Global Operation Fee Received from GETDIL is not Fees from Technical Services under the provisions of India-UK DTAA: ITAT grants relief to UK Grid Solution

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has recently held that the global operation fee received from GE T&D India Ltd (GETDIL) is a fee from technical services (FTS) under the provisions of the India-UK Double Taxation Avoidance Agreement (DTAA). Therefore, the bench granted relief to UK Grid Solution Limited.

The fact of the aforesaid case was that the assessee appellant UK Grid Solution Limited is a foreign company incorporated in the United Kingdom and a tax resident of that country in terms of Article 4 of the India-UK Double Taxation Avoidance Agreement.

Assessee company is engaged in the business of designing, engineering, manufacturing and supply of electric equipment that helps in the transmission and distribution of power, commissioning and servicing of transmission and distribution systems on a turnkey basis.

During the relevant assessment years, the assessee had earned income from various Indian customers which the assessee claimed was not taxable as income was from offshore supplies only.

The case of the assessee was selected for scrutiny due to a large claim of refund against tax deducted source.

Thereafter, the AO considered the mechanism to determine the profit of PE in terms of Rule 10 of the Income Tax Rules and concluded that the total receipt source in India should be taken and the tax paid also considered the global operation fee as FTS.

Further, the assessee contended that the assessing officer erred on facts and in law in taxing a global operation fee of Rs.8,12,37,030 received from GETDIL as Fees from Technical Services Under the provisions of the Act and the India-UK DTAA, without appreciating that provision of said services by the Appellant did not satisfy the ‘make available’ clause contained in Article 13(4)(c) of the India-UK DTAA.

The aggrieved assessee filed an appeal before the tribunal.

As per Article 13 of the DTAA, the DRP observed that the assessee provided specialized training to the users for the assessee and use of specific technical content available for their business ‘make available’ technical knowledge, skill and experience.

Ajay Vohra, counsel for the assessee submitted that The service provisions were primarily managerial in nature and did not involve any technical knowledge etc. to fulfill the make-available test. In context to the principle that the Global operation fee received from GETDIL is not taxable in India in the absence of ‘make available’ and as to how the phrase ‘Make available’ is interpreted under law.

Jitender Kumar, counsel for the revenue supported the contentions of the lower authorities.

It was observed by the tribunal that as per the Global Operation Fees Agreement, the assessee had agreed to provide services which included industrialization of products, sources and procurement of raw materials, setting quality standards, supply general and contracts.

According to the ' make available’ clause, it is the technical knowledge or skills of the provider that should be imparted to be absorbed by the receiver so that the receiver can deploy similar technology or technique in the future without depending upon the provider.

In the case in hand for the services rendered by the assessee, there is a renewal of the contract on an annual basis and the nature of services are all prima facie managerial in nature.

Thereafter the two-member bench of N.K. Billaiya, (Accountant Member) and Anubhav Sharma, (Judicial Member) held that “Tax authority below have fallen in error in taxing global operation fee of Rs.8,12,37,030 received from GETDIL as Fees from Technical Services under the provisions of the Act and the India-UK DTAA, without appreciating that provision of said services by the Appellant did not satisfy the ‘make available’ clause contained in Article 13(4)(c) of the India-UK DTAA”.

To Read the full text of the Order CLICK HERE

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