Income Tax Appellate Tribunal: In appeals against the respective orders of the Assessing Officer (‘AO’) passed under Section 143(3) read with Section 144-C of the Income tax Act, 1961 (‘IT Act’) pursuant to the directions of the Dispute Resolution Panel (‘DRP’), the two-member bench of Shamim Yahya(Accountant Member) and Anubhav Sharma (Judicial Member) held that the payment received by the assessee from foreign company on account of business support services cannot be treated as Fees for Technical Services (‘FTS’) under Article 12(5) of India Netherlands Double Taxation Avoidance Agreements.
In the case at hand, assessee is a company incorporated in Netherlands and is a tax resident of Netherlands. For the Assessment Year 2018-19, assessee filed return of income showing income of Rs. 48,50,157/-. During assessment, AO observed that assessee has received income of Rs. 48,50,157/- on account of interest on External Commercial Borrowings(‘ECB’) and income tax refund and assessee also received Rs. 11,85,39,571/- on account of business support services from Inteva India. Thus, the AO concluded that this 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.
The assessee raised the ground that on the facts and circumstances of the case and in law, the AO pursuant to the directions of DRP erred in treating the receipts of fees for business support services of Rs. 11,85,39,571/- as 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.
The Tribunal noted that an identical issue was subject matter of consideration of the ITAT in assessee’s own case in Inteva Products Netherlands v. ACIT, ITA No. 7545/Del/2017 for Assessment Year 2014-15, wherein the Tribunal held that the payment received cannot be treated as FTS under Article 12(5) of India Netherlands DTAA and the addition made is to be deleted. The Tribunal said that the aforesaid order of ITAT has not been reversed by the Jurisdictional High Court.
Since, the facts in the present case are identical to the aforesaid and no distinguishable feature has been pointed out, hence following the precedent, the Tribunal directed that the payment received in this case cannot be treated as FTS under Article 12(5) of India Netherlands DTAA.
[Inteva Products Netherlands BV v ACIT, 2023 SCC OnLine ITAT 165, decided on 02-03-2023]
Advocates who appeared in this case :
For Assessee: Advocate K.M. Gupta, Advocate Rishabh Malhotra;
For Revenue: Commissioner of Income Tax (DR) Mahesh Shah.