Edenred Pte Ltd. Vs DDIT (ITAT Mumbai)
In the instant case, the appellant has received fees for referral services/other services of Rs.39,94,209/- from Surf Gold in the year under consideration.
It is relevant to mention here that as per the India-Singapore DTAA, the services in the nature of managerial, technical or consultancy nature are taxable as FTS, if such services are ‘made available’ to the service recipient. In the instant case, referral services/other services are provided to support Surf Gold in carrying on its business. These services do not make available any technical knowledge, skill, knowhow or processes to SurfGold because there is no transmission of the technical knowledge, experience, skill etc. from the appellant to SurfGold or its clients.
In the case of Cushman & Wakefield (S) Pte. Ltd. (supra), the applicant a foreign company based in Singapore is engaged in the business of rendering real estate services to its local and international clients. The applicant has developed certain international client relationships and in accordance with global policy of the group, various offices provide referral services to other Cushman & Wakefield (C&W) Offices. The applicant entered into a referral agreement with Indian group company whereby the applicant refers/recommends potential customers desirous of obtaining real estate consulting and associated services in India. Further the applicant was not responsible for persuading the customers to avail the services of the Indian group company, nor negotiating or collecting fee charged by Indian group company from the referred customers. As consideration for such referral services, a percentage of the amount realized from the referred customers (i.e. 30% on gross amount realized) was paid to the applicant. The AAR held that “referral fee received in Singapore by the applicant, a Singaporean company from an Indian company for referring customers to the latter is neither business income u/s 9(1)(i) nor royalty u/s 9(1)(vi) nor fee for technical services u/s 9(1)(vii) r.w. Article 12(4)(b) of the DTAA between India & Singapore and, therefore, it is taxable as business income in Singapore only as the applicant has no PE in India ; impugned receipt not being chargeable to tax under the provisions of the IT Act or under the provisions of DTAA, section 195 is not attracted”.
In Real Resourcing Ltd. (supra), the AAR, in the context of the India-UK DTAA, after relying on the Cushman & Wakefield Ruling (supra) held that referral fee received by a UK company (applicant) from India based recruitment agency for referring potential Indian clients and candidates was not royalty or FTS.
In Knight Frant (India) (P.) Ltd. (supra), the Tribunal held that (i) where referral fees was received by foreign concern for introducing clients to assessee-Indian company, providing international real estate advisory and management services, since referral services were rendered entirely outside India, it would not fall within the scope of ‘total income’ of said foreign concern as per section 5(2) and (ii) referral fees paid by assessee-Indian company for availing referral services which were rendered by foreign concern entirely in USA would constitute business profits of foreign company under Article 7 of the India-USA DTAA; in absence of PE in India, it was not taxable in India.
The distillation of precedents must now be applied by us to the facts of the present case. We are of the considered view that in the context of the above factual scenario and position of law, the revenues under the referral agreement is not taxable in the hands of the appellant as royalty under the Act and/or India-Singapore DTAA or FTS under the India-Singapore DTAA. Therefore, we delete the addition of Rs.39,94,209/- made by the AO towards referral fee.
FULL TEXT OF THE ITAT JUDGEMENT
The captioned appeals filed by the assessee are directed against the order u/s 143(3) r.w.s. 144C(13) of the Income Tax Act 1961 (the ‘Act’) dated 10.01.2014 passed by the Dy. Director of Income Tax (International Taxation)-3(2), Mumbai (hereinafter ‘the AO’). As common issues are involved, we are proceeding to dispose them off through a consolidated order for the sake of convenience. We begin with the AY 2010-11
2. The grounds of appeal filed by the assessee read as under:
On the facts and circumstances of the case and in law, the AO, as per the direction of DRP has:
1. erred in assessing total income at Rs.2,09,18,639/- as against NIL returned income;
2. erred in considering infrastructure data centre charges of Rs.95,62,479/- to be taxable as royalty under the Act as well as under India-Singapore Double Taxation Avoidance Agreement (DTAA);
3. erred in considering management services fees of Rs.73,61,951/- to be taxable as FTS under India-Singapore DTAA;
4. erred in considering referral fees of Rs.39,94,209/- to be taxable as royalty under the Act as well as under India-Singapore DTAA;
5. without prejudice to the above, erred in considering referral fees also to be taxable as FTS under India-Singapore DTAA;
6. erred in not granting credit for TDS of Rs.17,42,513/-;
7. erred in levying interest under section 234A of the Act amounting to Rs.2,92,861/- without granting the credit of taxes withheld;
8. erred in levying interest under section 234B of the Act disregarding the fact that the Appellant is a non-resident assessee and its entire revenues/ receipts are subject to tax withholding in India under section 195 of the Act and the Appellant is not liable to pay advance lax in respect of such revenues;
9. without prejudice to the above, erred in levying Interest under section 234B of the Act amounting to Rs.9,62,258/- ignoring the taxes withheld;
10. erred in levying interest under section 234C of the Act disregarding the fact that the Appellant is a non-resident assessee and its entire revenues/ receipts are subject to tax withholding in India under section 195 of the Act and the Appellant is not liable to pay advance tax in respect of such revenues.
11. without prejudice to the above, erred in not appreciating that interest under section 234C of the Act can be levied only on returned income and hence, appellant is not liable for any interest under section 234C of the Act;
12. without prejudice to the above, erred in levying interest under section 234C of the Act amounting to Rs.1,05,638/- ignoring the taxes withheld.
3. Briefly stated, the facts of the case are that the appellant is a company incorporated in and tax resident of Singapore. It is engaged in the business of provision of services relating to developing, marketing and implementing incentive based strategies and technologies to build loyalty and to reward long-term relationships through the utilization of internet, wireless technology and offline solutions to its clients. The appellant’s key offering range from pure consulting to all aspects of communication development and implementation- including sourcing of loyalty rewards and their fulfillment for its clients. In addition to the above, the appellant is also engaged in providing following services to its Indian group companies [i.e. Edenred (India) Pvt. Ltd. (‘EPIL’0; Royal Images Direct Marketing Pvt. Ltd.(‘RID’) ; Surf Gold.Com (India) Pvt. Ltd.(‘SurfGold’)] :
