Advisory Services not amount to FTS as per Indo-US Treaty, Not Taxable: Calcutta HC [Read Order]

The High Court (HC) of Calcutta held that advisory services did not amount to Fee for Technical Service (FTS) as per Indo-US Treaty and are not taxable in India.

The revenue under Section 260A of the Income Tax Act, 1961 challenged the order dated 19th February 2020 passed by the Income Tax Appellate Tribunal Kolkata, ‘C’ Bench, Kolkata in ITA No.1276/Kol/2018 for the Assessment Year 2010- 11.

M/s. The Timken Company, the assessee entered into an agreement with TIL dated 2nd August 2000 for providing services such as management services, management information services, information resources, system development etc. The services were to be provided through its employees either at the recipients’ facility and place of business on a temporary or expatriate assignment or by a shorter visit etc.

The revenue argued that the feereceived is for included services as provided in Article 12 of the Indo-US Treaty and, therefore, liable to tax in India.  Further stated that the provision of service may require technical input by the person providing the service does not parse mean that technical knowledge, skill etc. are made available to the person purchasing the service, within the meaning of paragraph 4(b).

It was found that the agreement is purely advisory services and such advisory services cannot be treated as fees for included services under Article 12(4)(b) of the Indo-US Treaty since there is no technology which is made available.

The Tribunal upon reconsideration of the factual position found that the clauses in the agreement would clearly show that the nature of services is advisory in nature and nothing has been made available to TIL by the assessee.

A Coram comprising of Justice T S Sivagnanam and Justice Hiranmay Bhattacharyya observed that the assessee is rendering only advisory service and it cannot be treated as included services under Article 12(4)(b) and held that the contention of the assessee about the binding nature of the ruling of the AAR has become academic.

The Court upheld the interpretation given by the CIT(A) which was approved by the Tribunal. The Court answered against the revenue.

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