GLOBAL SCHOOLS HOLDINGS PTE LTD SINGAPURE,UTTAR PRADESH vs. ACIT, INTERNATIONAL TAXATION, CIRCLE-1(3)(1), NEW DELHI

The solitary dispute in the present appeal is in relation to taxability of an amount of Rs.6,43,50,748/- as Fees for Technical Services (FTS) under Article 12(4) of India – Singapore Double Taxation Avoidance Agreement (DTAA).

Briefly the facts are, the assessee is a non-resident limited liability company incorporated under the laws of Singapore and is a tax resident of Singapore. As stated, the assessee is the regional headquarters of the Global Indian International School (‘GIIS’) group, which consists of about 21 schools spanning across 7 countries viz. Singapore, Malaysia, Japan, Thailand, UAE, Vietnam and India. The assessee has two Associated Enterprises (AEs) in India, one is Global India School Education Services Ltd. (‘GISES’) and other is GIIS K 12 Education Pvt. Ltd. Both these AEs have created an individual trust, which runs the respective schools at various locations in India. The assessee has entered into two separate Licensing Intellectual Property (IP) agreements with the Indian AEs, which comprises of licensing of GIIS brand name, proprietary IT system etc. Additionally, the assessee has entered into one more agreement with GISES only for providing intra group services, such as, legal, finance, accounting etc. to streamline business processes, ensure compliance and promote cost-efficiencies etc. Under the Licensing IP Agreement, the assessee has granted licence for access to trade names and “My 2 | P a g e GIIS” portal to the Indian AEs. Under the said agreement, the assessee also provided intellectual property rights and proprietary specialized software. In terms with Licensing IP Agreement, the assessee received licence fee of Rs. 5,38,42,826/- from both the Indian AEs, which has been treated as royalty income and offered to tax in India in the return of income filed for the impugned assessment year. Besides the royalty income, the assessee also earned revenue of Rs.6,43,50,748/- from GISES towards provision of management support services. However, the assessee did not offer this amount to tax in India pleading that it is in the nature of business income and in absence of PE is not taxable.

In course of assessment proceedings, the Assessing Officer, after calling for and examining the agreement as well as other details formed a view that the receipts from intra group services is in the nature of FTS, both under section 9(1)(vii) of the Act as well as under Article 12(4)(a) of India – Singapore DTAA, as such, receipts are in relation to the services, which are ancillary and subsidiary to the royalty income. Therefore, he issued a show- cause notice to the assessee to explain, why the amount should not be brought to tax in India.

In response to the show-cause notice, the assessee furnished a detailed submission stating that the receipt from intra group services cannot be treated as FTS under Article 12(4) of the treaty as neither it is ancillary and subsidiary to the royalty income nor while rendering such services, the assessee had made available any technical knowledge, know-how, skill etc. to the Indian AEs. The Assessing Officer, however, did not find merit in the submissions of the assessee. He held that not only the nature of services rendered is managerial, technical, and consultancy services, but such services are ancillary and subsidiary to the use or right to use of brand name, and other intellectual property rights. Thus, he held that the fee received would qualify as FTS under Article 12(4)(a) of India – Singapore DTAA. Without prejudice, the Assessing Officer held that while rendering services, the assessee has made available technical knowledge, know-how, skill, expertise and experience, which has been gained by the assessee over a period of time. He observed, such assistance and guidance to the Indian entity has enabled it to take better decisions and perform its functions in more effective manner, which in turn, helps maintaining the brand value and fulfillment of commercial interest of business. Thus, he held that 4 | P a g e the fee received would also qualify as FTS under Article 12(4)(b) of the treaty. In the above lines, the Assessing Officer framed the draft assessment order. Though, the assessee raised objections before learned DRP against the draft assessment order, however, the draft assessment order was affirmed. In terms of the above, the final assessment order was passed bringing to tax the receipts from intra group services.

Before us, Sh. Kanchan Kaushal, learned counsel appearing for the assessee and Sh. Vizay B. Vasanta, learned CIT(DR) appearing for the Revenue have made elaborate submissions supporting their respective stand. Learned counsel for the assessee has also relied upon various judicial precedents.

