The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) held that service receipts from maintenance, support, and additional services provided by the assessee were not taxable as fees for technical services (FTS) under the India-Singapore Double Taxation Avoidance Agreement (DTAA) due to the lack of knowledge transfer.
Murex Southeast Asia Pvt. Ltd,appellant-assessee,a Singapore-based non-resident entity, filed its return of income for the relevant assessment year on October 11, 2019, declaring ₹56.81 crore and claiming a refund of ₹6.29 crore. It was engaged in sublicensing software, along with providing maintenance, support, and training services to financial sector entities.
The Assessing Officer (AO)accepted that ₹10.80 crore from sublicensing software was not taxable as royalty, following the Supreme Court’s ruling in Engineering Analysis Centre of Excellence Pvt. Ltd. However, ₹39.86 crore from maintenance and support services and ₹16.93 crore from additional services, including software implementation and migration, were proposed to be taxed as FTS under Article 12(4) of the India-Singapore DTAA.
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The assessee argued that these receipts were not linked to royalty and did not meet the “make available” condition for FTS. The AO disagreed, stating that the services provided technical knowledge and skills, making them taxable under Article 12(4)(b) of the DTAA and Section 9(1)(vii) of the Act. The Dispute Resolution Panel(DRP) upheld this view, following its decision from the 2019-20 assessment year.
The assessee’s counsel stated that in the 2018-19 assessment year, the tribunal had ruled in its favor, holding that the receipts were not FTS since no technical knowledge or skills were made available. He argued that the same decision should apply.
The revenue counsel relied on the AO and DRP’s findings
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The two member bench comprising Saktijit Dey(Vice President) and Padmavathy S(Accountant Member) reviewed the submissions and records to decide if the disputed receipts qualified as fees for technical services (FTS) under Article 12(4)(b) of the India-Singapore DTAA. For a receipt to be FTS, it had to involve technical, management, or consultancy services and help the recipient apply the knowledge independently.
Since the assessee provided these services repeatedly, the recipients clearly did not gain independent capability. In the 2018-19 assessment year, the Coordinate Bench had examined the same issue and held that the receipts were not FTS.
In short, the appeal was allowed.
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