The Delhi High Court has held that information technology & administrative service provided to an affiliate in India does not construct Fees for Technical Services” (FTS) as Per the Indo Singapore Double Taxation Avoidance Agreement (DTAA).
Dr Sashwat Bajpai, who appeared on behalf of the respondent/assessee, M/S Bio-Rad Laboratories (Singapore) stated that he would have no objection if the delay in re-filing the appeal is condoned. The appellant/revenue seeks to assail the order dated 30.12.2022 passed by the Income Tax Appellate Tribunal [“Tribunal”].
The question was whether income from “information technology and other administrative services” provided by the respondent/assessee to its affiliate in India could be construed as FTS “having regard to the provisions of India-Singapore Double Taxation Avoidance Agreement [“Indo-Singapore DTAA”].
The Assessing Officer (AO), via the draft assessment order, concluded that the services provided by the respondent/assessee to the Indian subsidiary were like “management support services” and hence, taxable at the rate of 10% plus surcharge and education cess under the Indo-Singapore DTAA.
The Dispute Resolution Panel (DRP) proceeded to reject the objections filed by the respondent/assessee. AO passed the final assessment under Section 143(3) read with Section 144C(13) of the Income-tax Act, 1961 [“Act”]. The Tribunal ruled in favour of the respondent/assessee.
Mr Puneet Rai, senior standing counsel, who appeared on behalf of the appellant/revenue, says that the order of the Tribunal is unsustainable. It was contended that the respondent/assessee is providing professional advice to its Indian subsidiary through studies, evaluation, review of reports, liaising work, advice on key policy issues and business operations, HR management, and financial management among other things.
The Tribunal observed that “mere incidental advantage to the recipient of services is not enough. To invoke “make available” clauses, technical knowledge and skill must remain with the person receiving the services even after the particular contract comes to an end and the technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider.”
While upholding the analysis and conclusion arrived at by the Tribunal, the division bench of Justice Rajiv Shakdher and Justice Girish Kathpalia has observed that services offered by the respondent or assessee to its Indian affiliates did not come within the purview of FTS, as reflected in Article 12(4)(b) of the Indo-Singapore DTAA, and concluded that they did not fulfil the criteria of the “make available” principle.
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