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Facts
The assessee, a German company, received remittances towards Management Fee (Processing Fee) from an Indian company. The Assessing Officer (AO) treated these remittances as Fee for Technical Services (FTS) and made an addition to the assessee's total income. The assessee appealed against this addition.
Held
The Tribunal held that the management fee was closely linked to the loan granted and partook the character of interest, making it exempt from taxation in India under Article 11(3)(b) of the India-Germany Double Taxation Avoidance Agreement (DTAA). Consequently, the addition made by the AO was deleted.
Key Issues
Whether management fees received by a non-resident company from India are taxable as Fee for Technical Services (FTS) or are exempt under the India-Germany DTAA as interest.
Sections Cited
147, 144C(13), 9(1)(vi), 12(4), 115A(1)(b)(A), 115(1)(b)(B), 148, 9(i)(vii), 11(3)(b), 2(28A), 234A, 234B, 234F, 270A
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Income Tax Appellate Tribunal, DELHI BENCH, D: NEW DELHI
Before: SHRI VIKAS AWASTHY & SHRI BRAJESH KUMAR SINGH
This appeal has been preferred by the assessee against the Final Assessment Order dated 24.01.2025 passed by the Learned Assessing Officer (AO) under Section 147 read with Sections 144C(13) of the Income-tax Act, 1961 (“the Act”),
ITA No.- 1766/Del/2025 pursuant to the directions of the Hon'ble Dispute Resolution Panel (DRP) order dated 29.12.2024 for the Assessment Year 2018-19.
Ground nos. 1, 2 and 3 are not pressed and therefore, dismissed as not pressed.
Brief facts of the case: M/s AKA Ausfuhrkredit-Gesellschaft MBH, Germany (hereinafter referred as 'assessee) is a company registered in Germany having address as Grosse Gallusstrasse 1-7. Frankfurt (Main) DE 60311.
3.1 In this case, information was received by the AO from the ITO, TDS Ward- 1(3)(1), International Taxation, New Delhi that as per the 15CA data uploaded by M/s Filatex India Ltd., it was noticed that M/s Filatex India Ltd. had made foreign remittances toward Management Fee (Processing Fee) amounting to Rs.87.34,375/- to the assessee and no TDS has been deducted on these remittances.
3.2 According to the AO, the above information was analyzed and it was noticed that Mis Filakex India Ltd. had made foreign remittances towards Management Fee (Processing Fee) on ECB Loan Guaranteed by Harmes Deckung Germany to the assessee and had claimed relief as per Article 11 of the Double Taxation Avoidance Agreement between India and Germany. According to the AO, as per the information placed on record, the management fee/processing fee was in the nature of rendering of the services and this remittance was liable to withholding taxes within the definition of Fee for Technical Services (FTS) under the provisions of ITA No.- 1766/Del/2025 Section 9(1)(vi) of the income tax Act and as per Article 12(4) of DTAA also, and was chargeable to tax u/s 115A(1)(b)(A) and 115(1)(b)(B) of the Income Tax Act, 1961. The AO further accordingly believed that the remitter was required to deduct tax at source on the remittance amounting to Rs.87,34,375/- which if failed to do, and hence, notice u/s 148 of the Income Tax Act, 1961 was issued to the assessee on 11.04.2022 after taking prior approval from the competent authority. In response to the said notice assessee company furnished its reply as under: -
"AKA Ausfuhrkredis-Gesellschaft mbH is non-resident in the Republic of India and the bank is not taxable there We provide our Indian customers with a German Tax Residence Certificate every year to enjoy the advantages of the Treaty for the Avoidance of Double Taxation from 19th December 1996 between the Republic of India and the Federal Republic of Germany You asked us to provide your esteemed authority with an assessment of income/loss for the Assessment Year 2016-17 in the prescribed form The bank has never been asked to deliver any information to the Indian Income Tax Department before if you could explain what information in which form we shall deliver, we will perhaps be able to do so. In general, the bank provides Indian companies with ECB loans to finance capital goods (for approximately 20 years) and the income consists of interests and provisions.”
Further, the AO noted that during the assessment year 2016-17, similar issue had come up under consideration and addition was made to the total income of the assessee after making third party inquiry. Thereafter, the AO reproduced the relevant findings from the order pertaining to A.Y. 2016-17. After reproducing the same, the 3
ITA No.- 1766/Del/2025 AO noted that since the factual matrix of the instant case was similar to assessment proceedings concluded for A.Y. 2016-17, the AO issued show cause notice on 04.03.2024 on similar lines as for A.Y. 2016-17 to the assessee.
After considering the reply of the assessee, the AO following the reasoning for A.Y. 2016-17, held in the draft assessment order dated 26.03.2024 that the amount of Rs. 87,34,375/- received by the assessee from M/s Filatex India Ltd., towards management fee (processing fee) through on the Harmes Deckung Germany covered under tied buyers’ credit to M/s Filatex India Ltd., was proposed to be added to the total income of the assessee as FTS as per the provisions of section 9(i)(vii) of the Act.
