The Delhi bench of Income Tax Appellate Tribunal (ITAT) has recently held that Payment for business support services from foreign companies have no Fee for Technical Services (FTS).
Assessee Inteva Products Netherlands BV, is a company incorporated in Netherlands and is a tax resident of Netherlands. During the course of assessment, Assessing Officer observed that assessee has received income of Rs.48,50,157/- on account of interest on ECB and income tax refund and assessee also received Rs.11,85,39,571/- on account of business support services from Inteva India.
The amount received for business support services was not offered as income on the plea that it is in the nature of business profit and in absence of Permanent Establishment (PE) in India, it is not chargeable to tax.
After the assessing officer concluded that the payment received by the assessee from foreign company on account of business support services is held to be taxable as FTS taxable at 10% plus surcharge and education cess and added to the total income of the assessee. Against this order assessee filed an appeal before the ITAT.
K.M. Gupta counsel for the assessee submits that services rendered are in the nature of managerial services and not technical or consultancy services.
Moreover Article-12(5) of Indian Netherlands Direct Tax Avoidance Agreement (DTAA), the definition of FTS did not include managerial services. Hence it could not be treated as FTS under the DTAA.
Mahesh Shah, counsel for the revenue strongly relied upon the observations of the Assessing Officer and Dispute Resolution Panel.
After considering the contentions of the both side the division bench of the ITAT comprising Anubhav Sharma, (Judicial Member) and Shamim Yahya, (Accountant Member) allowed the appeal filed by the assessee and observed that payment received in this case could not be treated as FTS under Article 12 (5) of India Netherlands DTAA.
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