This case involves M/s Russell Reynolds Associates Inc., which appealed against the orders of the CIT (Appeal)-43, New Delhi, concerning assessment years 2013-14 and 2014-15. The primary contention revolves around the classification of certain receipts from support services and reimbursement of training expenses as ‘Fees for Included Services’ (FIS) under the India-USA DTAA.
Russell Reynolds Associates Inc., incorporated in the USA, is engaged in providing human resources advisory services. It filed its income tax return showing income from royalties received under a Licensing Agreement and an IT Licensing Agreement with Russell Reynolds Associates India Pvt. Ltd. (RRAIPL). The Deputy Commissioner of Income-tax, Circle 3(1)(1), International Tax, New Delhi, assessed this income and added amounts from support services and cost reimbursement as FIS, claiming these services met the ‘make available’ criterion of technical knowledge under the treaty.
The appellant argued that the services provided did not meet the ‘make available’ clause under Article 12(4)(b) of the India-USA DTAA and should not be treated as FIS. They contended that the services were managerial in nature and, as such, should not be taxable under the specified DTAA provisions. The tribunal reviewed the agreements and noted that the services did not fulfill the criteria set out in the treaty to qualify as FIS. They emphasized that the services were neither ancillary nor subsidiary to the licensed rights and did not involve the transfer of any technical knowledge or process.
The tribunal’s decision to overturn the lower authority’s ruling highlights the importance of clearly understanding the terms and conditions under DTAAs, especially regarding what constitutes ‘make available’ technical services. This case sets a significant precedent for how support and managerial services are treated under international tax agreements, impacting how multinational corporations structure their operations and tax strategies.
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