VISTEON CORPORATION,MICHIGAN vs. DCIT, INTENL TAXN,CIRCLE-2(2), CHENNAI

The learned AO and the DRP have erred in law by making an addition to the total income of the Appellant merely based on details of proposed remittances in the form of extracts of Form 15CA filed by the payer entities.

The learned AO and the DRP have erred in law by treating the amount as ‘fees for included services’ under Article 12(4) the India-USA Double Taxation Avoidance Agreement (‘DTAA’).

Notwithstanding the above, the learned AO and the DRP have erred in law by not granting credit of taxes deducted at source on the amounts which are added to the total income of the Appellant. ITA Nos. 259 to 262/CHNY/2023 & SA Nos.28 to 30/CHNY/2023

Notwithstanding the above, the learned AO has erred in levying a higher rate instead of 15% as per the India-USA DTAA.

Briefly stated facts are that the assessee Visteon Corporation is a foreign Company and is a global leader in automotive cockpit electronics. The assessee is engaged in the business of designing, engineering, and manufacturing systems for various automotive clients as well as rendering IT support services. It acts as a global IT support service Centre and provides the following:  Centralized project management and ensuring consistency in IT set-up  Well-defined processes facilitating effective management of IT resources  Enables business continuity, improves software application performance and efficiency; increase productivity and maintains compliance and security  Effective functioning of IT computers and systems  Enhanced web-based services facilitate efficient operations  Increased flexibility due to ability to access systems remotely  Effective security controls to prevent unauthorized access; and  Optimized storage and backup services to prevent loss of data

5 Even now apart from arguing generally on the applicability of the circulars/DTAA, the facts are not disclosed. There is no information on what was the exact nature of the services rendered, how many personnel were employed, the quality of service rendered which may help distinguish simple services from technical services, The Assessee has not been able to demonstrate that the services rendered did not lead to 'make available' technical knowledge, experience, skill, know how or process to the Assessee.

5 After carefully consideration of the facts of the case, this panel is of considered view that the information contained therein have to be held as Fees for included services' as per Article 12(4)(a) of the Indo-USA DTAA. So the AO is right in treating the payments received by the assessee during the year under consideration as fees for technical services' under section 9(1)(vii) (b)of the Act and fee for included services' under Article 12(4)(a) of the Indo-USA DTAA. The claim of the assessee that such services were ITA Nos. 259 to 262/CHNY/2023 & SA Nos.28 to 30/CHNY/2023 not 'make available' does not hold any merit. In relation to above so the objection of the assessee that the payments received by it cannot be treated as 'fee for included services' under Article2(4)(a) USA DTAA cannot be accepted and assessee’s objection in this regard is not accepted.”

We have heard the rival contentions and gone through the facts and circumstances of the case. We noted that the assessee is engaged in the business of designing, engineering, and manufacturing systems for various automotive clients as well as rendering IT support services. The assessee company entered into an IT support services agreement to provide routine operational and maintenance support services. The Assessing Officer while preparing assessment order taxed the receipts from remittances received on account of services provided by the company amounting to Rs.1,26,58,51,703/- was brought to tax despite claimed by the assessee that services provided by the company is not taxable as FIS under Article 12 of the India-US Tax Treaty and also reiterated that these receipts could not be reconciled merely on the basis of exact data of Form No. 15CA filed by the payer entity. The DRP also rejected the claim of the assessee. Now before us, the ld.Counsel argued that the Assessing Officer as well as the DRP erred in observing that the services rendered under the services agreement ITA Nos. 259 to 262/CHNY/2023 & SA Nos.28 to 30/CHNY/2023 are in the nature of business support services in the field of treasury, corporate quality, planning and logistics, legal, human resources, audit, material planning and logistics, environment and health safety etc rendered to its group entities who do not make available technical knowledge, experience etc to the business to whom such services being rendered and hence, these are not taxable as FIS under Article 12(4) of India-US Double Taxation Avoidance Agreement (DTAA) and even these services are not covered as fee for technical services as per Article 5 of India-US DTAA. The ld.Counsel took us through the services agreement dated 01.04.2013, which is effective from 01.01.2013 and he drew our attention to specific services included in Clause 2, which reads as under:

We have heard rival contentions and gone through facts and circumstances of the case. We noted that the AO while passing draft assessment order u/s.144C of the Act, proposed addition on account of receipts from remittances during financial year 2013-14 relevant to this assessment year 2014-15 on account of providing IT support services, maintenance services, etc., to its sister concerns in India for the reason that the operations of the assessee company is highly complicated and systems have been codified and methods to be adopted as per business need. The AO has not accepted the assessee’s explanation above that the services rendered by it is not ITA Nos. 259 to 262/CHNY/2023 & SA Nos.28 to 30/CHNY/2023 taxable. According to him, there is a clear nexus between services rendered and the compensation received by assessee company after going through the recital of service agreement entered into between assessee and its sister concern M/s. Visteon Automotive Systems India Pvt. Ltd. He noted the following aspects on the basis of which, he treated the total remittances amounting to Rs.126,58,51,703/- as fee for technical services u/s.9(1)(vii)(b) of the Act and taxed the same u/s.115A of the Act at the rate of 10% and also by applying the beneficial provisions, services rendered treating it as ‘fee for included services’ as per Article 12(4) of India-US DTAA and taxed at the rate of 10%. The AO noted the following aspects:-

We noted that the DRP simpliciter confirmed the action of AO by observing that the assessee has not been able to demonstrate that the services rendered do not lead to ‘make available’ technical knowledge, experience, skill, know how or process to the assessee. Further, there is no information on what was the nature of services rendered and the information contained therein have to be head as ‘fees for included services’ as per Article 12(4)(a) of the Indo-USA DTAA. Hence, the panel confirmed the action of the AO in treating the payments received by the assessee during the year under consideration as ‘fees for technical services u/s.9(1)(vii)(b) of the Act and ‘fee for included services’ under Article 12(4)(a) of the Indo- USA DTAA. Finally, the DRP held that the claim of assessee that such services were not ‘made available’ does not hold any merit. ITA Nos. 259 to 262/CHNY/2023 & SA Nos.28 to 30/CHNY/2023

Before us, the main argument of the assessee was that merely providing highly complicated services, as understood by Revenue and the same having nexus with the compensation received by it, by itself will not result in taxing such receipts as ‘fees for included services’ unless it satisfies the definition of FIS under DTAA between India and US. The ld.counsel had referred to the details submitted and argued that it is not able trace / source the reference of service description schedule in any of the documents submitted. Even the reference to Form No.15CA, the ld.counsel stated that the tax withholding obligation is triggered at the time of payment or credit whichever is earlier, whereas the details were available with the Revenue, which is yet to be provided by the company, relates to proposed remittance which may happen at a later point of time. The ld.counsel has pointed out the provisions of India-US DTAA para 4 of Article 12 of the India-USA DTAA which defines the term ‘fees for included services’ [the same are reproduced above in our order at para 6].

We are in agreement with the arguments of ld.counsel that in order to constitute a receipt ‘fees for included services’ [FIS] under Article 12 of India-US DTAA, services rendered must make available ITA Nos. 259 to 262/CHNY/2023 & SA Nos.28 to 30/CHNY/2023 technical knowledge, expertise, skill, know how or processes or consist of the development and transfer of a technical plan or technical design. We have gone through the Memorandum of Understanding explained the phrase ‘make available’ and the paragraph 4 (b) clarifies that the use of a product which embodies technology shall not per se be considered to make the technology available in paragraph 4(b) of the protocol as critical categories of services that jointly involves the development and transfer of technical plants or technical designs or making technology available as described in paragraph 4(b). In our view, these services rendered by assessee to its sister concern and compensation received on account of the same does not fall in these typical categories mentioned in paragraph 4(b) which includes ‘making technology available’ nor to be taxable under Article 12 of the tax treaty as FIS, the payment should fit into the terminology ‘make available’ wherein the technical knowledge, skill etc., must remain with the person receiving the services even after the particular contract comes to an end. Want to back of that, in the present case there is no such clause in the service agreement which we have gone through and substantially reproduced in our order. The nature of services provided by assessee which the company merely centralizes the IT related services to achieve a standardized IT ITA Nos. 259 to 262/CHNY/2023 & SA Nos.28 to 30/CHNY/2023 environment and payment towards access to developed standard business / engineering applications, data management by providing disaster recovery / back up services, helpdesk support services, user administration, maintenance of IT infrastructure support services, telecom services do not make available any technical knowledge, experience, skills, etc., to the recipient, since the recipient cannot at any time independently manage the IT environment and requires continuous re-course to the company for the said services. Hence the service provided by the assessee company do not fall within the ambit of ‘fee for included services’ as defined under Article 12 of India US DTAA and hence, not taxable in India.

