Relief to Russel Reynolds: Support Services and Reimbursement of Training Expenses are not Taxable as FTS under Indo-USA Treaty, rules ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi bench, while allowing relief to Russell Reynolds Associates Inc., has held that the receipts from support services and reimbursement of training expenses are not in the nature of FIS under India – USA DTAA.

the assessee is a non-resident corporate entity incorporated under the laws of the United States of America (USA) and is a tax resident of that country. It is stated, the assessee is engaged in the business of providing human resources-related services to its clients on recruiting and retaining senior-level executives and further assisting them in mitigating the risks associated with senior-level appointments. The assessee also provides management services to its group companies. In the return of income filed for the impugned assessment years, the assessee offered the royalty income received from its Indian subsidiary under Licensing Agreement towards the use of Intellectual Property Rights (IPR). However, the Company did not offer the amount received towards support services and reimbursement of expenses pleadings that they are not taxable in India.

The Assessing Officer completed the assessment for the impugned assessment years by holding that, both, the amounts received towards support services under the Services Agreement and reimbursement of expenses under Cost Reimbursement Agreement are in the nature of Fees for Included Services (FIS) under Article 12(4)(b) of the India – USA Double Taxation Avoidance Agreement (DTAA). While coming to such a conclusion, the Assessing Officer observed that such services meet the conditions of making available of technical knowledge, experience, skill, know-how etc.

A division bench comprising Shri G.S. Pannu, President and Shri Saktijit Dey, Judicial Member has held that “As could be seen from the aforesaid observations of the Coordinate Bench, the reimbursement of expenses was held to be not in the nature of FIS in terms with India – USA DTAA. That being the decision of the Coordinate Bench in the assessee’s own case under identical facts and circumstances, respectfully following the aforesaid decision, we hold that the receipts from support services and reimbursement of training expenses are not in the nature of FIS under India – USA DTAA, hence, not taxable in India.”

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