/2017 & CO No.278/Mum/2017 M/s. Credit Suisse AG face of such fact situation, we are unable to appreciate the stand of the Assessing Officer as to why the ‘referral fee’ is to be construed as ‘fees for technical services’ as understood for the purposes of the Act. As per the Assessing Officer, the ‘referral fee’ has been paid by the Indian Company after the execution of the work of the referred client. Merely because the fee was payable by the Indian Company to CSDB after execution of the work of the referred client is no ground to determine the nature of the payment. In this context, the Authority for Advance Rulings in the case of Cushman & Wakefield(S) Pte. Ltd., (supra) has dealt with a somewhat similar situation, wherein the applicant was a resident of Singapore, who had earned commission from an India based entity for having referred customers. As per the Authority for Advance Rulings, such ‘referral fee’, being in the nature of ‘commission’ was to be treated as being in the nature of ‘business income’; both, under the Act as well as under the Indo-Singapore Double Taxation Avoidance Agreement (DTAA), and not as ‘fees for technical services’. To the similar effect is the decision of the Mumbai Tribunal in the case of CLSA Ltd., (supra) wherein also referral fee earned by a non-resident assessee from an India based entity for referring certain international clients was held not to be in the nature of ‘fees for technical services’ within the meaning of Section 9(1)(vii) of the Act. Notably, the aforesaid decisions have also been referred and relied upon by the DRP in concluding that the ‘referral fee’ is in the nature of ‘commission’ to be taxed as ‘business income’ and not as ‘fees for technical services’. In the course of hearing before us, no decision to the contrary has been brought out by the Revenue. For all the said reasons, we are unable to uphold the stand of the Assessing Officer that the impugned

Another factual aspect which is not in dispute is that CSDB has no PE in India and also the fact that assessee’s PE in India i.e., Mumbai bank branch had no role to play in the performance of the referral activity in question. Neither the discussion in the draft assessment order and nor in the course of hearing before us any credible assertions to the contrary has been brought out by the Revenue. Thus, considering that the referral activity was undertaken outside India and assessee’s Mumbai branch (PE) had no role to play in the performance of the referral activity, the referral fee of Rs.18,27,90,578/- earned by CSDB could not be construed to be attributable to assessee’s PE in India and thus, the DRP rightly applied Article 7 of Indo- Swiss Double Taxation Avoidance Agreement (DTAA) and held the same to be non-taxable in India. The aforesaid conclusion of the DRP is hereby affirmed. Therefore, considering the short point on the basis of which the DRP has allowed the plea of the assessee, we dispose of the aforesaid appeal by affirming the ultimate direction of the DRP. Thus, Revenue fails in its appeal. & Cross Objection No.278/Mum/2017

In so far as captioned cross appeal and the cross objection filed by the assessee are concerned, the learned representative of the assessee stated at the time of hearing that the same would be rendered infructuous once the appeal of the Revenue is dismissed; since we have dismissed the appeal of the Revenue in the foregoing paragraphs, the Cross-appeal and the Cross- objection of the assessee are dismissed as infructuous.

Before parting, we may also mention that assessee has made an application under Rule 27 of the Income-Tax (Appellate Tribunal) Rules, 1963 which also is rendered infructuous as per the say of the learned representative for the assessee, once the appeal of the Revenue stands dismissed by us.

Resultantly, captioned appeals by the Revenue as well as the assessee are dismissed, as above.