The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that receipts for advisory services are not taxable as Fees for Technical Services (FTS) unless they result in the transfer of technical knowledge and clarifies the scope of FTS under the India-UK Double Taxation Avoidance Agreement (DTAA), and it is likely to have implications for other taxpayers who are engaged in the provision of advisory services to their associated enterprises.
The assessee, N.M.Rothchild a UK tax resident, entered into a group services agreement with various entities, including the Indian AE. They provide management services and also provide intra-group finance activities, legal and regulatory advice.
However, the assessee received Rs.1,54,35,120/- and Rs.2,45,19,751/- for the assessment years 2018-19 and 2019-20 but did not offer them to tax in India. The assessee argued that their services are not FTS, but the Assessing Officer found some to be FTS. The officer brought the entire receipts as FTS and challenged the assessment orders.
The assessee argued that the services rendered are not FTS, as they are advisory services and not technically or consultancy-related. They also argued that the make available’ condition is not satisfied, despite being considered technical or consultancy services.
The Assessing Officer contended that some of the services rendered by the assessee to the Indian AE are like FTS and he also argued that the ‘make available’ condition is satisfied, as the assessee has transferred technical knowledge, experience, skill, know-how or processes to the Indian AE.
The ITAT observed that The assessee’s services assist the Indian AE in making decisions, but do not transfer technical knowledge or skills. This makes the make available’ condition non-compliant under Article 13(4)(c) and does not fall within the definition of FTS under India
The Two Member Bench Justice G.S. Pannu (President) and Justice Saktijit Dey (Vice-President) agreed with the assessee’s arguments and held that the receipts, not being like FTS under Article 13(4) of India – UK DTAA, are not taxable at the hands of the assessee in India.
The tribunal held that the services provided by the assessee to the Indian AE are merely for enabling and assisting the Indian AE in making the correct decisions on certain aspects as specifically provided under the group service agreement. Such rendition of services does not result in the transfer of technical knowledge, know-how, skill, etc. to the Indian AE.
Therefore, the ‘make available’ condition provided under Article 13(4)(c) remains non-compliant. That being the position, the receipts would not fall within the definition of FTS as provided under Article 13(4) of India – UK DTAA.
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