Tech Data (Singapore) Pte Limited Vs DCIT (ITAT Mumbai)
The assessee filed an appeal before the Income Tax Appellate Tribunal against the assessment order dated 20.10.2023 passed under Sections 143(3) read with 144C(13) of the Income-tax Act, 1961 pursuant to the directions of the Dispute Resolution Panel (DRP), relating to Assessment Year 2021-22. The appeal challenged the assessment of management/service fees as Fees for Technical Services (FTS), the levy of interest under Sections 234A and 234B, and the initiation of penalty proceedings under Section 274 read with Section 270A of the Act.
The principal dispute concerned the addition of ₹38,56,25,301 towards management/service fees. The Assessing Officer treated the management/service fees received by the assessee as taxable Fees for Technical Services under the Income-tax Act read with Article 12 of the India-Singapore Double Taxation Avoidance Agreement (DTAA). According to the assessee, the services rendered did not make available any technical knowledge, experience, skill, know-how or processes enabling the recipient to apply the technology independently, as required under Article 12(4)(b) of the India-Singapore DTAA.
At the outset, the assessee submitted that the issue was fully covered in its favour by the Tribunal’s decision in its own case for Assessment Year 2020-21 in ITA No. 3280/Mum/2023. The Departmental Representative fairly conceded that the issue stood covered and could not point out any distinguishing decision in favour of the Revenue.
The Tribunal noted that while disposing of the objections to the draft assessment order, the DRP had observed that it had already examined an identical issue in the assessee’s own case for the immediately preceding assessment year under the same agreement. The DRP further recorded that the authorised representatives had acknowledged that there was no alteration in the fundamental facts or transactions between the earlier year and the year under consideration. Accordingly, the DRP had reaffirmed the rationale and directions adopted in the preceding assessment year. The Tribunal also observed that no new facts had been discussed for the impugned assessment year and that the facts accepted for Assessment Year 2020-21 continued to govern the present dispute.
The Tribunal referred to its earlier order for Assessment Year 2020-21, which had in turn followed its decision for Assessment Year 2019-20. Those decisions examined the service agreement entered into between the assessee and its Indian affiliate under which the assessee rendered management and business support services. The services included strategic business advisory, information technology services, finance, logistics support, branding, tax, treasury, legal, ethics and compliance, trade compliance, human resources and real estate services. The agreement provided that the assessee would be compensated at cost plus a mark-up of 7.5% for rendering these services.
The earlier Tribunal decision, reproduced in the present order, analysed Article 12(4) of the India-Singapore DTAA defining Fees for Technical Services. The Tribunal observed that Article 12(4) covers payments for managerial, technical or consultancy services only where such services are ancillary and subsidiary to royalty, make available technical knowledge, experience, skill, know-how or processes enabling the recipient to apply the technology independently, or consist of the development and transfer of a technical plan or technical design. After examining the service agreement and Schedule A describing the services, the Tribunal held that none of these conditions were satisfied. It found that there was no transfer of technical know-how, no development or transfer of any technical plan or technical design, and that the services were in the nature of operational management and support services, including training and strategic assistance.
The earlier decision further observed that although the Assessing Officer had attempted to classify the services under technical, managerial and consultancy segments, no examination had been undertaken to determine whether the services satisfied the conditions prescribed under Article 12(4) of the DTAA. The Tribunal also noted that while the definition of Fees for Technical Services under Section 9(1)(vii) of the Income-tax Act was wider, Section 90(2) entitled the assessee to rely upon the more beneficial provisions of the DTAA. Consequently, the Tribunal had held that the management/service fees were not taxable as Fees for Technical Services under Article 12 of the India-Singapore DTAA.
Finding complete parity of facts with the earlier assessment years, the Tribunal followed the co-ordinate Bench decisions rendered in the assessee’s own case. It directed the Assessing Officer/Transfer Pricing Officer to delete the impugned addition relating to management/service fees.
With regard to interest under Section 234A, the Tribunal directed the Assessing Officer to levy interest in accordance with law while keeping in mind any extension of the due date arising on account of the Covid-19 pandemic. No separate finding was recorded on the challenge to interest under Section 234B or the initiation of penalty proceedings under Section 274 read with Section 270A.
Accordingly, the Tribunal allowed the assessee’s appeal.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by the assessee is preferred against the order dt. 20/10/2023 framed u/s 143(3) r.w.s. 144C(13) of the Act, by NFAC, Delhi, pertaining to Assessment Year 2021-22.
2. The grievance of the assessee reads as under:-
“Based on the facts and circumstances of the case, Tech Data (Singapore) Pte Limited (hereinafter referred to as ‘TD Singapore’ or ‘the Appellant’) respectfully craves leave to prefer an appeal under section 253(1)(d) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act9, against the order dated 20 October 2023 passed by the Deputy Commissioner of Income Tax, International Tax Circle – 4(1)(2), Mumbai (hereinafter referred to as the ‘learned ‘AO’) under section 143(3) read with section 144C(13) of the Act in pursuance of the directions dated 22 September 2023 issued by the Honorable Dispute Resolution Panel (hereinafter referred to as ‘DRP’), on the following ground, which are independent of and without prejudice to each other:
1. Ground 1: Holding Management fees to the tune of INR 38,56,25,301 as taxable income in the hands of Assessee
The learned AO has erred in law and facts in treating management/ service fee as fees for technical services under the Act read with Article 12 of the India-Singapore DTAA and making additions amounting to INR 38,56,25,301 without appreciating that the services do not make available any technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein as required by Article 12(4)(b) of the India-Singapore tax treaty.
2. Ground 2: Erroneous levy of interest under section 234A and section 234B of the Act
The learned AO has erred on the facts and in circumstance of the case and in law by proposing to levy interest under section 234A and section 234B of the Act amounting to INR 1,65,270 and INR 10,24,674 respectively.
3. Initiation of penalty proceedings under section 274 read with section 270A of the Act
The learned AO has erred in initiating penalty proceedings against the Appellant under section 274 read with section 270A of the Act for under reporting of income in consequence of misreporting.
The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Honorable ITAT to decide this appeal according to law. Each of the above ground of appeal is independent and without prejudice to the other grounds of appeal preferred by the Appellant.”
3. At the very outset, the ld. Counsel for the assessee stated that the substantive grievance raised vide Ground No. 1 is fully covered in favour of the assessee and against the revenue by the decision of the Tribunal in assessee’s own case in ITA No. 3280/Mum/2023 for AY 202021.
The ld. D/R fairly conceded to this and could not bring any distinguishing decision in favour of the revenue.
4. We have given a thoughtful consideration to the orders of the authorities below. We find force in the contention of the ld. Counsel for assessee. The DRP while disposing the objections raised by the assessee against the draft assessment order held as under:-
“5.3.3. Discussion on the Issue:
During the course of proceedings related to the Applicant’s case for the preceding Assessment Year 2020-21, this Panel had the opportunity to examine the issue analogous to the current matter, all regulated by the same Agreement of the Applicant. It is noteworthy that during the hearings, the Learned Authorized Representatives has acknowledged with fairness that there have been no alteration in the fundamental facts and transactions from the previous assessment year to the current one. As a result, the rationale and directions issued by this Panel during the prior Assessment Year in connection with this case are reaffirmed:”
5. It can be seen from the above that no new facts have been discussed and the facts for AY 2020-21 have been accepted for the impugned issue.
6. We find that this Tribunal in ITA No. 3280/Mum/2023 for AY 2020-21, has decided a similar quarrel and held as under:-
“10. Heard both the sides and perused the material on record. Without reiterating the facts as elaborated above assesse has entered into an agreement with T.D. India, pursuant to which the assessee renders certain management and business support services to T.D. India. The services rendered inter alia includes finance, logistics, branding, business strategies, treasury, human resources etc. The assessee explained that all the resources undertaken as referred above were either support services, coordination or tax services without transfer of any technology skill to the recipient. With the assistance of ld. representative we have perused the decision of ITAT in the case of the assessee vide ITA No. 2367/Mum/2022 dated 21.08.2023 as referred above wherein identical issue on similar fact has been adjudicated in favour of the assessee. The relevant extract of the decision of the coordinate bench is reproduced as under:
“8. In ground No.3 of appeal, the assessee has assailed assessment order in treating management/services fee received by the assessee as FTS under the Act r.w. Article-12 of India-Singapore, DTAA. The assessee has drawn our attention to the Service Agreement at pages 23 to 29 of the paper book. The assessee has received management fee under the said Service Agreement. The nature of services rendered by the assessee are specified in Schedule-A to the aforesaid agreement. The gist of services provided by the assessee in different areas as detailed in Schedule -A is as under:-
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- Strategic business advisory services that shall and TDI in formulating its business plan for any given period.
- Information Technology Services.
- Finance (FP&A and controlling)
- Logistics support from base country
- Branding
- Tax
- Treasury
- Legal
- Ethics and compliance
- Trade compliance
- Human Resources
- Real Estate Clause (3) of the said agreement specifies the compensation to be paid for providing the services. The rate of compensation is given in Schedule-B to the said agreement. A perusal of Schedule-B shows that for performing the services described in Schedule-A, the assessee shall be compensated at cost + mark up @ 7.5% . We find that the Assessing Officer has held that management fee received by the assessee for rendering services is in the nature of FTS. Article- 12(4) of India – Singapore DTAA defines the expression FTS. For the sake of ready reference clause -4 of Article 12 is reproduced herein under:-
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“4. The term “fees for technical services” as used in this Article means payments of any kind to any person in consideration for services of a managerial technical or consultancy nature (including the provision of such services through technical or other personnel) if such services:
a. Are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or
b. Make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein; or
c. Consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply technology contained therein. For the purpose of (b) and (c) above, the person acquiring the service shall be deemed to include an agent, nominee or transferee of such person.”
A perusal of the service agreement along with Annexure-A, that gives an exhaustive list of services to be rendered would show that none of the conditions mentioned in sub-clause (a)(b) and (c) of Clause -4 to Article -12 of India – Singapore DTAA are satisfied. There is no make available of technical knowhow nor there is any service rendered consisting of the development and transfer of a technical plan or technical design. The prerequisite for invoking Clause-4 of Article-12 of the DTAA is that either there should be transfer of some technical knowhow i.e. make available condition is satisfied or there should be development and transfer of technical plan or technical design. The services rendered by the assessee as per Schedule-A of the Service Agreement does not in any manner show that any technical knowhow has been made available or there is development and transfer of technical plan or technical design. The services rendered are in the nature of operational management and providing support system. The services also includes providing of training and developing strategies, etc. We find that the Assessing Officer has taken pains to segregate services rendered by the assessee under the segments technical, managerial and consultancy. However, no effort has been made by the Assessing Officer to examine whether the services rendered under the three segments fulfil the criteria so as to fall within the definition of FTS under Article-12(4) of the DTAA. In so far as the definition of FTS as defined in Section 9(vii) of the Act is concerned, we observe that the definition is much broader. The services rendered by the assessee may fall within the sweep of FTS as defined under the Act, but the assessee would be protected by provisions of section 90(2) of the Act. Section 90(2) of the Act lays down that, where the Central Government has entered into an agreement with any other Sovereign Nation for granting relief of tax or for avoidance of double taxation, then the provisions of the Act shall apply to the assessee only to the extent they are more beneficial to it. In case the provisions of the Act are more stringent, the assessee would be governed by the provisions of the DTAA. In the instant case, we find that the remuneration received by the assessee in lieu of services rendered do not fall within the meaning of FTS under Article-12(4) of the India-Singapore DTAA. Consequently, we hold that the payments received by the assessee in respect of management services are not taxable as FTS. In the result, ground No.3 of appeal is allowed.”
Since, the issue on hand being squarely covered by the decision of the ITAT in the case of the assessee itself as discussed above in this order, therefore, following the decision of the ITAT this ground of appeal of the assessee is allowed.”
7. It can be seen from the above that the Co-ordinate bench while deciding the appeal in favour of the assessee has followed the earlier decision given by this Tribunal in ITA No. 2367/Mum/2022 for AY 201920. Finding parity on facts, respectfully following the decision of the Co-ordinate Bench (supra), we direct the AO/TPO to delete the impugned disallowance.
8. The AO is directed to levy interest u/s 234A of the Act as per the provision of the law, keeping in mind if there was any extension of the due date, due to Covid-19 pandemic.
9. In the result, appeal of the assessee is allowed.
Order pronounced in the Court on 29th July, 2024 at Mumbai.
