Management Fee not taxable in India under India-USA DTAA: ITAT deletes Disallowance u/s 40(a)(i) [Read Order]

The Income Tax Appellate Tribunal (ITAT), New Delhi Bench deleted disallowance under Section 40(a)(i) of the Income Tax Act, 1961 as Management fee not taxable in India under India-USA Double Taxation Avoidance Agreement (DTAA).

In course of assessment proceedings, the Assessing Officer noticed that in the assessment years under dispute, assessee, Everest Business Advisory India Private Limited had paid certain amounts to its overseas associated enterprises viz. Everest Global Inc. towards management fee.

When asked to explain, assessee submitted that the amount was paid towards use of manpower of sister concern in accepting third party projects abroad. Assessing Officer noticed that while making such payment, assessee had not deducted tax at source under Section 195 of the Act.

Accordingly, the AO called upon the assessee to explain why amounts paid should not be disallowed under Section 40(a)(i) of the Act. Though, the assessee objected to the proposed disallowance by stating that the amount paid is not taxable at the hands of the AE in India. However, the Assessing Officer remained unconvinced.

Accordingly, the AO disallowed the amounts paid in different assessment years by invoking the provisions of Section 40(a)(i) of the Act. While doing so, the AO held that the management fee paid is in the nature of Fee for Included Services (FIS) both under the Income-Tax Act, 1961 as well as the Indo-USA Double Taxation Avoidance Agreement (DTAA). Though, assessee contested the aforesaid disallowance before learned Commissioner (Appeals), however, disallowances made by the assessing officer were confirmed.

A Division Bench consisting of G S Pannu, President and Saktijit Dey, Judicial Member observed that “Since, the management fee paid by assessee is not chargeable to tax in India in terms with Article 12(4) of India-USA DTAA, as held by the Co-ordinate Bench in case of the payee, the assessee was not required to deduct tax at source while making such payment. Therefore, we hold that the disallowance made under Section 40(a)(i) of the Act in the assessment years under dispute are unsustainable, hence, deleted.”

To Read the full text of the Order CLICK HERE

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