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Facts
The assessee, a US-based global consulting firm, received payments for marketing, sales, and consultancy services. The Assessing Officer (AO) treated these receipts as Fees for Technical Services (FTS) or Fee for Included Services (FIS) under the India-US DTAA. The Commissioner of Income Tax (Appeals) (CIT(A)) upheld some additions but deleted others. The assessee appealed against the sustained additions.
Held
The Tribunal held that the services rendered by the assessee, including marketing and consultancy, do not qualify as technical services or consultancy services under Article 12(4)(b) of the India-US DTAA. The key criterion of 'making available' technical knowledge or skills to the recipient was not met. The Tribunal relied on its own previous decisions in similar cases involving the assessee.
Key Issues
Whether the marketing, sales, and consultancy services rendered by the assessee, a foreign company, are taxable in India as 'Fee for Technical Services' or 'Fee for Included Services' under the India-US DTAA, specifically whether the 'make available' clause of Article 12(4)(b) is satisfied.
Sections Cited
143(2), 147, 148, 12(3), 12(4), 12(4)(a), 12(4)(b)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI ‘D’ BENCH,
Before: SHRI CHALLA NAGENDRA PRASAD, & SHRI NAVEEN CHANDRA
order of the ld. CIT(A), Delhi-44 dated 22.02.2023 pertaining to Assessment Years 2015-16 to 2020-21 respectively.
2. Since underlying facts pertain to same assessee and are common in the captioned appeals, they were heard together and are disposed of by this common order for the sake of convenience and brevity.
3. The solitary ground raised by the assessee reads as under:
Page 2 of 24 ,1131,1132,1133,1134,1135/DEL/2023 [A.Y.2015-16,2016-17,2017-18,2018-19,2019-2020,2020-21] M/s Everest Global Inc Vs.The A. C.I.T
“That in view of facts and circumstances of the case and in law, the CIT-A erred in upholding the addition made by AO being amounts received on account of Marketing & Sales services Rs 1,56,54,910/-, and thereby failed to appreciate that amount is not chargeable to tax either as Fee for technical services under the provisions of the Income Tax Act 1961 or Fee for Included Services under Article 12 of India- USA DTAA.”
Briefly stated, the facts of the case are that the assessee is a global consulting firm, a LLC registered in USA that assists corporations in developing and implementing leading–edge sourcing strategies including captive outsource and shared services approaches and also provides business transformation, service optimization and service provider consulting services. The assessee was incorporated under the laws of the State of Texas in December 2001 and is headquartered in Dallas, USA. The assessee e-filed its return of income on 28.11.2015 declaring a total income of Rs 53,93,480/-. The case was selected for scrutiny under CASS selection, notice u/s 143(2) of the Act was issued on 04.04.2016 and served upon the assessee.
5. The AO found that the assessee had received Rs 5,20,97,882/- for rendering support services as follows:
Page 3 of 24 ,1131,1132,1133,1134,1135/DEL/2023 [A.Y.2015-16,2016-17,2017-18,2018-19,2019-2020,2020-21] M/s Everest Global Inc Vs.The A. C.I.T
Sr Nature Amount No 1 Third party clients Rs 98,79,734 2 Everest Business Advisory India Pvt. Ltd 3 ---Royalty (already offered to tax) Rs 53,93,479
4 -- Management Fees Rs 3,68,24,669
5 --Reimbursement Rs. 4,32,583 The AO noticed that except for Royalty of Rs 53,93,479/-, the assessee has treated the other receipts as exempt. The AO finally, held that the receipts from services offered to third party clients and AEs of Rs 4,67,04,403/-as Fees for Technical services under the Income Tax Act r.w. Indo-US DTAA and be taxed @ 10%.
6. On appeal before the CIT(A), the CIT(A) deleted the additions on account of services rendered and reports sold to third party clients of Rs 98,79,734/; for reports sold to third party clients of Rs 1,86,07,394/- and on account of Management fees of Rs 25,62,365/-. The CIT(A), however, sustained the additions of Rs 1,56,54,910/- made on account of Marketing and Sales Services. Aggrieved, the assessee is before us.
