Wolters Kluwer Financial Services Belgium NV Vs DCIT (ITAT Delhi)
ITAT Delhi held that once the assessee was able to demonstrate that the amount received is in the nature of managerial services, it cannot be treated as FTS on estimated basis. Such receipt not being FTS is not taxable in India.
Facts-
The assessee is a non-resident corporate entity incorporated under the laws of Belgium and is a tax resident of Belgium. As observed by the Assessing Officer, the assessee provides management support services, such as, administration, management, marketing and sale of company’s product and other services. For providing such services to the Indian subsidiary, namely, Wolters Kluwer (India) Pvt. Ltd. during the year under consideration the assessee had received an amount of Rs.1,53,36,510/-.
For AY under dispute, the assessee filed its ROI offering nil income claiming that the amount received by the assessee from providing management support services is not taxable in India.
In course of assessment proceedings, AO called upon the assessee to explain why the fee received towards management support services should not be treated as FTS both under the provisions of Section 9(1)(vii) of the Act as well as under the tax treaty. AO didn’t accept the contention of the assessee and taxed the amount received as FTS by applying 15% on gross basis.
CIT(A) partly allowed the appeal. Being aggrieved, the present appeal is filed by the assessee.
Conclusion-
Held that the scope of services to be rendered under the agreement certainly does not indicate that they are anything other than managerial services as it aids and assists the customer for performing its day to day business activity. In fact, learned Commissioner (Appeals) has partly accepted assessee’s claim and allowed benefit of 50% of the amount received to be fee for managerial services, that too, purely on estimate. This, in our view is without any basis. Once the assessee was able to demonstrate that the amount received is in the nature of managerial services, it cannot be treated as FTS in view of the restrictive meaning of FTS under Article 13(4) of India-UK tax treaty, which specifically excludes managerial services. As regards the applicability of MFN clause and the restrictive provision of India-UK tax treaty, in our view, there cannot be any dispute as the Assessing Officer has accepted the legal position.
FULL TEXT OF THE ORDER OF ITAT DELHI
Captioned appeal by the assessee arises out of the order dated 22.07.2019 of learned Commissioner of Income Tax (Appeals)-43, New Delhi pertaining to AY 2016-17.
2. Though the assessee has raised as many as 13 grounds, however, the short issue arising for consideration is, whether the amount received by the assessee for providing management support services can be treated as Fee for Technical Services (FTS) under the India-Belgium Double Taxation Avoidance Agreement (DTAA).
3. Briefly the facts are, the assessee is a non-resident corporate entity incorporated under the laws of Belgium and is a tax resident of Belgium. As observed by the Assessing Officer, the assessee provides management support services, such as, administration, management, marketing and sale of company’s product and other services. For providing such services to the Indian subsidiary, namely, Wolters Kluwer (India) Pvt. Ltd. during the year under consideration the assessee had received an amount of Rs.1,53,36,510/-. For the assessment year under dispute, the assessee filed its return of income offering nil income claiming that the amount received by the assessee from providing management support services is not taxable in India. In course of assessment proceedings the Assessing Officer called upon the assessee to explain why the fee received towards management support services should not be treated as FTS both under the provisions of Section 9(1)(vii) of the Act as well as under the tax treaty. In reply, the assessee submitted that as per Article 12(3)(b) of the India-Belgium tax treaty, FTS includes payment received for services of managerial, technical or consultancy nature and chargeable to tax @10%. However, the assessee submitted, the taxation of FTS under India-Belgium tax treaty can be altered or reduced on account of Most Favoured Nation (MFN) clause as referred to in clause (1) of the protocol to the India-Belgium tax treaty.
