NORD ANGLIA EDUCATION LIMITED,UNITED KINGDOM V. DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAX, CIRCLE 2(2)(2), NEW DELHI, DELHI

ITA 3277/DEL/2023

AI Insights

The case involves M/s Nord Anglia Education Limited, a non-resident corporate entity and tax resident of the UK, which appealed against the final assessment order for the assessment year 2021-22. The appeal contested the taxability of management support services fees and reimbursement of expenses as FTS under Article 13 of the India-UK DTAA. The Assessing Officer and the Dispute Resolution Panel had previously held these amounts as FTS, leading to the final assessment order. The Tribunal, referencing a similar case for the assessment year 2020-21, found that the services provided did not meet the 'make available' criteria required to classify them as FTS, thus overturning the previous decisions.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 471478 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 10-10-2024
• Assessment Year: 2021-2022
• Appeal Filed On: 20-11-2023
• Other Referred Cases: Global Schools Holdings Pte. Ltd. vs. ACIT, Bio Rad Laboratories [Singapore] vs. ACIT
• Laws Referred To: Income-tax Act, 1961, India-United Kingdom Double Tax Avoidance Agreement
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY B.VASANTA
• Assessee Lawyers: KANCHUN KAUSHAL
• Keywords: Business income; TDS; Double taxation relief; Permanent establishment
• Section: 143(3); 13

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH- - - -D D D D : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE BEFORE BEFORE BEFORE SHRI SAKTIJIT DEY, SHRI SAKTIJIT DEY, SHRI SAKTIJIT DEY, SHRI SAKTIJIT DEY, VICE VICE VICE VICE PRESIDENT PRESIDENT PRESIDENT PRESIDENT AND AND AND AND SHRI S. RIFAUR RAHMAN SHRI S. RIFAUR RAHMAN SHRI S. RIFAUR RAHMAN SHRI S. RIFAUR RAHMAN, , , , ACCOUNTANT ACCOUNTANT ACCOUNTANT ACCOUNTANT MEMBER MEMBER MEMBER MEMBER ITA No ITA No ITA No ITA No.3277/Del/2023 .3277/Del/2023 .3277/Del/2023 .3277/Del/2023 Assessment Y Assessment Y Assessment Y Assessment Year : 2021 ear : 2021 ear : 2021 ear : 2021- - - -22 22 22 22 M/s Nord Anglia Education M/s Nord Anglia Education M/s Nord Anglia Education M/s Nord Anglia Education Limited, Limited, Limited, Limited, 4 4 4 4th th th th Floor, Nova So Floor, Nova So Floor, Nova So Floor, Nova South, uth, uth, uth, 160 Victoria Street, 160 Victoria Street, 160 Victoria Street, 160 Victoria Street, London, London, London, London, United Kingkom United Kingkom United Kingkom United Kingkom – – – – SW1E5JB. SW1E5JB. SW1E5JB. SW1E5JB. PAN : AAGCN2898G. PAN : AAGCN2898G. PAN : AAGCN2898G. PAN : AAGCN2898G. Vs. Vs. Vs. Vs. Deputy Commissioner of Income Tax, Deputy Commissioner of Income Tax, Deputy Commissioner of Income Tax, Deputy Commissioner of Income Tax, International Tax, Circle 2(2)(2), International Tax, Circle 2(2)(2), International Tax, Circle 2(2)(2), International Tax, Circle 2(2)(2), New Delhi. New Delhi. New Delhi. New Delhi. (Appellant) (Respondent) Appellant by : Shri Kanchun Kaushal, Advocate. Respondent by : Shri Vijay B. Vasanta, CIT-DR. Date of hearing : 10 10 10 10.10 .10 .10 .10.2024 .2024 .2024 .2024 Date of pronouncement : 25.10 25.10 25.10 25.10. . . .2024 2024 2024 2024 ORDER ORDER ORDER ORDER Per Saktijit Dey, Vice Per Saktijit Dey, Vice Per Saktijit Dey, Vice Per Saktijit Dey, Vice President President President President : : : : This is an appeal by the assessee assailing the final assessment order dated 22nd September, 2023 passed under Section 143(3) read with Section 144C(13) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) pertaining to assessment year 2021-22, in pursuance to directions of learned Dispute Resolution Panel (DRP). 2. Ground Nos.1 and 2, being general grounds, do not require specific adjudication. 