Case Law Details
Bain & Company Vs Deputy/ACIT (ITAT Delhi)
ITAT Delhi held that as per India-USA DTAA provision of consultancy services cannot be treated as FIS merely because the service provider while providing consultancy services had used substantial technical skill and expertise.
Facts- The assessee is a non-resident corporate entity and a tax resident of the USA. As stated by AO, the assessee was engaged in the business of providing consultancy services to global clients based in the USA or having USA operations. The assessee also provided support services to other group entities for which it was remunerated at arm’s length basis.
In the course of assessment proceedings, AO observed that an amount of Rs. 5,24,00,942/- received from its Indian affiliate towards provisions of consultancy services was not offered to tax on the plea that they were not in the nature of FIS. After examining the nature and scope of services, AO observed that as per Article 12(4) of India-US Tax Treaty, the amount received for providing managerial, technical or consultancy services, could be regarded as FIS. Thus, he held that since the fee received by the assessee was from consultancy services, it had to be treated as FIS under Article 12(4) of the Tax Treaty. While coming to such conclusion, he further held that the assessee had made available technical knowhow, knowledge, skill etc. relating to such services to the service recipient. On the basis of aforesaid reasoning, AO treated the amount of Rs. 5,24,00,942/- as the income of the assessee and added back to the income declared.
Conclusion- In the facts of the present appeal, the departmental authorities had not brought any material on record to demonstrate that while rendering services, the assessee had made available technical knowledge, expertise, skill, knowhow etc. to Bain India to apply such technology, knowhow etc. independently without the aid and assistance of the assessee. As per Example 7 of the Memorandum of Understanding to India-USA DTAA, a receipt could not be treated as FTS merely because the service provider while providing consultancy services had used substantial technical skill and expertise. Thus, we have no hesitation in holding that the receipts in dispute are not in the nature of FIS under Article 12(4)(b) of India-USA DTAA.
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