Page 4 of 24 ,1131,1132,1133,1134,1135/DEL/2023 [A.Y.2015-16,2016-17,2017-18,2018-19,2019-2020,2020-21] M/s Everest Global Inc Vs.The A. C.I.T 7. The ld. counsel for the assessee submitted that the assessee has rendered marketing services and sales services as per Marketing and Sales Services agreement (enclosed). The assessee has a pool of people with adequate experience and skill in the field of global marketing and sales promotion. The assessee performs global marketing for all Everest Group
The ld. counsel for the assessee continued by saying that marketing services rendered by assessee include, global marketing, for instance promoting brand name, its unique and innovative identity as effective partners in business, communicate services cost effectively through digital and printed advertising, sponsorship of conventions and presentations at industry meetings, direct development of product lines and developing a cohesive overall marketing strategy. Sales services rendered by EGI include sales services including identifying potential clients, developing relationships, presenting products and securing sales orders in respect of customized research reports, pertaining to independent business operations.
The ld. counsel for the assessee submitted that the marketing and sales fee received by assessee is not taxable in India as assessee does not Page 5 of 24 ,1131,1132,1133,1134,1135/DEL/2023 [A.Y.2015-16,2016-17,2017-18,2018-19,2019-2020,2020-21] M/s Everest Global Inc Vs.The A. C.I.T have a Permanent Establishment in India. It is also pertinent to note that sales and marketing team of assessee has not visited India for rendition of these services. Further, amounts so received cannot be characterized as "Fee for Technical services" under Article 12 of India-US treaty.
The ld AR further submitted that marketing services were also being rendered by assessee in AY 2010-11, 11-12, 12-13, 13-14 and 14-15 under the umbrella of Management Support Services Agreement which was operative during above assessment years. The Hon'ble ITAT has analyzed the taxability of above agreement and came to the conclusion that services are not Technical services nor do they require any technological knowledge, skill or experience. There is no transfer of technology involved.
Everest India is not enabled to apply any technology on its own without recourse to the service provider i.e. the assessee. These services cannot be characterized as Fee for Included Services under Article 12(4)(b) of India- US treaty.
The ld AR pointed out that during AY 2015-16, though the assessee entered into a specific agreement on Management and Sales services effective 1.04.2014, however, the nature of services rendered continued
Page 6 of 24 ,1131,1132,1133,1134,1135/DEL/2023 [A.Y.2015-16,2016-17,2017-18,2018-19,2019-2020,2020-21] M/s Everest Global Inc Vs.The A. C.I.T to be same as earlier years. The agreement for provision of marketing and sales services is continuous in nature, thus services are being rendered every year by assessee and evidently, there is no provision in the agreement for transfer of technical knowledge, experience, skill, know- how etc. from the service provider to service recipient.
The ld. counsel for the assessee submitted that nature of services is such that FIS clause Article 12(4)(b) cannot trigger. The assessee performs global marketing and sales services from its office in USA and gets consideration for the same and there ends the matter. In order to characterize a particular receipt as "Fee for Included Services" under Article 12(4)(b) of India- US treaty, receipt from rendition of technical or consultancy services should result in ‘making available’ of technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design.
The ld. counsel for the assessee vehemently submitted that in the given facts, it is nobody' case that the consideration received by the assessee falls under article 12(4)(a) of the tax treaty. Therefore, it is to be examined, whether the consideration received falls within the scope and Page 7 of 24 ,1131,1132,1133,1134,1135/DEL/2023 [A.Y.2015-16,2016-17,2017-18,2018-19,2019-2020,2020-21] M/s Everest Global Inc Vs.The A. C.I.T ambit of article 12(4)(b). The marketing and sales services rendered by assessee are not technical or consultancy services within the meaning of Article 12(4). Further, rendition of these services do not require any technology. Further, services rendered do not make available technical knowledge, skill, experience, know-how or processes nor does it result in transfer of technical plan or design. In this context principle of ejusdem generis is relevant. The words "skill or experience" cannot be read in isolation without the word "technology". Therefore, the services do not fall in Paragraph 4(b). Further, 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.