Aggrieved by the said draft assessment order the assessee filed its objections before the DRP, which after considering the facts and after considering the directions in the case of the assessee for A.Y. 2016-17, held that facts being similar, the directions of the DRP for Assessment Year 2016-17 will be applicable in the case of the assessee for the present year also. The relevant directions of the DRP in para no. 5.5 on page no. 07 of its order dated 29.12.2024, on page no. 38 of the Paper Book, confirming the action of the AO is reproduced as under:
“5.5 AO has also the differential nature of these income streams by examining the loan documents related to M/s Filatex India Ltd. and has given a finding that the assessee bank had issued three separate invoices regarding (i) documentation fee; (ii) management fee; and (iii) commitment fee. The AO has also acknowledged that Hon'ble ITAT Delhi In AY 2016-17, in assessee's own 4
ITA No.- 1766/Del/2025 case had decided the issue in favour of the assessee. Similar decisions have been rendered by the higher judiciary in some other cases also. However, Department has not accepted these decisions and is contemplating further appeal where the tax-effect is above the prescribed monetary limit Hence, the Fuel would like to respectfully differ from decision of the Hon'ble ITAT, mentioned supra, Accordingly, the proposed addition of Rs. 87,34,375/-, being FTS under Article 12 of the India-Germany DTAA is hereby confirmed.”
7. Thereafter, the AO passed final assessment order on 24.01.2025 u/s 147 r.w.s. 144C of the Act, making the addition of Rs. 85,34,375/-, on account of FTS.
8. Aggrieved with the said final assessment order and the directions of the DRP, the assessee filed an appeal before us, on the following grounds of appeal:
4. Ground No.3: Management fees (processing fees) is treated as fees for technical services instead of being treated as interest. On the facts and in the circumstances of the case and in law, the Ld. AO erred in taxing the management fee (processing fees) as Fees for Technical Service under the provision of section 9(1)(vii) of the Act and Article 12 of Double Taxation Avoidance Agreement between India and Germany (DTAA') 9. During the hearing before us, the Ld. AR submitted that, in respect of similar payment as received by the assessee during A.Y. 2016-17 and against the directions of the DRP and the final assessment order, the Tribunal in assessee’s own case vide order dated 19.01.2024 in ITA No.- 783/Del/2023, held that the said payment was not taxable and the relevant extract of the order of the Tribunal in para no. 13 is reproduced as under:
“13. On careful reading of the above said provision, it is quite clear that the term "interest" includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been 5
ITA No.- 1766/Del/2025 utilized. Thus, even the definition of interest in the domestic law, in our view, covers all kinds of payment attached to the loan. In the fact of the present appeal, the Assessing Officer, no doubt, has accepted the claim of the assessee that interest along with other fees, such as, commitment fee, documentation fee attached to the loan granted are exempt under Article 11(3)(b) of the Act. After carefully examining the facts on record, we are of the considered opinion that even the management fee is of similar nature as commitment fee and documentation fee, as it is closely linked to the loan granted, hence cannot be distinguished from the documentation fee and commitment fee. Thus, in our view, management fee partakes the character of interest under section 2(28A) of the Act. Hence, would be exempt from taxation in India in terms of Article 11(3)(b) of the treaty. While coming to such conclusion, we find support from the decision of the Co ordinate Bench in case of DCIT vs Sisecam Flat Glass India Ltd. in dated 15.01.2021. Thus, in view of the aforesaid, we hold that the amount in dispute, being covered under Article 11(3)(b) of the India Germany DTAA is not taxable in India. Ground No.3 is allowed.”
We have heard both the parties and perused the material available on record. The facts of the present case are identical to the facts in the case of the assessee for A.Y. 2016-17 as admitted by the AO and the DRP as discussed above. During the present assessment year, the AO had taxed the amount of Rs. 87,34,375/- received by the assessee towards Management Fees (Processing Fee) as FTS wherein identical amount of Rs. 87,34,375/- being similar nature of payment towards “Processing Fee’ was taxed in A.Y. 2016-17 in Assessee’s own case, which was deleted by the Co-ordinate Bench of the Tribunal in assessee’s own case for A.Y. 2016-17 in the order cited above. Therefore, following the order of the Co-ordinate Bench of the Tribunal in the assessee’s own case, as referred to above, we hold that the amount of Rs. 87,34,375 /- is not taxable, as it does not qualify as FTS.
ITA No.- 1766/Del/2025 Accordingly, the addition of Rs. 87,34,375/- made by the AO is deleted. Ground no. 3 of the appeal is allowed.
The balance grounds of appeal being ground nos. 4 to 7 are reproduced as under:
5. Ground No. 4: Levy of interest under section 234A of the Act: On the facts and in the circumstances of the case and in law, the Ld. AO erred in computing and levying interest under section 234A of INR 3,95.824 of the Act.
6. Ground No. 5: Levy of interest under section 234B of the Act: On the facts and in the circumstances of the case and in law, the Ld. AO erred in computing and levying interest under section 234B of INR 7.37,672 of the Act.
Ground No.6: Levy of fees under section 234F of the Act On the facts and in the circumstances of the case and in law, the Ld. AO erred in proposing a levy of fees under section 234F of the Act.
Ground No.
7. Levy of Penalty under section 270(A) of the Act On the facts and in the circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 270A of the Act for under- reporting of income. The Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents, facts, and evidence before or at the time of hearing of this appeal.”
12. Ground nos. 4 and 5 are consequential in nature, relating to charging of interest u/s 234A and 234B of the Act respectively. The AO will charge interest as per law. Ground no. 5 is partly allowed
13. Ground no. 6 relates to the levy of fees under section 234F of the Act. The AR submitted that the said fees of Rs. 10,000/- was levied on wrong facts as the assessee 7
ITA No.- 1766/Del/2025 filed its return of income in response to notice u/s 148 of the Act, and therefore, no levy of fees u/s 234F was applicable in the case of the assessee. The AO is directed to verify the above claim of the assessee and take necessary action as per law. Ground no. 6 of the appeal is partly allowed.
Ground No. 7 relates to the initiation of penalty proceedings under section 270A of the Act. This ground of appeal is premature. Accordingly, this ground is dismissed as premature.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 30th October, 2025.