3. In ground Nos.3 and 4, assessee has challenged the taxability of management support services fee amounting to `17,18,39,483/- as Fee for Technical Services (FTS) under Article 13 of India-United Kingdom Double Tax Avoidance Agreement (DTAA). Whereas, in ground Nos.5 to 8, the assessee ITA No.3277/Del/2023 2 has challenged taxability of reimbursement of expenses of `1,86,75,069/- as FTS under Article 13 of India-UK DTAA. 4. Briefly, the facts are, the assessee is a non-resident corporate entity incorporated in United Kingdom (UK) and a tax resident of UK. As stated, the assessee is engaged in the business of providing education services and is a leading international schools organization, operating in 31 countries with more than 70 premium schools globally. The assessee has a subsidiary in India, earlier known as ‘People Combine Business Initiatives Private Limited’ and, presently known as ‘Nord Anglia Education India Private Limited’. The assessee regularly provides certain routine services to its Indian subsidiaries. As could be seen, the Indian subsidiary is engaged in providing services to five Indian schools located at various places in India. Basically, the assessee provides management and support services for learning technology and consultancy services to its group entities, which enable the group entities to manage the schools in their respective jurisdictions. In the year under consideration, the assessee had rendered services from outside India to its Indian subsidiaries as well as the societies running schools in India. For the assessment year under dispute, the assessee filed its return of income on 15th March, 2022 declaring income of `39,03,77,278/- and claiming refund of `1,89,62,000/-. In the return of income filed, the assessee claimed exemption from taxation qua the management fee and reimbursement of expenses amounting to `19,05,14,552/- claiming that such receipts do not qualify as FTS under Article 13 of India-UK DTAA, hence, have to be treated as business receipts. In absence of any Permanent Establishment (PE) in India, they are not taxable in India. 5. The Assessing Officer, however, did not accept the contention of the assessee. While framing the draft assessment order, the Assessing Officer held that both management support services fee and reimbursement of expenses would qualify as FTS under Article 13 of India-UK DTAA. Accordingly, he framed the draft assessment order. Against the draft assessment order so framed, assessee raised objection before learned DRP. However, relying upon their directions in assessee’s case in assessment year ITA No.3277/Del/2023 3 2020-21, learned DRP agreed with the view expressed by the Assessing Officer in the draft assessment order. In terms with the directions of learned DRP, the Assessing Officer finalized the assessment bringing to tax the management support services and reimbursement of expenses as FTS. 6. Before us, learned counsel for the assessee submitted that the issue is squarely covered in favour of the assessee by the decision of the Tribunal in assessee’s own case for assessment year 2020-21. In this context, he placed before us copy of the order dated 7th August, 2024 passed in ITA No.2385/Del/2023. Though, learned DR agreed that the issue is covered by the decision of the Tribunal, however, he relied upon the observations of the Assessing Officer and learned DRP. 7. We have considered rival submissions and perused materials on record. Undisputedly, identical issues arising in assessee’s own case in assessment year 2020-21 came up for consideration before the Coordinate Bench in the order referred to above. While deciding the issue, the Tribunal has held as under:- “21. Heard the arguments of both the parties and perused the material available on record. 22. We find that the issue stands covered in the similar matter adjudicated by the Tribunal in the case of Global Schools Holdings Pte. Ltd. vs. ACIT in ITA No. 2311/Del/2022 (Delhi Tribunal) wherein under the similar fact pattern, the Assessing Officer had alleged that the provision of management services to its affiliate in India is in the nature of royalty/ FTS under the India-Singapore DTAA and thus are liable to tax in India. This view was further affirmed by the ld. DRP. The Tribunal held that the services rendered by the assessee are neither linked to royalty, nor in the nature of FTS considering make available criteria not met. The salient points are as under: • in terms of the service agreement, assessee has provided only the routine services like human resource support, marketing and operation support etc., which are distinct from the services rendered under the license agreement; • services rendered under the service agreement are not ancillary or subsidiary to the use of trademark/ brand name of software; and ITA No.3277/Del/2023 4 • no material on record exists to establish that the services rendered by the assessee has resulted in transfer of technology, know how, skill to the Indian affiliate so as to enable it to perform the services independently in future without any aid from the assessee. 23. The decision of the Co-ordinate Bench of Tribunal in the case of M/s Bio Rad Laboratories [Singapore] vs. ACIT (ITA No. 995/DEL/2022) which was affirmed by Hon’ble Jurisdictional High Court in same case (155 taxmann 646) held that IT services and other administrative services were rendered by the assessee to its affiliates in India and these services were not satisfying the make available test as there was no transfer of technology. It was observed that mere incidental advantage to the service recipient wasn’t an appropriate reason to arrive at the conclusion enduring benefit has been made available to the recipient. Further, the court also observed that the agreement between the respondent/assessee and its Indian affiliate had been effective from a long time and the payment is being made on year-on-year basis and if, technical knowledge, experience, skill, and other processes had been made available to the Indian affiliate, then agreement would not have run its course for such a long period. 24. In the present case, the AO has failed to demonstrate with cogent evidence, the consequential enduring benefits obtained by the Indian AE i.e., PBIL forming the basis of the conclusion that the services satisfy the make-available clause in terms of the India-UK DTAA. As evident from the aforementioned judicial decisions, the requirement of technology being made-available thereby enabling the Indian AE to apply the same on its own, has not been fulfilled in the instant case, hence the allegation of the AO is without any merit and is liable to be rejected. 25. In view of the above discussion, applying the principles laid down in the judicial precedents in the given scenario, we hold that consideration received for services in the nature of marketing and communications, human resource, commercial, corporate affairs and legal, finance, information technology, facilities management/ corporate development, rendered to PBIL would not be taxable as FTS in terms of the provisions of the India-UK DTAA.” 8. There cannot be any dispute that the factual position in the impugned assessment year is no different from assessment year 2020-21. In fact, while disposing of the objections of the assessee for the impugned assessment year, learned DRP has entirely relied upon their directions in assessee’s case in assessment year 2020-21. That being the case, respectfully following the ITA No.3277/Del/2023 5 decision of the Coordinate Bench referred to above, we hold that the income/receipts from management support services and reimbursement of expenses cannot be treated as FTS under India-UK DTAA. These grounds are allowed. 9. In ground No.9, the assessee has raised the issue of short credit of TDS. Having heard the parties, we direct the Assessing Officer to grant TDS credit in accordance with law. 10. Ground No.9.1, being consequential, does not require adjudication. 11. As regards ground No.10, the Assessing Officer is directed to factually verify assessee’s claim and revise the demand accordingly. 12. Ground No.11, being premature, is dismissed. 13. In the result, the appeal is allowed as indicated above. Above decision was pronounced in the open Court on 25th October, 2024. Sd/- Sd/- ( ( ( (S. RIFAUR RAHMAN S. RIFAUR RAHMAN S. RIFAUR RAHMAN S. RIFAUR RAHMAN) ) ) ) (SAKTIJIT DEY (SAKTIJIT DEY (SAKTIJIT DEY (SAKTIJIT DEY) ) ) ) ACCOUNTANT ACCOUNTANT ACCOUNTANT ACCOUNTANT MEMBER MEMBER MEMBER MEMBER V V V VICE ICE ICE ICE PRESIDENT PRESIDENT PRESIDENT PRESIDENT VK. Copy forwarded to: - 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT Assistant Registrar "