The ld. counsel for the assessee referred to the MoU to Indo-US DTAA dated 15.05.1989 to state that Sales and Marketing services rendered by assessee are not covered in definition of FIS under Article 12(4)(b) of the Indo-US DTAA. The ld AR relied on the following case laws:
1. Everest Global Inc V DDIT, (ITA No. 2469/Del/2015, 6137/Del/2015, 2355/Del/2017)- Para 9.7, 9.8 2. Everest Global Inc v DDIT (ITA No. 6697/Del/2017, - Para 8 3. Netafim Ltd v DCIT [2023] 149 taxmann.com 295 (Delhi - Trib.) - Para 9 4. Anand NVH Products Inc. v ACIT [2022] 145 taxmann.com 412 (Delhi - Trib.) - Para 4, 5, 6, 8, 9, 10, 11, 12 5. Tagit Pte Ltd [ITA No. 1945 (Del) of 2022] - Para 7,8
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Cameron (Singapore) Pte. Ltd v DCIT [2023] 153 taxmann.com 301 (Delhi - Trib.) - Para 5.1, 5.3, 5.4, 5.5, 7. Director of Income-tax v Sheraton International Inc [2009] 178 Taxman 84 (Delhi) - Para 3.1, 5.2, 12.1, 13 8. DCIT v Boston Consulting Group Pte. Ltd [2005] 94 ITD 31 (MUM.) - Para 26 9. Bombardier Transportation Sweden AB v DCIT [2021] 125 taxmann.com 277 (Delhi - Trib.) - Para 21, 22, 24, 25, 26 10. Magotteaux International SA v DCIT [2022] 141 taxmann.com 8 (Delhi - Trib.) – Para 19, 20, 21 11. ACIT v Sheraton Overseas Management Corporation [2024] 159 taxmann.com 482 (Delhi - Trib.) - Para 24 (sub paras 73, 74, 75, 76, 77), Para 27 12. Laserwords US Inc. v DCIT [2024] 162 taxmann.com 543 (Chennai - Trib.) -Para 4.1, 4.1.2, 8 13. De Beers India Minerals (P.) Ltd v CIT, CC [2012] 21 taxmann.com 214 (Kar.) - Para 22, 26, 27, 31 15. The ld. counsel for the assessee concluded by saying that in all the years under consideration, the quarrel is in respect of identical facts. It is the say of the ld. counsel for the assessee that the entire quarrel has been decided by this Tribunal in assessee’s own case in Assessment Years 2010- 11, 2011-12 and 2012-13 and in A.Ys 2013-14 and 2015-16. The ld. counsel for the assessee supplied copy of the decisions of this Tribunal in ITA Nos.
2469/DEL/2015, 6137/DEL/2015 and 2355/DEL/2017 for Assessment Years 2010-11, 2011-12 and 2012-13 order dated 30.03.2022 and copy of decision and 6698/DEL/2017.
Per contra, the ld. DR vehemently stated that in so far as the quarrel relating to the consideration received by the assessee towards customized research advisory services is not taxable under the head “Royalty” is not Page 9 of 24 ,1131,1132,1133,1134,1135/DEL/2023 [A.Y.2015-16,2016-17,2017-18,2018-19,2019-2020,2020-21] M/s Everest Global Inc Vs.The A. C.I.T as per the decision cited before the Tribunal as the same was delivered in respect of software royalty and, therefore, the decision of the Tribunal should not be followed.
We have heard the rival submissions and have perused the relevant material on record. We find force in the contention of the ld. counsel for 6137/DEL/2015 and 2355/DEL/2017 for Assessment Years 2010-11, 2011-12 and 2012-13 order dated 30.03.2022, the co-ordinate bench has held as under:
“9.7 Further, considering the services provided by the assessee (listed above), in our view, these are not technical services nor do they require any technological knowledge, skill or experience. There is no transfer of technology involved. Everest India is not enabled to apply any technology on its own without recourse to the service provider i.e. the assessee. These services have not resulted in any enduring benefit to Everest India by way of any knowledge which could be applied by it on its own in future without depending on the assessee. These are general managerial services which are received by the assessee on recurring basis. Therefore, the test laid down under Article 12(4)(b), in our considered view, are not satisfied in the present factual scenario.
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9.8 Thus, management fee received by the assessee from Everest India is not taxable as FIS under the provisions of India-USA DTAA. Accordingly, this ground is allowed in favour of the assessee.” and 6698/DEL/2017 for A.Ys 2013-14 and 2015-16, this Tribunal, at Paras 6 onwards of its order has considered this issue and decided as under:
“6. We have given thoughtful consideration to the orders of the authorities below. The first common grievance relates to the addition on account of management fee amounting to Rs. 21,43,248/- in A.Y 2013-14 and Rs. 24,90,375/- in A.Y. 2014-15.
