Before Dr. B. R. R. Kumar, Accountant Member
Sh. Yogesh Kumar US, Judicial Member
ITA No. 1861/Del/2022: Asstt. Year: 2019-20
Inteva Products Netherlands BV, Siriusdreef 17, 2132, WT Hoofddorp, Netherlands
Vs.
ACIT, Circle International Taxation-2(1)(1), New Delhi-110002
(APPELLANT) (RESPONDENT)
PAN No. AADCI 5208G
Assessee by: Sh. Rishabh Malhotra, AR
Revenue by: Sh. Anshuman Pattnaik, CIT DR
Date of Hearing: 13.03.2023
Date of Pronouncement: 05.04.2023
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order dated 31.05.2022 passed by the AO u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961.
2. The solitary ground raised by the assessee is as under:
“On the facts and circumstances of the case and in law, the ld. AO pursuant to the directions of the Hon’ble Dispute Resolution Panel (Hon’ble DRP) erred in treating the receipt of fees for business support services of INR 11,35,35,626 as Fees for Technical Services (‘FTS’) as per Article 12 of the tax treaty between India and Netherlands without appreciating that the services are managerial in nature and hence do not fall within the definition of FTS.”
3. The assessee company is a non-resident company incorporated on 6th July 2010 and registered in Netherlands. The assessee is mainly engaged in provision of financial and management services. The issue of FTS stands adjudicated by the order of the Tribunal in assessee’s own case for the A.Y. 2014-15 in ITA No. 7545/Del/2017 order dated 31.01.2023 and A.Ys. 2015-16, 2016-17, 2017-18 and 2018-19 in ITA No. 7963 & 7964/Del/2017, ITA No. 822/Del/2022 vide order dated 02.03.2023. The relevant part of the earlier order of the Tribunal is reproduced as under:
“11. As could be seen from the draft assessment order, the Assessing Officer has very clearly and categorically mentioned that assessee’s employees never visited India for rendering any kind of services. Whatever services rendered, were through mail/correspondences/reports etc. From the facts available on record, it is noticed, the services rendered by the assessee are as under:
12. From the nature of services rendered, it is very much evident that they are mostly in the nature of managerial services. Reading of Article-12 (5) of India-Netherlands DTAA reveals that it does not include managerial services within FTS. Therefore, the payment received by the assessee cannot be treated as FTS under India Netherlands DTAA. Even, assuming for the sake of argument that payment received for certain kind of services is in the nature of FTS, however, the make available condition needs to be satisfied. Neither the Assessing Officer nor learned DRP have established on record that by rendering the services, the assessee has made available technical knowledge, know-how, skill etc. to the recipient of services, which would have enabled the recipient of such services to utilize it independently without the aid and assistance of the assessee. Thus, in our view, the make available condition is not satisfied. Therefore, the payment received cannot be treated as FTS under Article-12(5) of India Netherlands DTAA. Hence, we are inclined to delete the addition made by the Assessing Officer.”
4. Since, the matter stands adjudicated by the order of the Tribunal, in the absence of any change in the material facts and legal proposition, the appeal of the assessee is hereby allowed.
5. In the result, the appeal of the assessee is allowed.
Order Pronounced in the Open Court on 05/04/2023.
Sd/- Sd/-
(Yogesh Kumar US) (Dr. B. R. R. Kumar)
Judicial Member Accountant Member
Dated: 05/04/2023
*Subodh Kumar, Sr. PS*
Case Filed: Reasons and Context
The present case, ITA No. 1861/DEL/2022, was filed by Inteva Products Netherlands BV against the DCIT Circle International Taxation 2(1)(1), New Delhi, concerning the assessment year 2019-20. The appellant, a non-resident company engaged in providing financial and management services, disputed the treatment of their business support service fees as Fees for Technical Services (FTS) by the Assessing Officer (AO) based on Article 12 of the tax treaty between India and the Netherlands. The primary contention was that the services provided were managerial in nature and should not fall within the definition of FTS as per the treaty. This case highlights the ongoing challenges and interpretations regarding the classification of international service fees under bilateral tax treaties and the significant financial implications for multinational companies.
Legal Background and Tribunal’s Analysis
In the realm of international taxation, the classification of fees for various services rendered by non-resident companies is a complex and often contentious issue. Article 12 of the India-Netherlands Double Taxation Avoidance Agreement (DTAA) provides the framework for determining whether such fees qualify as FTS. According to the DTAA, managerial services are explicitly excluded from the definition of FTS. This distinction is crucial as it determines the taxability of these services in the source country.
In the present case, the AO’s assessment treated the receipts of INR 11,35,35,626 for business support services as FTS, thereby subjecting them to taxation under Indian law. However, the assessee argued that these services were managerial in nature, involving various support functions such as engineering, financial administration, HR, IT, marketing, and legal services, which do not constitute technical services as defined under the DTAA.
The Tribunal, in its detailed analysis, referred to previous rulings in the appellant’s own cases for earlier assessment years, where similar issues were adjudicated. The consistent stance taken by the Tribunal was that the services provided did not involve the transfer of technical knowledge, skills, or know-how to the recipient, a crucial requirement for classifying a service as FTS under the DTAA. The Tribunal reiterated that the mere provision of managerial services through electronic means does not fulfill the ‘make available’ condition required to qualify as FTS.
Implications and Conclusion
The Tribunal’s order in favor of the appellant, Inteva Products Netherlands BV, underscores the importance of precise definitions and conditions outlined in international tax treaties. By excluding managerial services from the ambit of FTS, the DTAA between India and the Netherlands aims to promote clarity and fairness in taxing cross-border services. This case serves as a significant precedent for other multinational corporations facing similar disputes in India.
The final judgment reaffirms the principle that not all service fees can be broadly categorized under FTS, and careful consideration must be given to the nature of the services rendered. For multinational companies, this order highlights the necessity of understanding and correctly applying the provisions of relevant tax treaties to avoid potential disputes and ensure compliance with international tax regulations.
In conclusion, the appeal by Inteva Products Netherlands BV was allowed, providing clarity on the classification of business support services and reinforcing the interpretation of managerial services under the India-Netherlands DTAA.
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