Consideration for Advisory Services does not amount to FTS under Indo-US Treaty, Not Taxable: Calcutta HC [Read Order]

The Calcutta High Court (HC) held that consideration for advisory services does not amount to FTS and cannot be treated as Fees for Included Services under Article 12(4)(b) of the India-US Double Taxation Avoidance Agreement (DTAA).

The Court thus upheld the ITAT’s order setting aside the additions made to the foreign assessee Company’s income for the compensation received by it for rendering advisory services to its Indian subsidiary.

The revenue challenged the order passed by the Income Tax Appellate Tribunal Kolkata. It was contendedthat the feereceivedby the assessee, the Timken Companyis for included services as provided in Article 12 of the Indo-US Treaty and, therefore, liable to tax in India.

Further submitted that in terms of paragraph 4(b) of Article12 of the Indo-US Treaty, the scope of Article 12 was explained by pointing out that generally speaking technology will be considered made available when the person acquiring the services is unable to apply the technology.

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.

The bench  Compriseof Justices T.S. Sivagnanam and Hiranmay Bhattacharyyaobserved that there was no evidence to show that the technical skill, knowledge etc. were made available to TIL by the assessee.

Furthermore, the Transfer Pricing Officer (TPO) scrutinised the details of reimbursements while examining the international transaction of reimbursement by TIL to the assessee under Section 92 of the Act and found that the assessee made no profit on such reimbursements and that the reimbursements were at Arm’s Length.

While dismissing the appeal of the Revenue, the bench held that “the finding having been rendered after a thorough examination of the factual position as well as the terms and conditions of the agreement qua Article 12(4)(b) of the Indo-USTreaty, we find no ground to take a different view.”

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