Introduction: A recent case heard by the Delhi High Court involves the taxation of income from information technology and administrative services provided by a Singapore-based entity to its Indian affiliate. The key issue centered around whether these services qualified as “Fees for Technical Services” (FTS) under the India-Singapore Double Taxation Avoidance Agreement (DTAA). This article delves into the details and implications of the case Commissioner of Income Tax vs. Bio-Rad Laboratories (Singapore) PTE Ltd.
1. Case Background: The case pertains to the assessment year 2019-20. The primary question before the court was whether the services rendered by Bio-Rad Laboratories (Singapore) to its Indian affiliate should be classified as FTS for taxation purposes under the India-Singapore DTAA.
2. The Tax Authority’s Stand: The Assessing Officer (AO) had initially categorized the services as “management support services.” As a result, these services were subject to taxation under the Indo-Singapore DTAA. The AO argued that the services provided included professional advice, studies, evaluation, report reviews, HR management, financial management, and other forms of support.
3. The Tribunal’s Ruling: The Income Tax Appellate Tribunal (Tribunal) ruled in favor of Bio-Rad Laboratories (Singapore). The critical factor was the application of the “make available” test under Article 12(4)(b) of the India-Singapore DTAA. The Tribunal determined that the services provided by the Singapore entity did not meet this criterion.
4. The “Make Available” Test: According to Article 12(4)(b) of the DTAA, for services to be considered FTS, they must “make available” technical knowledge, experience, skills, and other processes. The Tribunal noted that the agreement between the entities had been in effect since 2010. If the services had indeed made technical knowledge available, there would be no reason for the agreement to continue year after year.
5. Absence of Technology Transfer: The Tribunal’s analysis highlighted that the Indian affiliate could not provide the same services without relying on the Singapore entity. The mere receipt of an incidental advantage was not sufficient to qualify as FTS. The real test was whether the technology and skills provided by the Singapore entity remained with the Indian recipient after the contract ended. In this case, the technical knowledge was not transferred or absorbed by the Indian entity, and the services were not of an enduring advantage.
Conclusion: The Delhi High Court upheld the Tribunal’s decision, emphasizing that the services provided by Bio-Rad Laboratories (Singapore) to its Indian affiliate did not meet the criteria for FTS under the India-Singapore DTAA. This ruling provides clarity regarding the taxation of income from services and affirms that the mere receipt of services with an incidental advantage does not qualify as FTS. The case serves as a precedent for similar taxation matters, offering guidance to businesses operating across international borders.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Allowed, subject to just exceptions.
CM Appl.50705/2023 [Application filed on behalf of the appellant/revenue seeking condonation of delay of 45 days in re-filing the appeal]
2. This is an application moved on behalf of the appellant/revenue seeking condonation of delay in re-filing the appeal.
2.1 According to the appellant/revenue, there is a delay of forty-five (45) days.
3. Dr Sashwat Bajpai, who appears on behalf of the respondent/assessee, says that he would have no objection if the delay in re-filing the appeal is condoned.
3.1 It is ordered accordingly.
4. The application is disposed of in the aforesaid terms.
5. This appeal concerns Assessment Year (AY) 2019-20.
6. Via the instant appeal, the appellant/revenue seeks to assail the order dated 30.12.2022 passed by the Income Tax Appellate Tribunal [in short, “Tribunal”].
7. The issue that the Tribunal was called upon to consider was whether income from „information technology and other administrative services‟ provided by the respondent/assessee to its affiliate in India could be construed as „Fees for Technical Services‟ [in short, “FTS”], having regard to the provisions of India-Singapore Double Taxation Avoidance Agreement [in short, “Indo-Singapore DTAA”].
8. The record shows that the Assessing Officer (AO), via the draft assessment order dated 28.09.202 1, concluded that the services provided by the respondent/assessee to the Indian subsidiary were in the nature of „management support services‟ and hence, taxable at the rate of 10% plus surcharge and education cess under the Indo-Singapore DTAA.
9. The objections lodged before the Dispute Resolution Panel (DRP) by the respondent/assessee did not result in success. The DRP proceeded to reject the objections filed by the respondent/assessee. Consequently, the final assessment order dated 30.03.2020 was passed by the AO under Section 143(3) read with Section 144C(13) of the Income-tax Act, 1961 [in short, “Act”], This led to the institution of an appeal by the respondent/assessee before the Tribunal.
10. The Tribunal ruled in favour of the respondent/assessee.
11. Mr Puneet Rai, learned senior standing counsel, who appears on behalf of the appellant/revenue, says that the order of the Tribunal is unsustainable.
11.1 In support of his submission, Mr Rai relies on the assessment order passed in the matter. Mr Rai contends that the respondent/assessee is providing professional advice to its Indian subsidiary through studies, evaluation, review of reports, liaising work, advice on key policy issues and business operations, HR management, and financial management among other things.
12. Dr Sashwat Bajpai, who appears on behalf of the respondent/assessee, contends to the contrary.
13. The Tribunal, in concluding that services offered by the respondent/assessee to its Indian affiliates did not come within the purview of FTS, as reflected in Article 12(4)(b) of the Indo-Singapore DTAA, concluded that they did not fulfil the criteria of „make available‟ 14. According to the Tribunal, the agreement between the respondent/assessee and its Indian affiliate had been effective from 01.01.2010, and if, as contended by the appellant/revenue, technical knowledge, experience, skill, and other processes had been made available to the Indian affiliate, the agreement would not have run its course for such a long period.
14.1 Notably, this aspect is adverted to in paragraphs 17 to 23 of the impugned order. For convenience, the relevant paragraphs are extracted hereafter:
“17. A perusal of the aforementioned provision shows that in order to qualify as FTS, the services rendered ought to satisfy the ‘make available’ test. Therefore, in our considered opinion, in order to bring the alleged managerial services within the ambit of FTS under the India-Singapore DTAA, the services would have to satisfy the ‘make available’ test and such services should enable the person acquiring the services to apply the technology contained therein.
“18. As mentioned elsewhere, the agreement is effective from 01 .01.2010 and we are in Assessment Years 2018-19 and 2019-120 [sic… 20]. In our considered opinion, if the assessee had enabled the service recipient to apply the technology on its own, then why would the service recipient require such service year after year every year since 2010?
19. This undisputed fact in itself demolishes the action of the Assessing Officer/DRP. Facts on record show that the recipient of the services is not enabled to provide the same service without recourse to the service provider, i.e, the assessee.
20. In our humble opinion, mere incidental advantage to the recipient of services is not enough. The real test is the transfer of technology and on the given facts of the case, there is no transfer of technology and what has been appreciated by the Assessing Officer/ld. CIT(A) is the incidental benefit to the assessee which has been considered to be of enduring advantage.
21. In our understanding, in order to invoke make available clauses, 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.”
[Emphasis is ours]
15. We tend to agree with the analysis and conclusion arrived at by the Tribunal.
16. According to us, no substantial question of law arises for
17. The appeal is, accordingly, dismissed.