FTS Classification in Management and Administrative Services: ITAT deletes ALP Adjustment Due to Lack of Technology Transfer [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) deleted the Arm's Length Price ( ALP ) adjustment made in respect of payments for AP management and administrative services, holding that the services did not involve a transfer of technology and therefore did not qualify as Fees for Technical Services (FTS) .

Bio-Red Laboratories (India) P. Ltd., appellant-assessee, had entered into international transactions during the year, including AP Management Services worth ₹8.71 crore, corporate management services of ₹2.09 crore, and purchase of fixed assets for ₹9.18 crore from its Associated Enterprises (AEs).

During the transfer pricing proceedings, the Transfer Pricing Officer(TPO) asked for agreements and proof of services received. The assessee submitted documents, but the TPO found no clear evidence that the services were actually provided. He noted that despite a large payment of ₹10.81 crore, there was no proper documentation to support the claim.

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The TPO held that he was not questioning the business decision but only checking if services were actually received. Since the assessee failed to prove this, he treated the entire amount  ₹10.81 as an ALP adjustment and determined the ALP at nil.

The assessee, aggrieved by the order, filed an appeal before the Dispute Resolution Panel(DRP). After reviewing the submissions, the TPO’s remand report, and the assessee’s reply, the DRP noted that similar issues had been decided against the assessee for AYs 2011-12 to 2016-17. Since there was no change in facts, the DRP followed its earlier decisions and rejected the assessee’s objections.

The assessee appealed before the tribunal.

The two member bench comprising Anubhav Sharma ( Judicial Member ) and S.Rifaur Rahman ( Accountant Member ) reviewed the submissions and evidence on record and noted that a similar issue had been addressed by the coordinate Bench in AYs 2018-19 and 2019-20 in its orders dated 30.12.2022. After considering both parties' arguments, the Tribunal ruled in favor of the assessee, stating:

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The appellate tribunal explained that an incidental benefit to the recipient was not enough. The real test was whether there was a transfer of technology. It was concluded that there was no transfer of technology in this case, as the recipient could not use the technology independently after the contract ended.

The ITAT referenced the Delhi High Court's decision in Guy Carpenter (346 ITR 504), which stated that to satisfy the "make available" condition, the recipient must be able to use the technology without relying on the service provider.

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Additionally, the tribunal cited the Karnataka High Court's ruling in De Beers India Minerals (346 ITR 467), emphasizing that technical knowledge should be made available in a way that allows the recipient to use it independently in the future.

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Based on these rulings, the ITAT determined that the payments for information technology and administrative services were not Fees for Technical Services under the India-Singapore Double Taxation Avoidance Agreement. The tribunal instructed the Assessing Officer(AO) to delete the charges.

Thus, the appeal was allowed.

To Read the full text of the Order CLICK HERE

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