1 Admittedly, the assessee is a non-resident and having no PE in India. We have gone through the decision of Hon’ble Karnataka High Court in the case of CIT vs. De Beers India Minerals (P) Ltd., reported in 346 ITR 467, referred by the ld.counsel for the assessee and noted that the Hon’ble Supreme Court while interpreting the India US DTAA has held that the principle requirement of ‘make available’ technical services is made only if the service recipient is unable to independently apply the technical knowledge, skill, etc., in future without the aid of service provider, the same cannot be held as ‘make available’ and such technical services would not fall within ITA Nos. 259 to 262/CHNY/2023 & SA Nos.28 to 30/CHNY/2023 the definition of technical services in term of DTAA and not liable to tax. The Hon’ble High Court of Karnataka observed as under:- “14. Therefore, the clause in the Singapore agreement which explicitly makes it clear the meaning of the words “make available”, the said clause has to be applied, and to be read into this agreement also. Therefore, it follows that for attracting the liability to pay tax not only the services should be of technical in nature, but it should be made available to the person receiving the technical services. The technology will be considered made available when the person, who received service is enabled to apply the technology. The service provider in order to render technical services uses technical knowledge, experience, skill, know-how or processes. To attract the tax liability, that technical knowledge, experience, skill, know- how or process which is used by the service provider to render technical service should also be made available to the recipient of the services, so that the recipient also acquires technical knowledge, experience, skill, know-how or processes so as to render such technical services. Once all such technology is made available it is open to the recipient of the service to make use of the said technology. The tax is not dependent on the use of the technology by the recipient. The recipient after receiving of technology may use or may not use the technology. It has no bearing on the taxability aspect is concerned. When the technical service is provided, that technical service is to be made use of by the recipient of the service in further conduct of his business. Merely because his business is dependent on the technical service which he receives from the service provider, it does not follow that he is making use of the technology which the service provider utilises for rendering technical services. The crux of the matter is after rendering of such technical services by the service provider, whether the recipient is enabled to use the technology which the service provider had used. Therefore, unless the service provider makes available his technical knowledge, experience, skill, know-how or process to the recipient of the technical service, in view of the clauses in the DTAA the liability to tax is not attracted.”

2 Similarly, the ITAT, Pune Bench in the case of Sandvik Australia Pty. Ltd., vs. DDIT in ITA No.93/PUNE/2011, order dated 31.01.2013, held that the services rendered consisted of IT helpdesk support, back up related services, maintenance and administrative support etc., and while providing these services the assessee did not impart / make available any technical knowhow, skill, process or transferred technology plan or design. The Tribunal in para 16 held as under:-

In the present case, as per the terms of the agreement between the assessee company and Sandvik Asia Ltd., does not support the case of the Revenue that the assessee’s case is covered in clause (g) of para 3 to Article 12 of the India Australia Treaty as the assessee has not made available any technical knowledge or expertise to the recipient Indian company. In our opinion, the assessee has only provided the back-up services and IT support services for solving IT related problems to its Indian subsidiary. Hence, ITA Nos. 259 to 262/CHNY/2023 & SA Nos.28 to 30/CHNY/2023 unless and until the services are not made available, same cannot be taxable in India. We, therefore hold that the services rendered by assessee company to its Indian group companies, though are in the nature of technical services, but is not covered in para (3)(g) to Article 12 of the India Australia Treaty and hence, the same is not taxable in India. We also hold that the amount received by the assessee cannot be treated as a Royalty even under the normal provisions of I.T. Act. But under the normal provision of the I.T. Act the same constitute consideration for rendering the technical services covered u/s.9(1)(vii) of the I.T.Act. Accordingly, Ground No.1 is allowed and issue is decided in favour of the assessee.

