Management Support Fees Not FTS under India-Singapore DTAA: ITAT Delhi

Cameron (Singapore) Pte Ltd. Vs ACIT (ITAT Delhi)

The article discusses the recent order from ITAT Delhi in the case of Cameron (Singapore) Pte Ltd. vs ACIT, addressing the assessment year 2016-17. The focus is on the contention that management support fees should not be treated as Fees for Technical Services (FTS) under Section 9(1)(vii) of the Income Tax Act, 1961, and Article 12(4) of the India-Singapore Double Taxation Avoidance Agreement (DTAA).

Detailed Analysis:

The appeal raised several substantive grounds, primarily challenging the AO’s decision regarding the nature of fees for management support services provided to Cameron Manufacturing (India) Private Limited (CMIPL). The key arguments revolved around the interpretation of FTS under the India-Singapore DTAA.

The appellant contended that similar issues had been decided in their favor by the Tribunal for the assessment years 2013-14 to 2015-16. The order highlighted that the receipts from Cameron Manufacturing India Pvt. Ltd. were not in the nature of FTS. The Tribunal emphasized that the services provided were managerial and consultancy in nature, but the crucial condition of making available technical knowledge, skill, or know-how was not met.

The article delves into the details of the services provided by the appellant to CMIPL, citing the agreement terms. The analysis explores the Tribunal’s reasoning, emphasizing the lack of evidence to establish that technical knowledge was made available while rendering services.

Conclusion:

Based on the precedent and the absence of changes in facts, the ITAT Delhi concluded that the fee for management support services received from Cameron Manufacturing India Pvt. Ltd. is not in the nature of FTS. The article also briefly touches upon other grounds raised by the appellant, such as TDS credit, interest under section 234B, and penalty proceedings under section 271(1)(c) of the Act.

This ruling provides clarity on the tax treatment of management support fees under the India-Singapore DTAA and highlights the importance of meeting specific conditions for services to be classified as FTS.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal is filed by the assessee against the final assessment order of the Assessing Officer dated 29.09.2019 passed under section 143(3) read with section 144C(13) of the Income Tax Act, 1961 (the Act) pursuant to the directions of the DRP dated 26.08.2019 passed under section 144C(5) of the Act for the assessment year 2016-17.

2. The assessee in its appeal has raised the following substantive grounds:-

“Considering management support services as Fees for Technical services :

2. On the facts and circumstances of the case and in law, the learned AO has erred in holding that the fee for management support services provided to Cameron Manufacturing (India) Private Limited (‘CMIPL’) is in the nature of Fee for Technical Services (‘FTS’) under section 9(1)(vii) of the Income-tax Act, 1961 (‘Act’) and as per Article 12(4) of the India-Singapore Double Taxation Avoidance Agreement (‘DTAA’) without appreciating that the of FTS. that the same does not fall under the definition.

3. On the facts and circumstances of the case and in law, the learned AO has erred in holding that the fee for management support services provided to CMIPL makes available technical knowledge or skill or know how and is taxable as FTS as per Article 12(4) of India-Singapore DTAA.

4. On the facts and circumstances of the case and in law, the learned AO has erred in not granting TDS credit amounting to Rs 9,74,418 which has led to a demand of Rs 3,25,066.

5. On the facts and circumstances of the case and in law, the learned AO has erred in levying interest under section 234B of the Act.

6. On the facts and circumstances of the case and in law, the learned AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act.”

3. The ld. Counsel for the assessee, at the outset, submits that in so far as ground Nos. 2 and 3 are concerned, the assessee challenges the order of the Assessing Officer/DRP in considering the management support services fee received by the assessee as fees for technical services under section 9(1)(vii) of the Act and as per Article 12(4) of the India Singapore Double Taxation Avoidance Agreement (DTAA). The ld. Counsel for the assessee further submits that identical issue has been decided in favour of the assessee by the Tribunal for the assessment years 2013-14, 2014-15 and 2015-16 in ITA. Nos. 1 & 6/JPR/2017 and 7960/Del/2018 dated 24.03.2023 wherein the Tribunal held that the receipts from Cameron Manufacturing India Pvt. Ltd. are not in the nature of FTS. Copy of the order is placed on record. The ld. Counsel further submits that as a matter of fact the Assessing Officer at page No. 3 para 5 stated that in the previous assessment years i.e. for the assessment years 2013-14 to 2015-16 the Assessing Officer has held that services provided by the assessee to Cameron Manufacturing India Pvt. Ltd. are taxable as fees for technical services and fall under the definition of FTS as per section 9(1)(vii) of the Act. The ld. Counsel further submits that the ld. DRP also in the directions stated that there is no change in facts and, therefore, they have followed their directions given for the assessment year 2013-14.

4. The ld. DR fairly submits that the issue has been decided in favour of the assessee.

5. Heard rival contentions perused the orders of the authorities below and the order of the Tribunal in assessee’s own case. On perusal of the order of the Tribunal we observe that whether the receipts from Cameron Manufacturing India Pvt. Ltd. are in the nature of fees for technical services was examined by the Tribunal for the assessment years 2013-14 to 2015-16 and the Tribunal held that such receipts are in the nature of FTS observing as under:-

“5. In ground no. 4, the assessee has challenged the decision of the departmental authorities in treating the receipts from Cameron Manufacturing India (P.) Ltd. (in short ‘Cameron India’) amounting to Rs.21,01,464/- towards business support services as FTS.

