Bain & Company Inc. Vs DCIT (ITAT Delhi)
ITAT Delhi held that services are rendered without transfer of technical knowledge, skill, know-how, etc. and accordingly the receipts doesn’t qualify as FIS (Fees for Included Services) under Article 12(4)(b) of the India – USA Double Taxation Avoidance Agreements (DTAA).
Facts- The assessee is a non-resident corporate entity and a tax resident of Unites States of America (USA). As stated, the assessee is engaged in the business of providing consultancy services to multinational companies in the field of strategy, performance improvement, organization enhancement, mergers & acquisitions, and private equity. It also provides support services to its subsidiaries for which it is remunerated at arm’s length basis.
AO was of the view that the receipts from consultancy services and reimbursement of expenses are in the nature of FIS in terms of Article 12(4)(b) of the treaty, as, they are consultancy services. He further held that they are in the nature of FIS u/s. 9(1)(vii) of the Act.
Insofar as receipts of reimbursement of expenses are concerned, AO observed that such receipts are also in the nature of FIS/FTS, both under Article 12(4)(b) of the tax treaty as well as under section 9(1)(vii) of the Act. He further observed that not only the services rendered are in the nature of consultancy services, but while rendering such services, the assessee had made available technical know-how, knowledge, skill etc. Further, he observed that similar dispute relating to the aforesaid two receipts arising in assessment years 2011- 12 to 2014-15, assessment years 2016-17 and 2017-18 have been settled by the assessee under the Direct Tax Vivad Se Vishwas Scheme, 2020, which shows tacit acceptability of the additions as FIS/FTS by the assessee. Thus, in the aforesaid premises, AO brought both the receipts to tax under Article 12(4)(b) of the tax treaty. DRP rejected the objections of the assessee.
Conclusion- Had it been a case of transfer of technology in such a long duration Bain India certainly would have acquired the technical knowledge, know-how, skill etc. to perform such services on its own, without requiring the assessee to provide them. The very fact that Bain India is still dependent upon the assessee for the support services, establishes the fact that the assessee has not made available technical, know-how, skill etc. relating to such services to Bain India, the service recipient.
Held that in no other assessment year AO has treated the receipts from support services as FIS and brought it to tax. Thus, on overall consideration of facts and materials on record, we are of the view that the Revenue has not brought on record any materials to establish the fulfillment of make available condition of Article 12(4)(b) of India – USA DTAA.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal has been filed by the assessee challenging the final assessment order dated 18.05.2022 passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 pertaining to assessment year 20 19-20, in pursuance to directions of learned Dispute Resolution Pane (“DRP”).
2. In ground nos. 2 and 3, the assessee has challenged the addition of an amount of Rs.9,09,98,733/- by characterizing it as Fee for Included Services (“FIS”) under Article 12(4)(b) of India – USA Double Taxation Avoidance Agreement (“DTAA”) as well as under section 9(1)(vii) of the Act. Whereas, in ground no. 4, the assessee has challenged addition of Rs. 10,39,89,404/-, being reimbursement of cost as FIS, both under the treaty provisions as well as under the provisions of the Act.
3. Briefly the facts relating to these two issues are, the assessee is a non-resident corporate entity and a tax resident of Unites States of America (“USA”). As stated, the assessee is engaged in the business of providing consultancy services to multinational companies in the field of strategy, performance improvement, organization enhancement, mergers & acquisitions, and private equity. It also provides support services to its subsidiaries for which it is remunerated at arm’s length basis. In the assessment year under dispute, the assessee had following streams of income:
