The Delhi Bench of Income Tax Appellate Tribunal (ITAT) held that services rendered are not in relation to any manufacturing activity, therefore the receipts cannot be treated as Fee for Included Services (FIS) under Article 12(4)(b) of the India – USA Double Taxation Avoidance Agreements (DTAA), and the Assessing Officer (AO) was directed to delete the addition.
The assessee Bain & Company Incorporation is a non-resident corporate entity and a tax resident of Unites States of America (USA). As stated, the assessee is engaged in the business of providing consultancy services to multinational companies in the field of strategy, performance improvement, organization enhancement, mergers & acquisitions, and private equity. It also provides support services to its subsidiaries for which it is remunerated at arm’s length basis.
The AO, however, did not accept the claim of the assessee and proceeded to hold that not only the services are in the nature of technical/consultancy services, but while rendering such services, the assessee had made available technical knowledge, know-how, skill etc. as the services rendered include training of personnel. Thus, he concluded that the receipts would qualify as FIS under Article 12(4)(b) of the tax treaty.
Aggrieved by the order the assessee filed an appeal before the Dispute Resolution Panel (DRP), which upheld the aforesaid decision of the AO.
Further aggrieved the assessee challenged addition of Rs. 18,54,90,269/-, being receipts from provision of support services as FIS in appeal before the Tribunal.
The Authorised Representative of the assessee (AR) Himanshu Sinha, reiterated the stand taken before the departmental authorities and referred to the support services agreement placed on record.
The Departmental Representative (DR) Vizay B. Vasanta, submitted that not only the services rendered are in the nature of technical and consultancy service, but while rendering such services, the assessee had made available technical knowledge, know-how, skill etc. as a part of the services in relation to training the personnel of Bain India. Thus, he submitted, the conditions of Article 12(4)(b) stand satisfied.
The Bench comprising of Saktijit Dey, Vice-President and Dr. B.R.R. Kumar, Accountant Member observed that the AO has treated the receipts from support services as FIS and brought it to tax. Thus, on overall consideration of facts and materials on record the Tribunal was of the view that the Revenue has not brought on record any materials to establish the fulfillment of make available condition of Article 12(4)(b) of India – USA DTAA.
The decision of the Coordinate Bench in case of H.J. Heinz Company Vs. ADIT which the DR relied on is distinguishable on facts as the services rendered in case of that assessee is in relation to manufacture of products. Whereas, in the facts of the present appeal, services rendered are not in relation to any manufacturing activity.
Therefore in this view of the matter, the receipts cannot be treated as FIS under Article 12(4)(b) of the India – USA DTAA, and the AO was directed to delete the addition.
Hence, appeal of the assessee was allowed.
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