We have given a thoughtful consideration to the rival submissions and perused the materials on record. We have also applied our mind to the decisions relied upon. As discussed earlier, the assessee has entered into separate sub-licensing and training agreements with the two Indian AEs. Whereas, the assessee has entered into a separate service agreement with GISES, one of the Indian AEs. On going through the Sub- Licensing and Training Agreement with GISES, it is observed that under the agreement the assessee has provided licences for use of 5 | P a g e certain brand name/trade-mark owned by the assessee. In addition, the assessee has also sub-licensed certain software, being “My GIIS School Enterprise Resource Planning Software”, including all its modules to GISES so as to enable the Indian AE to use the specialized software for facilitating convenient communication amongst the school students, parents, teachers and management of school. Admittedly, the licence fee received by the assessee from sub-licensing of trade-mark/brand name and software has been offered to tax in India as royalty income.

So far as receipts from intra group services are concerned, on perusal of the said agreement, it is observed that in terms of the agreement, the assessee provides routine services like, Human Resources (HR)support, marketing and operation support etc. The detail nature of services provided by the assessee under the support service agreement can be tabulated as under:

On a comparative analysis of Licence Agreement and Service Agreement, it is observed that under the Licence Agreement, in addition to the use or right to use of trademark/trade name, the assessee has licensed use or right to use of a software system which has various modules, such as, e-services, Management Information System Reports, Exam and Results, Finance Services, Parent Feedback etc. With the assistance of the software system, all critical data is available at the click of a button, thereby saving lots of storage space as well as man hours, which otherwise, would have been required to get physical copies. By using software system a common platform is provided to connect students, parents, teachers and school management. The teachers and the administration department, connected through this portal in a seamless manner to get access to the following details:

Further, the teachers through their separate login credentials accessed various details, as under:

Whereas, the nature of services provided under the service agreement, as tabulated elsewhere in the order, would go to show that the services rendered are not in relation to the activities undertaken under the licence agreement. The administrative functions under the service agreement relates to providing assistance to management of trusts/schools to get affiliations from various boards for providing assistance to the management in respect of admission of students and counseling process, assistance in running students’ scholarship drive. Other services are in relation to overall operations of schools providing academic advisory for excellence in education and overall improvement of school, providing guidance on teaching methodologies, developing knowledge, module curriculum, providing assistance in accounting, preparation of financial statements, teaching, 9 | P a g e statutory compliance, assistance in recruitment of teachers for specialized curriculum, school principals, administrative staffs, providing assistance in marketing and communications, including digital marketing campaigns, social media marketing, affiliate marketing, internal communications etc.

Thus, a critical analysis of both the agreements, would certainly bring out the fact that the services rendered under the service agreement in no way are connected to the Licence Agreement. Of course, it may be said that some of the marketing activities under the service agreement may result in sustaining the trade-mark/brand name, however, that by itself may not be enough to conclude that the service rendered under the service agreement are ancillary and subsidiary to the use or right to use of trademark/brand name software. This view is further fortified from the fact that the assessee has entered into service agreement with only one of the AEs. Whereas, there is no such agreement with the other AE in India. Thus, logical conclusion would be that there is no connection between the licence agreement and service agreement. Had it been the case, both the agreements would have been dependent upon each other. One could not have gone without the other. Viewed in this perspective, it would have been 10 | P a g e necessary for both the Indian AEs to enter into both license agreement and the service agreement to derive the benefit/result.

Having held so, it is necessary to examine, whether the service fee received would qualify for FTS under Article 12(4)(b). A reading of Article 12(4)(b) of the treaty makes it clear that to fall within its ambit the make available condition has to be satisfied.

Thus, in our view, the fee received would also not fall within Article 12(4)(b) of the treaty. Thus, on overall consideration of facts and materials on record and in the light or decisions cited before us, we conclude that the amount in dispute is not in the nature of FTS. Grounds are allowed.

In the result, appeal is allowed.