The Income Tax Appellate Tribunal (ITAT), Delhi bench has held that routine business support services are not taxable as fees for technical services (FTS) since they do not make any technology or skill available to the recipient of the services.
The appellant/assesseeMagotteaux International SA, a tax resident of Belgium, is engaged in the business of providing consultancy and other services. It entered into an agreement with Magotteaux Industries Pvt Ltd (MIPL) to rendered such services to it in India. The appellant filed its income tax return showing nil taxable income, stating that the services were provided by it to MIPL from outside India. During the scrutiny assessment proceedings undertaken by the Assessing Officer (AO), the AO noted that group management fees was received by the appellant for rendering different services to MIPL. The AO formed an opinion that the services in respect of which the group management fees was received by the appellant were technical in nature, apart from being in the nature of managerial and consultancy services. The AO opined that the said services were taxable as fees for technical services (FTS) under the India-Belgium DTAA and under the provisions of Section 9(1)(vii) of the Income Tax Act, 1961.
The Tribunal bench consisting of members Astha Chandra (Judicial Member) and N.K. Billaiya (Accountant Member) observed that services received by MIPL do not make available technology, skill know how etc and such services cannot be considered to be in the nature of managerial, technical or consultancy in nature.
Disposing the appeal, the Tribunal held that “the business support services rendered by the assessee from Belgium do not qualify the test of make available under the tax treat. Therefore, we direct the Assessing Officer to delete the impugned addition. Ground Nos. 2,3 and 4 are accordingly allowed.”
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