The Delhi Bench of Income Tax Appellate Tribunal(ITAT) restored the matter to the Assessing Officer (AO) for a detailed examination of the taxability of annual maintenance contract (AMC) payments made by Bharti Airtel Limited. as Fees for Technical Services (FTS). The tribunal noted that the technical nature of the services had not been adequately examined.
Bharti Airtel Limited,the appellant-assessee, a resident corporate entity providing mobile telecom services in India, was involved in proceedings under Section 201 of the Act. The AO found that payments made to foreign entities for AMC were made without proper tax deduction at source (TDS) deduction.
The assessee argued that the payments were not taxable in India. However, the AO treated the payments as FTS and raised demands under Sections 201(1) and 201(1A). The assessee appealed this decision before the Commissioner of Income Tax (Appeals)[ CIT(A)].
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The CIT(A) dismissed assessee’s claim regarding the ‘make available’ condition for FTS and acknowledged that the Most Favoured Nation (MFN) clause in the India-Israel and India-Sweden DTAAs applied, allowing for a more restrictive FTS definition based on OECD treaties.
Upon reviewing the AMC, CIT(A) found it focused on repair and replacement of defective parts without providing training for the assessee’s staff. Consequently, the ‘make available’ condition was not met.
Nevertheless, he stated that payments could still qualify as FTS if they were ancillary to the use of rights for which royalty was received. He directed the AO to investigate payments made to M/s. Gilat Satellite Network Ltd. For the payments to the Swedish entity, he confirmed that they included support services alongside the software license sale, thus upholding the AO’s findings that these payments were for ancillary services connected to the royalty received. The assessee aggrieved with the decision and appealed before the tribunal.
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The tribunal reviewed the submissions and materials, noting that the assessee had made payments to foreign entities in Israel and Sweden for AMC. The assessee argued that the ‘make available’ condition in the India-Israel and India-Sweden Double Taxation Avoidance Agreement (DTAAs) should apply, exempting the payments from being classified as FTS.
The AO disagreed, stating that the absence of an explicit ‘make available’ condition allowed for the application of a restrictive clause. The CIT(A) accepted the assessee’s argument based on judicial precedents but did not thoroughly examine the technical nature of the services.
The tribunal pointed out that the basic issue regarding the classification of the services had not been addressed. After a change in legal position concerning the MFN clause, the assessee retracted its earlier claims and argued for the first time that the services did not qualify as technical services.
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The two member bench comprising Saktijit Dey(Vice President) and Naveen Chandra (Accountant Member) observed that the claim had not been previously examined, thus restoring the issue to the AO for verification and allowing the appellant an opportunity to present its case, with the ground permitted for statistical purposes.
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