The Income Tax Appellate Tribunal (ITAT), Mumbai bench consisting of Pramod Kumar, Vice President, and Sandeep Singh Karhail, Judicial Member held that Off-Shore Distribution Income is not Taxable from the hands of Non-Resident who did not Carryout Business in India.
The assessee, Credit Suisse (Singapore) Ltd is a company incorporated in Singapore under the Singapore Companies Act. The assessee is a tax resident of Singapore and accordingly, is entitled to the beneficial provisions of India Singapore DTAA’. The assessee is registered as FII with SEBI and conducts portfolio investments in Indian securities in its capacity as SEBI registered FII/FPI. For the assessment year 2014–15, the assessee filed its return of income declaring a total income of Rs. 26,05,54,889. The assessee and HDFC Asset Management Co Ltd had entered into an Offshore Distribution Agreement to which the assessee agreed to distribute Mutual Fund schemes launched by HDFC Asset Management Co Ltd, with a view to procuring subscriptions for such schemes from investors outside India. During the year under consideration, the assessee, inter-alia, earned Offshore Distribution Commission Income of Rs. 16,38,81,445 from HDFC Asset Management Co Ltd, which was claimed as exempt under Article 12 of DTAA. During the course of assessment proceedings, the assessee was asked to give justification for exemption claimed under the provisions of DTAA.
The Assessing Officer (AO) passed under sections 144C(3) and 143(3) of the Act observed that the assessee is carrying out distribution activity of products of HDFC Mutual Fund, which are regulated by SEBI in India and sinceassessee is the SEBI registered FII/FPI, it is not authorised to carry out any other activity including business activity other than FII related transactions in securities. The Assessing Officer came to the conclusion that commission paid to the assessee cannot be treated as fees for technical services as the assessee is getting a fixed ratio of commission on a quarterly basis for rendering the services. Accordingly, the AO taxed the commission income received by the assessee under Article 23 of DTAA and 5(2) of the Act. The Commissioner of Income Tax (CIT) upheld the conclusion of AO that the offshore distribution income is not fees for technical services and aggrieved the Revenue is in appeal before the Tribunal.
The Tribunal observed that” all the operations of the assessee were carried out outside India, therefore, in such circumstances offshore distribution commission income earned by the assessee cannot be treated as being reasonably attributable to any operation carried out in India.”
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