Amount received towards IT and SAP charges not treatable as FTS hence not taxable

Netafim Ltd Vs DCIT (ITAT Delhi)

ITAT Delhi held that amount received from its Indian subsidiary towards IT and SAP charges cannot be treated as Fees for Technical Services (FTS) under Article 12(4)(a) of India – Portugal DTAA. Accordingly, additions unsustainable.

Facts- The only common issue arising for consideration in the present appeals is, whether the amounts received by the assessee from its Indian subsidiary towards IT and SAP charges can be treated as Fees for Technical Services (FTS) under India – Israel Double Taxation Avoidance Agreement (DTAA) read with India – Portugal DTAA.

Conclusion-Held that after factually examining the nature of services rendered under the IT and SAP Service Agreement and the Technical Collaboration Agreement, we are convinced that the services rendered under IT and SAP Services Agreement are not ancillary and subsidiary to the services rendered under the Technical Collaboration Agreement. Moreso, when the IT and SAP Services Agreement was in existence much prior to the Technical Collaboration Agreement. For the aforestated reasons, we holdthat the receipts in dispute cannot be treated as FTS under Article 12(4)(a) of India – Portugal DTAA and made taxable at the hands of the assessee in India. Accordingly, the disputed additions in both the assessment years are deleted.

FULL TEXT OF THE ORDER OF ITAT DELHI

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