Business support services cannot be treated as Technical Services in absence of transfer of technology

Michael Page International Pte Limited Vs DCIT (ITAT Mumbai)

ITAT held that unless the recipient of the services, by virtue of rendition of services by the assessee, is enabled to provide the same services without recourse to the service provider, the services cannot be said to have made available the recipient of services. A mere incidental advantage to the recipient of service is not enough. The test is the transfer of technology, but then it is not even the case of the revenue that there is a transfer of technology, and what is highlighted is the incidental benefit to the assessee, which is treated as an enduring advantage. As observed in the binding judicial precedents referred to above, in order to invoke „make available^‟ clause, “to fit into the terminology “making available”, the technical knowledge and skill must remain with the person receiving the services even after the particular contract comes to an end” and “the technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider”. Technology will be considered “made available” when the person acquiring the service is enabled to apply the technology. In our considered view, that condition is not satisfied on the facts of the present case. We, therefore, hold that that „make  available^‟ clause in the Indo-Singapore tax treaty cannot be invoked on the facts of the present case- as no case is even made out by the revenue that as a result of rendition of these services to the Indian entity, there is any transfer of skill or technology. Once the taxability fails in terms of the treaty provisions, there is no  occasion to refer to the provisions of the Income Tax Act, 1961, as in terms of Section 90(2), “where the Central Government has entered into an agreement with  the Government of any country outside India or specified territory outside India, as  the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such  agreement applies, the provisions of this Act shall apply to the extent they are  more beneficial to that assessee”. The taxability of impugned receipts, under section 9, is thus wholly academic. We leave it at that.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

This appeal by the assessee directed against the assessment order dated 23/02/2022 passed u/s. 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 [in short ‘the Act’]for the Assessment Year 2018-19.

2. The assessee in appeal has assailed the assessment order by raising following grounds:

1. On the facts and in the circumstances of the case and in law, the Learned Deputy Commissioner of Income-tax (International Taxation) 3(2)(2), Mumbai (‘the Learned AO’) and the Dispute Resolution Panel (‘the DRP⁵) erred in holding the amount for business support services of INR 4,15,23,335 and referral fees of INR 6,40,856 as ‘Fees for technical services’ under Article 12 of the Double Taxation Avoidance Agreement entered into between India and Singapore (‘the DTAA¹) despite the fact that the Appellant has not ‘make available’ any technical knowledge, experience, skill, know-how, processes to the Indian Associated Enterprise in terms of Article 12 of India-Singapore DTAA.

The Appellant hereby prays that the addition of INR 4,21,64,190 to the total income may be deleted in full.

2. On the facts and in the circumstances of the case and in law, the learned AO has erred in proposing to initiate penalty proceedings under section 270A of the Act without appreciating that none of the provisions of section 270A of the Act gets attracted in the facts of the Appellant’s case.”

3. Shri Pratik Shah appearing on behalf of the assessee submits that the assessee company is a resident of Singapore and is engaged in the business of providing executive search and recruitment services. It also provides business support services and referral services to the Page group entities. During the period relevant to the assessment year under appeal, the assessee received referral fees Rs.4,21,64,190/- from its Indian Associated Enterprise (AE), Michael Page International Recruitment Pvt. Ltd. The assessee in original return of income for assessment year 2018-19 offered the aforesaid fee for Thereafter, the assessee filed revised return of income for assessment year 2018-19 and claimed referral fee received for business support services as not taxable and sought refund of Rs.42,16,420/-. The Assessing Officer held that the fees received by the assessee from its Indian entity is in the nature of “Fee for Technical Services” and hence, made addition of Rs.4,21,64,190/-. The assessee filed objections before the Dispute Resolution Panel (DRP) but remained unsuccessful. Consequent to the directions of the DRP, the Assessing Officer passed the final assessment order which is the subject matter of appeal. The ld. Authorized Representative for the assessee submits that the assessee has provided services to its Indian AE in pursuance to inter company agreement dated 01/01/2012. The said agreement is at page 309 of the paper book. The scope of services is defined in the said agreement. The currency of the agreement is perpetual unless terminated by either of the parties giving 30 days written notice to the other party. The Assessing Officer erred in coming to the conclusion that fees received by the assessee for providing business support services is in fact managerial and consultancy service as defined in section 9(1)(vii)(c), Explanation -2. Thus, the Assessing Officer held that the fees paid by Indian entity to the assessee is covered under “fees for included services” as the “make available” clause is duly satisfied. The ld. Authorized Representative for the assessee points that in assessment year 2017-18 addition in respect of fee for business support services was made by the Assessing Officer. The assessee carried the issue in appeal before the Tribunal in ITA No.144/Mum/2021. The Tribunal vide order dated 04/07/2022 deleted the addition. The facts in the impugned assessment year are identical. The DRP directions has recorded the fact that similar receipts had been brought to tax in the hands of assessee by the Assessing Officer for the immediately preceding year i.e. assessment year 2017-18 and the DRP had upheld the action of Assessing Officer holding services rendered by assessee fulfil “make available” clause. The ld. Authorized Representative for the assessee prayed for setting aside the findings of Assessing Officer on the issue following the order of Tribunal in assessee’s own case .

4. Per contra, Shri Soumendu Kumar Dash representing the Department defended the impugned order and prayed for dismissing the appeal of However, the ld. Departmental Representative fairly admitted that the issue raised in the present appeal is similar to the one assailed by the assessee before the Tribunal in appeal for assessment year 2017-18.

5. We have heard the submissions made by rival sides and have perused the orders of authorities below. The solitary issue raised in appeal by the assessee is against the addition made on account of fees received by the assessee for providing business support services, by bringing the same in the ambit of “Fee for Technical Services”. The assessee provides business support services to Michael Page International Recruitment Pvt. Ltd. in pursuance to the intercompany agreement dated 01/01/2012. The scopes of services to be provided by the assessee (service provider) to its Indian AE (Beneficiary) as per the said agreement are as under:

1. SCOPE OF SERVICES

1.1 The Service Provider will provide the following Services to the Beneficiary:

Management support;

Administrative support including finance, personnel, learning and development services;

Marketing and internet support;

Routine ad hoc local level operation support;

Any additional services as agreed between the Parties from time to time.”

We find that in assessment year 2017-18 the assessee was providing identical services to Michael Page International Recruitment Pvt. Ltd. in pursuance to the same agreement. The Assessing Officer in assessment year 2017-18 made addition holding that the amount paid by Michael Page International Recruitment Pvt. Ltd. for managerial/ advisory/consultancy/technical support services provided by the assessee is covered under “fees for included services” as the “make available” clause is fully satisfied. The Assessing Officer further held that the aforesaid income has deemed to accrue or arise in India u/s. 9(1)(i) of the Act. The amount charged was thus, held to be fees for technical services as per section 9(1)(vii) (c) r.w.s. Article 12(4) of the India – Singapore DTAA. The assessee carried the issue in appeal before the Tribunal in ITA No.144/Mum/2021 (supra). The Co-ordinate Bench after examining the facts of the case, provisions of the Act and the DTAA and also the decision rendered in the case of Shell Global International Solution BV vs. ITO reported as 64 taxaman.com 3(Ahmadabad) held as under:

8. Clearly, therefore, unless the recipient of the services, by virtue of rendition of services by the assessee, is enabled to provide the same services without recourse to the service provider, the services cannot be said to have made available the recipient of services. A mere incidental advantage to the recipient of service is not enough. The test is the transfer of technology, but then it is not even the case of the revenue that there is a transfer of technology, and what is highlighted is the incidental benefit to the assessee, which is treated as an enduring advantage. As observed in the binding judicial precedents referred to above, in order to invoke „make available^‟ clause, “to fit into the terminology “making available”, the technical knowledge and skill must remain with the person receiving the services even after the particular contract comes to an end” and “the technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider”. Technology will be considered “made available” when the person acquiring the service is enabled to apply the technology. In our considered view, that condition is not satisfied on the facts of the present case. We, therefore, hold that that „make  available^‟ clause in the Indo-Singapore tax treaty cannot be invoked on the facts of the present case- as no case is even made out by the revenue that as a result of rendition of these services to the Indian entity, there is any transfer of skill or technology. Once the taxability fails in terms of the treaty provisions, there is no  occasion to refer to the provisions of the Income Tax Act, 1961, as in terms of Section 90(2), “where the Central Government has entered into an agreement with  the Government of any country outside India or specified territory outside India, as  the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such  agreement applies, the provisions of this Act shall apply to the extent they are  more beneficial to that assessee”. The taxability of impugned receipts, under section 9, is thus wholly academic. We leave it at that.

9. As regards the question regarding a change in the stand of the assessee and the facts of the assessee’s offering the same income to tax in the immediately preceding assessment years, nothing really turns on the stand of the assessee in the immediately preceding assessment years. There is no res judicata in the income tax proceedings and the mere fact of an assessee’s offering an income to tax in an earlier year can be a reason enough to negate his otherwise lawful claim of non- The matter in required to be examined on merits, and once we find it to be an acceptable claim on merits, such taxability in the immediately preceding assessment years cannot come in the way of the assessee’s lawful claim. This objection of the authorities below, therefore, does not deserve our approval either.

10. In view of the above discussions, as also bearing in mind entirety of the case, we uphold the plea of the assessee, and direct the Assessing Officer to exclude the sum of Rs 3,06,12, 630 from his taxable income as fees for technical services. The assessee gets the relief accordingly. In the light of our this conclusion, other issues raised in the appeal are rendered academic and these do not call for any specific adjudication”

[Emphasized by us]

The facts in the impugned assessment year are identical to the facts in 2017- 18. The Revenue has not brought before us any contrary material, therefore, we see no reason to take a different view. Following the order of Co-ordinate Bench in assessee’s own case on identical set of facts, we hold that the addition made by Assessing Officer on account of fee for technical services is unsustainable and hence, directed to be deleted for parity of reasons. Thus, ground No.1 of appeal is allowed.

6. Since, we have deleted the addition, ground No.2 raised in the appeal becomes infructuous, hence, the same is dismissed as such.

7. In the result, appeal by the assessee is partly allowed.

Order pronounced in the open court on Friday the 02^nd day of December, 2022.