7. A perusal of the order of the ld. CIT(A) shows that while confirming the findings of the Assessing Officer, he has followed the findings given by his predecessor in Assessment Year 2011-12. We have carefully perused the decision of the Tribunal in in Assessment Year 2011-12. This Tribunal, at Para 9.4 of its order has considered this issue and decided as under:
“9.4 Now coming to the facts of the present appeal, the assessee has rendered management support services of the description listed at Annexure C of Master Support Services Agreement to Everest India on independent and non-exclusive basis. These services are centralized services which are being provided to all group entities in order to maintain uniformity and ITA Nos. 2469,
Page 11 of 24 ,1131,1132,1133,1134,1135/DEL/2023 [A.Y.2015-16,2016-17,2017-18,2018-19,2019-2020,2020-21] M/s Everest Global Inc Vs.The A. C.I.T
6137/Del/2015 2355/Del/2017 Everest Global Inc. vs DDIT rationalize and standardize the practices across global location. No element of profit is earned by the assessee in course of rendering these services. These services include-
1. Management Oversight a. Strategic direction b. Contract review c. Financial and legal guidance d. Client Relationship Management e. Insurance f. Peer Review
2. Marketing a. Brand Awareness b. Marketplace analysis c. Competitive analysis d. Webinars e. Leadership forum f. Speaking engagements
3. Finance and Accounting a. Payroll b. General ledger c. Employee time and expense d. Revenue and expense accruals e. Payables f. Accounts Receivables g. Cash Management h. Financial Reporting i. Budgeting j. Line of credit access management
4. Human Resource management a. Recruiting b. Compensation c. Benefits administration d. Legal
Information Technology a. Laptop Maintenance b. Help desk support c. Desk side support d. User Id and password e. Remote access f. System/antivirus g. Intranet h. Inter site communication links, email, voice mail etc i. Standard computer platform j. New hardware and software k. Training on IT resources 6137/Del/2015 2355/Del/2017
Page 12 of 24 ,1131,1132,1133,1134,1135/DEL/2023 [A.Y.2015-16,2016-17,2017-18,2018-19,2019-2020,2020-21] M/s Everest Global Inc Vs.The A. C.I.T
Everest Global Inc. vs DDIT l. Licenses and compliance m. Computer and phone networks
6. Training a. Global training conferences b. Monthly training sessions c. Ad hoc training as required
Legal a. Contract review b. Litigation management c. Other legal services as required 9.5 We agree with the contention of the assessee that managerial services are outside the scope of the meaning of FIS under Article 12(4) of the India- USA DTAA. Wherever the intention of the legislature is to include managerial services within the scope of FTS/ FIS, the same has been expressly mentioned therein. This contention of the assessee finds support by the jurisdictional Delhi Court judgment in the case of Steria (supra). The relevant para of the judgment is reproduced below.
19. The next question that arises is concerning to extent to which the benefit under the India-UK DTAA can be made available to the Petitioner. As already noticed, the definition of "fee for technical services" occurring in Article 13(4) of the Indo-UK DTAA clearly excludes managerial services. What is being provided by Steria France to the Petitioner in terms of the Management Services Agreement is managerial services. It is plain that once the expression 'managerial services' is outside the ambit of 'fee for technical services', then the question of the Petitioner having to deduct tax at source from payment for the managerial services, would not arise. It is, therefore, not Page 13 of 24 ,1131,1132,1133,1134,1135/DEL/2023 [A.Y.2015-16,2016-17,2017-18,2018-19,2019-2020,2020-21] M/s Everest Global Inc Vs.The A. C.I.T
necessary for the Court to further examine the second part of the definition, viz., whether any of the services envisaged under Article 13(4) of the Indo-UK DTAA are "made available" to the Petitioner by the DTAA with France."
9.6 The assessee's case also finds support from the MOU annexed to the India-USA DTAA explaining the FIS wherein it is clarified that clause 4(b) of Article 12 excludes any service that does not make technology available to the person acquiring the service.
"Memorandum of Understanding (MOU) annexed to the India-USA DTAA dated 15.05.1989 concerning FIS states as under:
, 6137/Del/2015 2355/Del/2017 Everest Global Inc. vs DDIT Article 12 includes only certain technical and consultancy services.
But technical services, we mean in this context services requiring expertise in a technology. By consultancy services, we mean in this context advisory services. The categories of technical and consultancy services are to some extent overlapping because a consultancy service could also be a technical service. However, the category of consultancy services also includes an advisory service, whether or not expertise in a technology is required to perform it. Under paragraph 4, technical and consultancy services are considered included services only to the following extent: (1) as described in paragraph 4(a), if they are ancillary and Page 14 of 24 ,1131,1132,1133,1134,1135/DEL/2023 [A.Y.2015-16,2016-17,2017-18,2018-19,2019-2020,2020-21] M/s Everest Global Inc Vs.The A. C.I.T subsidiary to the application or enjoyment of a right, property or information for which are royalty payment is made; or (2) as described in paragraph 4(b), if they make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Thus, under paragraph 4(b), consultancy services which are not of a technical nature cannot be included services. {emphasis supplied} Paragraph 4(b) Paragraph 4(b) of Article 12 refers to technical or consultancy services that make available to the person acquiring the services, technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plant or technical design to such person. (For this purpose, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person). This category is narrower than the category described in paragraph 4(a) because it excludes any service that does not make technology available to the person acquiring the service. Generally speaking, 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 may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc., are 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. {emphasis supplied} Typical categories of Page 15 of 24 ,1131,1132,1133,1134,1135/DEL/2023 [A.Y.2015-16,2016-17,2017-18,2018-19,2019-2020,2020-21] M/s Everest Global Inc Vs.The A. C.I.T services that generally involve either the development and transfer of technical plans or technical designs, or making technology available as described in paragraph 4(b ), include :
1. Engineering services (including the sub-categories of bio- engineering and aeronautical, agricultural, ceramics, chemical, civil, electrical, mechanical, metallurgical, and industrial engineering) ;
Architectural services ; and 6137/Del/2015 2355/Del/2017 Everest Global Inc. vs DDIT
Computer software development.
Under paragraph 4(b), technical and consultancy services could make technology available in a variety of settings, activities and industries. Such services may, for examples, relate to any of the following areas :
Bio-technical services ; 2. Food processing ; 3. Environmental and ecological services ; 4. Communication through satellite or otherwise ; 5. Energy conservation ; 6. Exploration or exploitation of mineral oil or natural gas ; 7. Geological surveys ; 8. Scientific services ; and 9. Technical training."
From the above, it is evident that none of the services provided by the assessee are in the nature of FIS.
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9.7 Further, considering the services provided by the assessee (listed above), in our view, these are not technical services nor do they require any technological knowledge, skill or experience. There is no transfer of technology involved. Everest India is not enabled to apply any technology on its own without recourse to the service provider i.e. the assessee. These services have not resulted in any enduring benefit to Everest India by way of any knowledge which could be applied by it on its own in future without depending on the assessee. These are general managerial services which are received by the assessee on recurring basis. Therefore, the test laid down under Article 12(4)(b), in our considered view, are not satisfied in the present factual scenario.
9.8 Thus, management fee received by the assessee from Everest India is not taxable as FIS under the provisions of India-USA DTAA. Accordingly, this ground is allowed in favor of the assessee.”
8. On finding parity of facts, we have no hesitation in following the decision of the co-ordinate bench (supra) and direct the Assessing Officer to delete the impugned addition. This ground is, accordingly, allowed.”
We have carefully perused the decisions of the Tribunal. On finding parity of facts, we have no hesitation in following the decision of the co-
Page 17 of 24 ,1131,1132,1133,1134,1135/DEL/2023 [A.Y.2015-16,2016-17,2017-18,2018-19,2019-2020,2020-21] M/s Everest Global Inc Vs.The A. C.I.T ordinate bench (supra) and direct the Assessing Officer to delete the impugned addition. This ground is, accordingly, allowed.
ITA No. 1131/DEL/2023 [A.Y. 2016-17] [A.Y. 2017-18] [A.Y. 2018-19] ITA No. 1134/DEL/2023 [A.Y. 2019-20] ITA No. 1135/DEL/2023 [A.Y. 2020-21] [Assessee Appeal]
19. We find that for AY 2016-17 to 2020-21, apart from the ground of additions on account of Marketing and Sales Service fees as FIS, the assessee has raised another ground with regard to addition on account of Consultancy Fees as FIS. With regard to Consultancy Fees, the assessee has taken same plea as in the issue of Marketing and Sales Service fees.
We have passed a separate order in respect of the assessment year 2015-16 hereinabove on the issue of taxability of Fee for Marketing services. As the facts and circumstances in ground 2 of all the other instant appeals in all the A.Ys under consideration, are admittedly mutatis mutandis similar to Ground no 1 of AY 2015-16, respectfully following the same, we allow the ground 2 of all these appeals of the assessee.
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The ground no 1 in all the appeals for AY 2016-17 to 2020-21, pertain to taxability of Fee for consultancy services.