No Income Tax on Revenue from IDC, Management and Referral Agreements as per India-Singapore DTAA: ITAT

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has recently held that the income tax cannot be levied on the revenue received from IDC agreement, management agreement, and referral agreement as per the Double Taxation Avoidance Agreement (DTAA) India-Singapore.

The appellant, a Singapore based Company, engaged in providing the following services to its Indian group companies. The Assessing Officer, during the course of assessment proceedings, rejected the appellant’s claim that the revenues from Infrastructure Data Centre (‘IDC’), Management Services and Referral Services are exempted from income tax under Article 12 of the India-Singapore Double Taxation Avoidance Agreement (‘DTAA’).

The Tribunal noted that the services provided under the management agreement broadly include (i) consultancy services to support the sales activities of Surf Gold, (ii) legal services, (iii) financial advisory services, and (iv) human resource assistance.

Citing the relevant precedents, the bench observed that “there is no dispute here that under the provisions of section 9(1)(vii) of the Act, rendering of management services will be taxable as FTS. However, Edenred, by virtue of section 90(2) of the Act, is eligible to rely on the provisions of the India-Singapore DTAA, should the same be more beneficial than the provisions of the Act.”

With regard to the taxability of income from referral agreement, the Tribunal held that the revenues under the referral agreement is not taxable in the hands of the appellant as royalty under the Act and/or India-Singapore DTAA or FTS under the India-Singapore DTAA

The Tribunal further referred the decision in Knight Frant (India) (P.) Ltd.wherein the Tribunal held that (i) where referral fees were received by foreign concern for introducing clients to the assessee-Indian company, providing international real estate advisory and management services since referral services were rendered entirely outside India, it would not fall within the scope of ‘total income’ of said foreign concern as per section 5(2) and (ii) referral fees paid by the assessee-Indian company for availing referral services which were rendered by foreign concern entirely in the USA would constitute business profits of a foreign company under Article 7 of the India-USA DTAA; in absence of PE in India, it was not taxable in India.