3 Another case cited by ld.counsel for the assessee of ITAT, Delhi Bench in the case of GE Energy Management Services Inc., vs. ADIT reported in [2022] 135 taxmann.com 173, wherein the Delhi Tribunal noted that the assessee company entered into an agreement with the Indian company to provide off-shore maintenance and support services. As per agreement, the assessee’s broad scope of work was to provide off-shore maintenance and support services from outside India and no part of services was defined under the agreement were rendered by the assessee from India. The Tribunal in these facts, held as under:-

From the above explanation provided in the MOU that forms an integral part of tax treaty that service only, if it makes available technical knowledge, experience, skill, know-how or processes to the service recipient. The receiver of this service can be said to acquire the relevant skills used by service provider only if he acquires those skills in such a way that he can himself use them independently without getting any assistance or being dependent on the service provider in future. ITA Nos. 259 to 262/CHNY/2023 & SA Nos.28 to 30/CHNY/2023

The facts of the present case clearly show that the offshore maintenance and support services provided by the assessee PGCIL are not geared towards making available any technical knowledge, experience, skills, know how or processes to PGCIL.

Our view is supported by the fact that the term of the agreement is five years and services provided by the assessee are repetitive and ongoing in nature. This means that PGCIL is not able to apply technical or skill use by the assessee for rendering such services. Given that repetitive nature of the services, it would be factually incorrect to allege that the services make available any technical knowledge, expertise, skill, knowhow or processes to PGCIL.

4 In our view, since the assessee is not having any PE in India and he is covered by India US DTAA and MOA, the nature of services rendered by the assessee on account of which received the remunerations cannot be described as ‘fee for included services’ and hence, not taxable in India. We also hold that the amount received cannot be treated as royalty even under the provisions of section 9(1)(vii), because the service rendered cannot constitute technical services so as to cover u/s.9(1)(vii) of the Act. Hence, we delete the addition and allow this issue of assessee’s appeal on merits.

As regards to the point of reconciliation being difference in figures between Form No.26AS and Form No.15CA, as pointed out by ld.counsel for the assessee, we are of the view that Form No.15CA filed by the banker and the assessee was not in a position ITA Nos. 259 to 262/CHNY/2023 & SA Nos.28 to 30/CHNY/2023 to verify the details forming part of Form No.15CA. The assessee has made claim as per Form No.26AS, this is subject to verification. The assessee will be provided necessary details as received by the AO in Form No.15CA and will confront the same to the assessee so that the assessee can peruse the same and provide suitable response and reconcile the figures. In term of the above, this particular verification is restored back to the file of the AO.

As regards to appeal for assessment year 2015-16, which is an appeal against revision order passed by the PCIT u/s.263 of the Act in ITA No.260/CHNY/2023 for the assessment year 2015-16, the issue on merits is exactly identical as we have deal with in ITA No.659/CHNY/2023 for the assessment year 2014-15 above. Hence, taking a consistent view, we adopt the decision of assessment year 2014-15 and accordingly delete the addition.

Similarly, for the assessment year 2016-17 & 2017-18 in ITA Nos.260 & 261/CHNY/2023, the facts and circumstances of the case and the issue on merits are exactly identical to assessment year 2014-15, hence taking a consistent view, we adopt the decision of assessment year 2014-15 and accordingly delete the addition. ITA Nos. 259 to 262/CHNY/2023 & SA Nos.28 to 30/CHNY/2023

As regards to the issue on juri iction either on the revision order u/s.263 of the Act in assessment year 2015-16 or reassessment in other assessment years 2014-15, 2016-17 & 2017- 18, since we have adjudicated the issue on merits and decided in favour of assessee, this juri ictional issue is kept open and treated as academic. Accordingly, these four appeals of assessee are allowed on merits.

Since we have heard the appeals and decided, the Stay petitions becomes infructuous and hence, dismissed.

In the result, the appeals filed by the assessee in ITA Nos.259 to 262/CHNY/2023 are allowed and the stay applications in SA Nos.28 to 30/CHNY/2023 are dismissed as infructuous.

""यथ"/Respondent 3. आयकरआयु" /CIT, Chennai 4. िवभागीय"ितिनिध/DR 5. गाड"फाईल/GF.