5.1 Briefly the facts relating to this issue are, the assessee had entered into an agreement with Cameron India for providing support and management services in the area of international purchasing, international marketing and sales, obtaining international quotations and tenders, coordinating sales, coordinating pricing policies, coordinating marketing strategies, sales administration, support in the area of accounting and finance, complying with standard statements of generally accepted accounting practice, other accounting activities, support in the area of planning, support in the area of tax and legal services, reviewing legal contracts, resolving local disputes and litigation, support in the area of information technology, providing assistance with the purchase or lease of new hardware and software, support and management in the area of human resources etc. The assessee did not offer the receipts from the aforesaid activities pleading that, firstly, such services were provided from outside India and secondly, while providing such services the assessee has not made available any technical knowledge, knowhow, skill etc. to make it FTS. The Assessing Officer, however, did not accept assessee’s claim and held that they are in the nature of FTS as the services rendered are of managerial and consultancy nature and secondly while rendering such services, the assessee has made available technical knowledge, skill etc. Learned DRP also upheld the decision of the Assessing Officer.

5.2 Before us, learned counsel appearing for the assessee submitted that the services were rendered directly from the head office without any involvement of the PE in India. He further submitted, even if, some of the services rendered may be in the nature of managerial services, however, the receipts cannot be treated as FTS as the assessee had not made available any technical knowledge, skill etc. Thus, he submitted, due to non-fulfillment of the make available condition of Article 12(4)(b) of the treaty receipts cannot be treated as FTS. In support of such contentions, he relied upon the following decisions:

1. Inter Continental Hotels Group (Asia Pacific) (Pte.) Ltd. Vs. ACIT, [2021] 133 com 99 (Delhi-Trib.)

2. Magotteaux International SA Vs. DCIT [2022] 141 com 8 (Delhi – Trib.)

5.3 We have considered rival submissions and perused the materials on record. As could be seen from the facts on record, business support services were provided to a completely different entity in India through a separate agreement. It has no connection with the activity of the project office, which was set up only for the purpose of the contracts with Cairn India and ONGC. Therefore, we are convinced with the submissions of the assessee that the receipts from business support services have no link with PE, hence, its taxability has to be examined separately. In terms with the agreement with Camaron India the assessee is required to provide the following services:

5.4 As could be seen from the nature of services, broadly it is managerial and to some extent it may be consultancy. However, it needs examination whether they fulfill the test of FTS under Article 12(4) of India – Singapore DTAA.

5.5 On a reading of Article 12(4) as a whole, we are convinced that the nature of services rendered do not fall either under Article 12(4)(a) or 12(4)(c) of the treaty. Thus, the only article where it can fit in is Article 12(4)(b). However, Article 12(4)(b) puts the condition that any consideration from services of managerial, technical or consultancy nature can be treated as FTS, if they make available technical knowledge, experience, skill, know-how or process, which enables the person acquiring the services to apply the technology contained therein. Though, the departmental authorities have made broad allegations that while rendering services the assessee has made available technical knowledge, experience etc., however, no material has been brought on record to establish such fact. The expression ‘make available’ if read in conjunction with, which enables the person acquiring the services to apply the technology contained therein’, would mean that the recipient of service will be in a position to acquire the technical knowledge, experience, skill etc so that it equips the recipient to apply such technical knowledge, experience, skill etc. by himself independently without the aid and assistance of the service provider. In the facts of the present appeal, the departmental authorities have failed to prove this fact through any cogent material brought on record. The nature of services enumerated earlier would make it clear that these are routine managerial and partly consultancy services to provide business support to the subsidiary. There is nothing on record to suggest that while rendering services, the assessee has made available any technical knowledge, know-how, skill etc. enabling the recipient of service to apply them independently. That being the case, in our considered opinion, the conditions of section 12(4)(b) are not satisfied. Therefore, we hold that the receipts are not in the nature of FTS. This ground is allowed.”

6. On perusal of the final assessment order and also DRP directions we observe that the facts in the current assessment year are identical to the facts for the assessment years 2013-14 to 2015-16. Therefore, as there is no change in the facts respectfully following the decision of the Tribunal for the assessment years 2013­14 to 2015-16 we hold that the fee for management support services received from Cameron Manufacturing India Pvt. Ltd. is not in the nature of FTS. Ground Nos. 2 and 3 of grounds of appeal of the assessee are allowed.

7. Coming to ground No. 4 of grounds of appeal the ld. Counsel for the assessee submits that the Assessing Officer erred in not granting TDS credit amounting to Rs.9,74,418/- and a direction may be given by the Assessing Officer to grant credit for TDS.

8. The ld. DR has no objection.

9. On hearing both the sides we hereby direct the Assessing Officer to consider the plea of the assessee for granting credit for TDS in accordance with law. This ground is allowed for statistical purpose.

10. Ground Nos. 5 and 6 are in respect of charging interest under section 234B and initiating penalty proceedings under section 271(1)(c) of the Act which are consequential and premature and no need for adjudication at this stage.

11. In the result, appeal of the assessee is partly allowed as indicated above.

Order pronounced in the open court on : 11/12/2023.