He submitted, as per the said protocol to India-Belgium tax treaty, where India enters into a tax treaty after 01.01.1990 with a third state, being a Member of the OECD, whereby vide such DTAA India limits its taxation in respect of royalty or FTS to a rate lower or a scope more restricted than the rate or scope provided in India-Belgium tax treaty of such item of income, the same rate or scope as provided for in the other tax treaty in respect of said item of income shall also apply under the India-Belgium tax treaty. It was submitted, as per India-UK tax treaty, under Article 13(4) the term FTS has been defined to mean consideration received for rendering of any technical or consultancy services. Thus, it was submitted, managerial services have been specifically excluded from the definition of FTS under India-UK tax treaty. Thus, it was submitted, the meaning of FTS under India-UK tax treaty, being more restricted, will apply to India-Belgium tax treaty as per the MFN clause under the protocol to India-Belgium tax treaty. The Assessing Officer, however, did not accept the contention of the assessee. Firstly, he held that the amount received is taxable under section 9(1)(vii) of the Act as FTS. Secondly, he held that the amount is also taxable under India-Belgium tax treaty read with India-UK DTAA. Accordingly, he taxed the amount received as FTS by applying the rate of 15% on gross basis. Against the aforesaid decision of the Assessing Officer, assessee preferred an appeal before learned Commissioner (Appeals).
4. After considering the submissions of the assessee in the context of facts and materials on record learned Commissioner (Appeals) observed that as per the Master Service Agreement (MSA) under which the assessee has provided management support services, the nature of services rendered cannot be considered to be in the nature of simply managerial services. He observed, the services include logistics, planning, business development, etc. He observed, the assessee has advised Indian subsidiary on a complete strategic business proposition and how to advance the business prospects efficiently and specifically in the Indian context. Therefore, the services are more in the nature of consultancy services rather than managerial. Further learned Commissioner(Appeals) observed that while providing consultancy services the assessee makes available some skills to the recipient. While coming to such conclusion learned Commissioner (Appeals), though, accepted assessee’s contention that services were rendered offshore with no point of contact where the employees had visited in India or services have been rendered in India, however, he observed that assessee was constantly guiding and advising the Indian subsidiary on the manner and mechanism on which Indian business was to be developed. Thus, on the aforesaid basis, he held that services rendered are in the nature of consultancy services. However, he accepted that the entire amount received by the assessee cannot be attributed to consultancy services alone. He observed, amount received from services, such as, business planning, product management, business development, accounting and budgeting, planning, logistics and reporting, client contract and preferred provider agreement, finance and accounting system, human resource services, information system, corporate communication, legal services, etc. actually enable the recipient to apply the knowledge received. Alleging that segmental details of cost charged for various services are not available, he attributed 50% of the receipts are for consultancy services, hence FTS. Against the aforesaid decision of learned Commissioner (Appeals), the assessee is before us.
5. Reiterating the stand taken before the Departmental Authorities, learned Counsel submitted that the services rendered are simply in the nature of managerial services, hence, cannot be regarded as consultancy services. He submitted, as per the MFN clause available in the Protocol to India-Belgium tax treaty, the more restricted meaning of FTS under India-UK tax treaty would be applicable. He submitted, as per Article 13(4) of the India-UK tax treaty, managerial services are specifically excluded from being treated as FTS. Therefore, he submitted, the amount received by the assessee, being in the nature of managerial services, is not taxable in India. Without prejudice, he submitted, even assuming that the services rendered are in the nature of consultancy services, unless, the service provider makes available technical knowledge, experience, skill, knowhow processes, etc. while rendering such services to the recipient it will not fall within the category of FTS as per the definition of FTS under India-UK tax treaty. He submitted, the Departmental Authorities have failed to demonstrate that the assessee had made available technical knowledge, experience, skill, knowhow, processes while rendering such services to the recipient, which can enable the recipient to apply such technical knowledge, experience, skill, knowhow independently without the aid and assistance of the service provider. Thus, he submitted, the amount received cannot be treated as fee for consultancy services as well under India-Belgium tax treaty read with India-UK tax treaty. In support of such contention learned Counsel relied upon the following decisions:
