THE MUNICIPAL COOPERATIVE BANK LTD.,MUMBAI V. DCIT, CIRCLE-1(3)(1), MUMBAI

ITA 4143/MUM/2024

AI Insights

The case involves multiple appeals by the Deputy Commissioner of Income Tax against M/s. Mott Macdonald Limited concerning the taxability of certain charges allocated to its Indian subsidiary, MMPL, for various assessment years. The primary issues revolved around whether software charges and IT-SIS charges should be treated as royalty or FTS under the Income Tax Act and the India-UK DTAA. The Ld.AO had treated these charges as royalty and FTS, leading to additional tax assessments, which were contested by the assessee. The Ld.CIT(A) reversed the AO's decision, a stance upheld by the Tribunal, which relied on judicial precedents and the specific terms of the DTAA.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 37438 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2018-2019
• Other Referred Cases: Engineering Analysis Centre Excellence Pvt. Ltd. vs CIT, DIT vs. Ericsson A.B., DIT vs. Nokia Networks Oy, DIT vs. Infrasoft Ltd., Qualcomm Incorporated vs. DDIT, DDIT vs. Reliance Communications Ltd., John Deere India Pvt. Ltd. vs. CIT, Shell India Marketing P. Ltd vs. CIT, Samsung Electronics Co. vs. CIT, N.M. Rothschild & Sons Ltd. vs. DCIT, Foster Wheeler France SA vs. DDIT(IT), US Technology Resources P. Ltd. vs DCIT, De Beers India Minerals Pvt. Ltd. vs. CIT
• Laws Referred To: Income Tax Act, 1961, India-UK DTAA
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KRISHNA KUMAR
• Assessee Lawyers: AJIT JAIN SIDDHESH; TREATING MESA
• Keywords: Set aside; TDS; Wholly owned subsidiary; Double taxation relief
• Section: 195; 153; 13; 101

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SMT. BEENA PILLAI (JUDICIAL MEMBER) AND MS. PADMAVATHY S (ACCOUNTANT MEMBER) I.T.A. No.3047/Mum/2022 Assessment Year: 2016-17 I.T.A. No.3048/Mum/2022 Assessment Year: 2017-18 Deputy Commissioner of Income Tax (IT)-3(2)(2) Room No. 1632, 16th Floor, Air India Building, Nariman Point, Mumbai - 400021 Vs. M/s. Mott Macdonald Limited 8-10, Mott Macdonal House, Sydenham Road Croydon, Foreign, United Kingdom PAN:AAGCM0989F (Appellant) (Respondent) I.T.A. No.5727/Mum/2024 Assessment Year: 2018-19 I.T.A. No.5725/Mum/2024 Assessment Year: 2019-20 I.T.A. No.5726/Mum/2024 Assessment Year: 2020-21 I.T.A. No.5728/Mum/2024 Assessment Year: 2021-22 Assistant Commissioner of Income Tax (IT)- 3(2)(2), Mumbai Room No. 615, 6th Floor, Kautilya Bhavan BKC Mumbai - 400051 Vs. M/s. Mott Macdonald Limited Unit 101,Nomura Building, Powai Iit S.O, Maharashtra-400076 I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 2 PAN:AAGCM0989F (Appellant) (Respondent) Appellant by Shri Ajit Jain/Shri Siddhesh Choughule Respondent by Shri Krishna Kumar, Sr. D.R. Date of Hearing 13/01/2025 Date of Pronouncement 31/01/2025 ORDER Per Bench: Present appeals filed by the revenue arises out of separate orders passed by the Ld.CIT(A) – 57, Mumbai, dated 27/09/2022 for assessment year 2016-17 and 2017-18, order dated 29/08/2024 passed for assessment year 2018-19 and separate orders dated 30/08/2024 passed for assessment years 2019-20 to 2021-22 by Ld.CIT(A) 57. At the outset, the Ld.AR submitted that all issues raised in present appeals are identical and filed summary chart of the issues under consideration as under: Particulars Additions made in the Assessment Order by Ld.AO AY 2016-17 AY 2017-18 AY 2018-19 AY 2019-20 AY 2020-21 AY 2021-22 Software charges Treated as Royalty under the Act read with Article 13 Treated as Royalty under the Act read with Article 13 Treated as FTS under the Act read with Article 13 of India- Treated as FTS under the Act read with Article 13 of India- Treated as FTS under the Act read with Article 13 of India- Treated as FTS under the Act read with Article 13 of India-UK I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 3 of India- UK DTAA GROUND No.1 of India- UK DTAA GROUND No.1 UK DTAA GROUND No.1 UK DTAA GROUND No.1 UK DTAA GROUND No.1 DTAA GROUND No.1 Group Information Technology and Shared Information Service Charges ('IT-SIS') Treated as Fees for Technical Services ('FTS') under the Income Tax Act, 1961 ('Act') read with Article 13 of India- UK DTAA GROUND NO.2 Treated as FTS under the Act read with Article 13 of India- UK DTAA GROUND NO.2 Treated as FTS under the Act read with Article 13 of India- UK DTAA GROUND NO.2 Treated as FTS under the Act read with Article 13 of India- UK DTAA GROUND NO.2 Treated as FTS under the Act read with Article 13 of India- UK DTAA GROUND NO.2 Treated as FTS under the Act read with Article 13 of India-UK DTAA GROUND NO.2 Group Support Charges ('GSC') Treated as FTS under the Act read with Article 13 of India- UK DTAA GROUND NO.3 Treated as FTS under the Act read with Article 13 of India- UK DTAA GROUND NO.3 Treated as FTS under the Act read with Article 13 of India- UK DTAA GROUND NO.3 Treated as FTS under the Act read with Article 13 of India- UK DTAA GROUND NO.3 Treated as FTS under the Act read with Article 13 of India- UK DTAA GROUND NO.3 Treated as FTS under the Act read with Article 13 of India-UK DTAA GROUND NO.3 Middle East and South Asia Regional Charges ('MESA') No additions No additions Treated as FTS under the Act read with Article 13 of India- UK DTAA Treated as FTS under the Act read with Article 13 of India- UK DTAA Treated as FTS under the Act read with Article 13 of India- UK DTAA Treated as FTS under the Act read with Article 13 of India-UK DTAA Other No No Treated as Treated as Treated as Treated as I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 4 Support Charges ('OSC') additions additions FTS under the Act read with Article 13 of India- UK DTAA FTS under the Act read with Article 13 of India- UK DTAA FTS under the Act read with Article 13 of India- UK DTAA FTS under the Act read with Article 13 of India-UK DTAA Brief facts of the case are as under: 2. The Assessee is a company incorporated in UK and is engaged in providing management, engineering and development consultancy solutions for various clients worldwide. The Assessee is a tax resident of UK and holds a valid tax residency certificate (TRC). The Assessee has group affiliate companies in multiple countries across the globe, including a wholly owned subsidiary in India i.e., MMPL 2.1. The assessee allocates certain charges to its group affiliates, including MMPL for support services and standard software i.e., third party software which promotes consistency, excellence, efficiency and enhances value for the affiliate's business and helps bring cost and other synergies in their day-to-day business operations. 2.2. The assessee allocates certain charges to its group affiliates, including MMPL for support services and standard software i.e., third party software which promotes consistency, excellence, efficiency and enhances value for the affiliate's business and helps bring cost and other synergies in their day-to-day business I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 5 operations. During the year A.Y. 2016-17, the inter-alia allocated following amounts to MMPL as under: S No. Nature Amount (Rs.) 1 Software charges 3,73,57,628 2 IT SIS charges 16,47,60,188 3 GSC 1,57,24,563 2.3. It was submitted by the assessee that no written agreement was entered between the Assessee and MMPL during AY 2016-17, however both the parties (being group companies) were fully aligned on the natured of arrangement and other terms for last many years, and the same was also accepted in past completed assessment proceedings for AY 2013-14. It was also submitted that, during FY 2019-20, it was considered prudent to document the earlier understanding in writing, and hence the above Agreement was entered between the assessee and MMPL. The details of these charges are provided in Inter-Company Services Agreement ('Agreement') entered between the Assessee and MMPL on 14/12/2020, that also records the mutually agreed terms and conditions governing the services that the Assessee has been providing to MMPL in past years. 2.4. The Assessee for year under consideration filed its returns on 29/03/2018 declaring a total income of Rs.14,25,27,995 in accordance with the provisions of the Act read with the DTAA. In the returns, the aforesaid charges allocated to MMPL were not offered to tax in India as per provisions of the Act read with the I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 6 DTAA. As per provisions of the Act, the Assessee being a non- resident, opted for taxation based on the beneficial provisions of DTAA between India and UK. 2.5. The return filed by the assessee was selected for scrutiny. During course of the assessment proceedings, detailed submissions were filed by the assessee before the Ld.AO explaining the nature of aforesaid charges and rationale for not offering the same to tax in India vide letter dated 17/12/2019 and 26/12/2019. Ld.AO, after considering submissions of the assessee, assessed the income of the assessee at Rs.36,03,70,010 /- after making following additions in the Order: Nature of charges Amount (Rs.) Taxability as per Ld. AO Software charges 3,73,57,628 Royalty under section 9(1)(vi) of the Act read with Article 13(3)(a) of the DTAA IT SIS charges 16,47,60,188 FTS under section 9(1)(vii)(c) of the Act read with Article 13 of the DTAA. GSC 1,57,24,563 Total 21,78,42,019 Aggrieved by the order of the Ld.AO the assessee preferred appeal before the Ld.CIT(A). 3. The Ld.CIT(A) deleted the addition/disallowance made by the Ld.AO by passing a detailed order after considering varipus judicial precedents on the issues. I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 7 Aggrieved by the order of the Ld. CIT(A) assessee is in appeal before this Tribunal. 4. At the outset both sides submitted that, the issues raised for the assessment year 2016-17 in Ground No.1-3 are identical for assessment years 2017-18 – 2020-21. He submitted that the only difference is the additional issue raised by revenue for assessment years 2018-19 – 2020-21 to treat MESA charges and other support charges as FTS under the act read with Article 13 of India UK DTAA. 5. The Ld. AR submitted that the in Ground no.1, the issue relating to software charges has to be considered in accordance with ratio laid down by Hon’ble Supreme Court in case of Engineering Analysis Centre Excellence Pvt. Ltd. vs CIT reported in (2021) 125 taxmann.com 42, wherein Hon’ble Supreme Court settled the issue relating to taxation of software by drawing a distinction between right to use of end copy righted products and right in copy right placing reliance on various Indian and International decisions. The Ld.AR also placed reliance on the decision of Hon’ble Delhi Court in case of DIT vs. Ericsson A.B. reported in (2011)16 Taxman.com 371 that was approved by Hon’ble Supreme Court in case of Engineering Analysis Centre Excellence Pvt. Ltd. vs CIT(supra). Reliance was also placed on following decisions: • Decision of Hon’ble Delhi High Court in case of DIT vs. Nokia Networks Oy reported in (2012) 25 Taxman.com 225 I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 8 • Decision of Hon’ble Delhi High Court in case of DIT vs. Infrasoft Ltd. reported in (2013) 39 Taxman.com 88; upheld by Hon’ble Supreme High Court in (2021) 125 taxmann.com 42 • Decision of Hon’ble Delhi Tribunal in case of Qualcomm Incorporated vs. DDIT reported in (2018) 93 taxmann.com 80 • Decision of Hon’ble Mumbai Tribunal in case of DDIT vs. Reliance Communications Ltd. reported in (2018) 90 Taxman.com 358 • Decision of Hon’ble Pune Tribunal in case of John Deere India Pvt. Ltd. reported in (2019) 102 Taxman.com 267 5.1. The Ld. AR submitted that, in all the above decisions it is held that, the definition of royalty under the act is much wider than the exhausted definition of royalty under the DTAA. He submitted that the DTAA requires the “right to use” of copy right in any literary and scientific work to be transferred. Whereas, the definition as per act merely requires the rights (including granting of license) in the literary or scientific work to be transferred for the consideration to be treated as royalty. 5.2. The Ld.AR submitted that, though the legislature introduced the Explanation 4 to section 9(1)(vi) by Finance Act 2012, enlarging the definition of royalty to tax the receipts for use of computer software as royalty. He submitted that the said changes has no application in the context of taxation of such income in the hands of the non-residents as per the beneficial provisions of the DTAA. 5.3. The Ld.AR submitted that it is an admitted position that, assessee has never submitted it to be the owner of any copy right or software and that these are developed by the main group company. It is submitted that these are standard software, I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 9 available in the market and used across the industry by any willing customer. The Ld. AR submitted that though there was no written agreement between the assessee and MMPL for assessment year 2016-17, and that it was only during assessment year 2021-22 that the written agreement was entered into recording all the mutual agreement terms and condition governing the services the assessee has been provided MMPL in the past years. The Ld.AR submitted that the said written agreement is in full complete alignment in the nature and the other terms in the preceding years which include assessment year 2016-17 and was accepted by the Ld. TPO in the proceedings for the A.Y. 2013-14. 5.4. The Ld.AR submitted that the decision of the AAR in the case of Shell India Marketing P. Ltd reported in (2012) 18 taxmann.com 46 cannot be applied to the present facts as they are different from that of the Assessee. It is submitted that Shell India's (supra) deals with the provision of General BSS, wherein foreign entity worked closely with the employees of Shell India and supported/advised them. Further, Shell India had contended that it became the owner of any know-how generated from General BSS. However, assessee’s case deals with use of standard applications such as Microsoft office, network data centers to house company data, security systems etc. Further it is submitted that the said decision has been overturned by Hon’ble Bombay High Court reported in (2024) 160 taxmann.com 175. I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 10 5.5. The Ld. AR thus submitted that in the light of the principles laid down by the Hon’ble Supreme Court in case of Engineering Analysis Centre of (supra) Pvt. Ltd. Vs. CIT(supra), it is a settled principle that, as assessee is neither the owner of the copy right of the software nor the third party software developed by the assessee as in entity group by the assessee the software charges paid merely to use in its business cannot be considered to be cannot be taxed as royalty as per the Article 13(3)(a) of DTAA. 5.6. On the contrary the Ld. DR relied on the order passed by the authorities below. We have perused the submissions advanced by both sides in light of records placed before us. 6. We note that assessee is a residence of UK and holds a valid TRC of UK. Thus it is covered by the provisions of DTAA. It is noted that charges are pure reimbursement recovered by the assessee on cost to cost basis without their being in element income embedded in it. Under the circumstances it would not constitute income in the hands of the assessee. It is further noted that the amount recovered by the assessee relates to the expenses incurred by it on behalf of the group companies on account of third party being standard software charges paid for the usages. Thus it is noted that the software usage charges are on account of using a standard facility extended by the group for usage of certain software procured by it from third parties at in entry level and therefore do not constitute royalty under article 13 of the treaty. I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 11 6.1. Reliance is placed on following decision in support of the above observation based on the ratios there in: • Hon’ble Supreme Court in case of Engineering Analysis Centre Excellence Pvt. Ltd. vs CIT(supra) • Decision of Hon’ble Delhi High Court in case of Ey Global Services Ltd. vs. Assistant Commissioner of Income-tax reported in (2021) 133 taxmann.com 157 • Trigo SAS vs DCIT ITA No. 768/PUN/2018 vide order dated 14/09/2021 • Decision of Hon’ble Bangalore Tribunal in case of Autodesk Asia (P) Ltd vs ACIT reported in (2021) 129 taxmann.com 8 • Decision of Hon’ble Mumbai Tribunal in case of Atos IT Solutions and Services Inc v. Deputy Commissioner of Income-tax (IT) reported in (2023) 153 taxmann.com 104 • Decision of Hon’ble Delhi Tribunal in case of Saxo Bank A/S v. ACIT (International Taxation) reported in (2024) 161 taxmann.com 590 6.2. For sake of convenience we reproduce the observations by Bangalore Tribunal in case of Autodesk Asia (P) Ltd vs ACIT(supra) as under: 5. We have perused the submissions advanced by Hon'ble Supreme Court considered the issue by both sides in light of records placed before us. We note that observing as under:- \"3. One group of appeals arises from a common judgment reported as CIT of the High Court of Karnataka dated 15-10-2011 Samsung Electronics Co. Lal. (2012) 345 ITR 494. by posed before the High Court, was answered stating that the amounts paid by in India to non-resident, foreign software suppliers, amounted which the question which Was the concerned persons resident to royalty and as this was so, the same constituted taxable income deemed to accrue in India under section 9(1)(v) of the Income-tax Act, 1961 [\"Income Tax Act\"), thereby making it incumbent upon all such persons to deduct tax at source and pay such tax deductible at sourve [TDS\"] under section 195 of the Income-tax Act. This judgment dated 15-10-2011 has been relied upon by the subsequent impugned judgments passed by the High Court of Karnataka to decide the same question in favour of the Revenue. I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 12 The appeals before us may be grouped into four categories: (i) The first category deals with cases in which computer software is purchased directly by an end-user, resident in India, from a foreign, nonresident supplier or manufacturer. (ii) The second category of cases deals with resident Indian companies that act as distributors or resellers, by purchasing computer software from foreign, non-resident suppliers or manufacturers and then reselling the same to resident Indian end-users. (iii) The third category concerns cases wherein the distributor happens to be a foreign, non-resident vendor, who, after purchasing software from a foreign, non-resident seller, resells the same to resident Indian distributors or end-users. (iv) The fourth category includes cases wherein computer software is affixed onto hardware and is sold as an integrated unit/equipment.\" Hon'ble Supreme Court, considered various arguments advanced by the Revenue as well as the assessee's and came to the conclusion as under. CONCLUSION 168. Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 of this judgment, it is clear that there is no obligation on the persons mentioned in section 195 of the Income-tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright. The provisions contained in the income Ta Act (section 9(1)(vi, along with explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases. 169. Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non- resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income-tax Act were not liable to deduct any TDS under section 195 of the Income- I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 13 tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment. 170. The appeals from the impugned judgments of the High Court of Karnataka are allowed, and the aforesaid judgments are set aside. The ruling of the AAR in Citrix Systems (AJAR) (supra) is set aside. The appeals from the impugned judgments of the High Court of Delhi are dismissed.\" 6. We note that case of present assessee falls within the second and forth category analysed by Hon'ble Supreme Court. Respectfully following the above view by Hon'ble Supreme Court in case of Engg. Analysis Centre of Excellence Pvt. Ltd. (supra). We hold that purchase of software in the present facts does not amount to give rise to any taxable income in India as a result of which provisions of sec. 195 of the Act are not attracted. The assessee does not have any obligation to deduct tax at source. Therefore, provisions of sec.9(1)(vi) along with Explanation 2 is not applicable to present assessee's. From the above discussions, it is clear that in the present facts of the case, income is to be governed as per the provisions of India UK DTAA, as they are more beneficial to the assessee as the assessee has simply procured the software on behalf of its affiliates on cost to cost basis.bWe therefore do not find any infirmity in the view adopted by the Ld.CIT(A).CIT(A) and the same is upheld. Accordingly Ground no. 1 raised by the revenue for assessment years 2016-17 to 2020-21 on identical facts stands dismissed. 7. Ground no. 2 raised by the assessee is in respect of addition made on account services rendered under group support charges (hereinafter referred to as GSC) and group information technology – shared information services charges (hereinafter referred to as I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 14 IT-SIS) as FTS under section 9(1)(vii) of the act read with article 13 of India UK DTAA. 7.1. The Ld.AR submitted that, during the years under consideration group affiliates of assessee received services towards GSC and IT – SIS against which charges were payable to the assessee. It is submitted that, these represent across charges for services provided by the centralised team for activities like sales and strategic account management, decentralised finance, HR support etc. Group IT-SIS charges represents the cross charges for group IT represents which are for group business strategy and simplification of its business process. The assessee was called upon by the Ld. AO to show cause as to why such charges should not be considered as fee for technical services as per the provisions of the act are with Article 13 of the treaty. 7.2. In response to the said notice, the assessee submitted that, it’s affiliates avails above mentioned services on an annual basis, since they do not have capability to perform this activities that are important for its day to day activities. It is submitted that the affiliates cannot perform these activities without recorse to the assessee and therefore, it cannot be said that, any knowledge, skill etc., is made available to the affiliates by the assessee. It was submitted that the GSC charges are charged on cost to cost basis and is purely reimbursement. It was also submitted that, in the absence of any income element or mark up embedded in such charges, it would not constitute income in the hands of the assessee. I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 15 7.3. The Ld. AO however, considered IT-SIS and GSC charges to be taxable in India as FTS within the meaning of section 9(1)(vii) of the act. The Ld.AO noted that, the GSC charges were made towards managerial or consultancy services and the IT-SIS charges were provided by the assessee were highly specialised and technical. The Ld.AO accordingly, made addition in the hands of the assessee in respect of the GSC/IT-SIS charges as FTS under the Income Tax Act read with Article 13 of India UK DTAA. Aggrieved by the order of the Ld.AO, assessee preferred appeal before the Ld. CIT(A). 8. The Ld.CIT(A) after analysing the services rendered by the assessee under GSC and IT-SIS, came to the conclusion that, these were routine IT support services and receipt of such services in no way was absorbed and that there was no transfer any knowledge and skill etc., there in to the affiliates. The Ld.CIT(A) noted that the affiliate in the instant case is unable to perform this services on its own without recall to the assessee. 8.1. In respect of this GSC service, the Ld. CIT(A) observed that these were management services provided by the assesse to support the affiliate company to carry on its business efficiently in line in with business model and policies followed by the group. It was further observed that, these services did not make available any technical knowledge, skill, knowhow, and therefore could not be taxable as FTS as per the India UK DTAA. I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 16 Aggrieved by the order of the Ld. CIT(A) revenue is in appeal before the this Tribunal. 9. The Ld. DR vehemently relied on the orders passed by the Ld.AO. 9.1. On the contrary, Ld.AR submitted that the observations of the Ld. CIT(A) are categorical in respect of the services rendered under GTSC and IT-SIS. It was submitted by the Ld.AR that, none of the services were made available to the affiliate and cannot constitute FTS under Article 13(4) of DTAA. In support reliance was places on following decision in support • Decision of Hon’ble Karnataka High Court in case of CIT v. De Beers India Minerals Pvt. Ltd. Reported in (2012) 21 taxmann.com 214 • Decision of Hon’ble Delhi Tribunal in case of Soregam SA v. DCIT reported in (2019) 101 taxmann.com 94 • Decision of Hon’ble Pune Tribunal in case of Sandvik Australia Pty. Ltd. v. Dy. DIT (2013) 31 taxmann.com 256 • Advanced Authority Ruling in case of Bharti AXA General Insurance Co. Ltd. Reported in (2010) 326 ITR 477 • Advanced Authority Ruling in case of Ernst & Young (P) Ltd. Reported in 2010) 189 Taxman 409 • Decision of Hon’ble Mumbai Tribunal in case of Edenred Pte. Ltd. v. Deputy Director of Income Tax (International taxation), 3(2) reported in (2020) 118 Taxmann.com 2 • Decision of Hon’ble Delhi Tribunal in case of CPP Assistance Services (P.) Ltd v. Commissioner of Income-tax (Appeal) NFAC, New Delhi reported in (2023) 147 taxmann.com 484 • Decision of Hon’ble Delhi Tribunal in case of N.M. Rothchild & Sons Ltd. v. Deputy Commissioner of Income-tax, (International Taxation) reported in (2023) 152 taxmann.com 18. 9.2. The Ld.AR submitted that in the decision of Hon’ble Chennai Tribunal relied by the Ld.CIT(A).AO in case of Foster Wheeler France SA v. DDIT(IT) reported in (2016) 157 ITD 793, the Assessee therein received execution plans with schedules, I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 17 specifications, etc. Forster Wheeler USA (its group company) reviewed the working of the assessee in respect of its plans, execution and also provided time schedule with emphasis on key milestones. The job specification was also given by the foreign company Le. Foster Wheeler USA. It is submitted that in the instant case, MMPL is the receipt of communication collaboration, security services etc. which includes use of standard applications such as Microsoft office, network data centers to house company data, security systems used to guard the data from malicious attack, Lync for instant messaging etc. These are standard support services vital to the operations and performance of the businesses across the group and are required on regular basis. The Ld.AR thus submitted that the facts of the Foster's case are entirely distinguishable from the case in hand. 9.3. He also relied on the decision of Hon’ble Kolkotta Tribunal in case of Onprocess Technology India (P.) Ltd. v DCIT, reported in [2018] 96 taxmann.com 428, wherein it was held that: “In the case before the Tribunal, Mumbai it was an admitted fact that US holding company was in fact making available to the non-resident company technology, know how and service in connection with business carried on in India. Havender in the present case the Ld. CIT(A) did not bring on record any material which can in any manner prove that any of the foreign service providers rendered any technical service or made available any technological know-how to the assessee in India in connection with BPO business carried on in India.” (emphasis supplied) I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 18 9.4. It is submitted that decision of Hon'ble Cochin Tribunal in case of US Technology Resources P. Ltd. vs DCIT reported in (2018) 53 CCH 0071) relied upon by the Ld. AO has been reversed by Hon'ble Kerala High Court reported in (2018) 97 taxmann.com 642. Relevant extract is reproduced as under: \"21. We have already held that the services offered by the US Company would not come under the definition of 'included services' as available under the DTAA and as a consequence, the remuneration received by the US Company would not be 'fees for included services'. We have to find that the interpretation of the provisions of the DTAA between the Governments of India and USA have not been correctly carried out by the Tribunal. We, hence, set aside the orders of the lower authorities answering the questions of law (iii) and (iv) against the Revenue and in favour of the assessee.\" (emphasis supplied) 9.5. It is also submitted that the decision of the Hon'ble Supreme Court in case of G.V.K. Industries & Another vs. CIT reported in (1997) 228 ITR 564 is factually distinguishable. It is submitted that the issue considered by the Hon’ble Supreme Court relates to taxability of fees of consultant embodying knowledge in specialized field required for procuring finances and loans which is not the fact matter of the instant case. Whereas in the present facts the issue deals with regular IT related services to support the business processes ie., communication, collaboration, security services etc. which includes use of standard applications such as Microsoft office, network data centers to house company I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 19 data, security systems used to guard the data from malicious attack, etc. We have perused the submissions advance on both sides in the light of records placed before us. 10. It is noted that identical services as rendered by the assessee was subject matter of consideration before Hon’ble Delhi Tribunal in case of N.M. Rothschild and Sons Ltd. vs. DCIT(supra) Hon’ble Delhi Tribunal after considering the various arguments and decisions observed as under: 7. We have considered rival submissions in the light of the decisions relied upon and perused the materials on record. Undisputedly, the assessee has entered into intragroup services agreement with various group entities, including the Indian AE. In terms with the group services agreement, the assessee renders following services: • Human resource management: NMR manages payroll processes, recruitment, performance management, pensions, learning and development for operating entities including Rothschild India; Internal Audit: NMR is responsible for conduct of global internal audit assurance programme; • Corporate events: NMR manages corporate events, memberships, sponsorships and hospitality functions in order to perform event management services at a centralized level; • Group Finance: NMR is responsible for management reporting (including forecasts, planning and budgeting), financial reporting and capital planning. These include balance sheet reporting, funding, liquidity and regulatory issues, P&L reporting, covering actual results, forecasts and budgets, with the focus on divisional performance; • Global Finance: NMR produces global management information for financial advisory business of the Group. It provides decision support for the management and co-ordinates global fee sharing, global expense policies and pipeline reporting; • Legal and compliance: NMR provides legal and regulatory advice in terms of monitoring of compliance with legal and regulatory matters. It includes liaisoning with regulators, new client acceptance and name protection/trademarks. It also provides services to implement compliance rules within the Group and assist local teams to be compliant. I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 20 • Global Planning: Under this, NMR supports management committees annual planning process; • Marketing: NMR provides support for collating credentials for marketing to clients, which includes league tables, tombstones, deal announcements, regional performance slides, preparation of marketing materials such as global divisional, sector and product brochures and flyers, crisis management etc. 8. The cost incurred by the assessee for performing this services are allocated to the group companies, including the India AE on the basis of applicable allocation keys, such as, time spent, activity level or head count. The costs incurred are cross charged to the group companies on cost plus 5% basis. The short issue arising for consideration is, whether the amount received by the assessee through cost recharge from Indian AE is in the nature of FTS under Article 13(4) of India - UK DTAA. Before we proceed to decide this issue, it is necessary to look into the definition of FTS under Article 13(4) of the Treaty, which reads as under: \"Article 12 (4): For the purposes of paragraph 2 of this Article, and subject to paragraph 5, of this Article, the term \"fees for technical services\" means payments of any kind of any person in consideration for the rendering of any (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received or (c) make available technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical design.\" 9. A careful reading of Article 13(4) makes it clear that FTS means payments of any kind in consideration for rendering of any technical or consultancy services, which firstly, are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment of the nature of royalty is received. Secondly, they must be ancillary and subsidiary to the enjoyment of the property for which the payment in the nature of royalty is received. Thirdly, the services 'make available', technical knowledge, experience, skill, knowhow or processes or consists of development and transfer of a technical plan or technical design. The facts on record reveal that the first two conditions noted above do not apply to the fees received as such fees are not for any services, which are ancillary and subsidiary to any payment made in the nature of I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 21 royalty. Beside the aforesaid two categories, where the payment can fit in as FTS is the category where the services rendered make available technical, experience, skill, know-how, processes etc. Thus, the first condition, which needs to be satisfied, is the services rendered must be in the nature of technical or consultancy services. 10. As discussed earlier, under the group services agreement the assessee provides services in the nature of management, such as, payroll processes, recruitment, performance management, pensions, learning and development for operating entities, including the Indian AE. The assessee also conducts a global internal audit assurance programme. It also manages corporate events, memberships, sponsorships and hospitality functions in order to perform professional event management services at a centralized level. It also involve intra-group finance activities, such as, management reporting, financial reporting and capital planning, which includes, balance-sheet reporting, funding, liquidity and regulatory issues, profit and loss reporting, covering actual results, forecast and budges with the focus on divisional performance. It also produces global management information for financial advisory business of the group. It provides decision support for the management and co- ordinates global fee sharing, global expenses policies and pipeline reporting. The assessee provides legal and regulatory advice in terms of monitoring of compliance with legal and regulatory matter, including liaisoning with regulators, new client acceptance and name protection/trademarks. It also provides services to implement compliance rules within the group and assist local teams to be compliant. The assessee also provides services of global planning for annual planning process. It also provides support for collating credentials for marketing to clients. Thus, from the nature of services rendered, it is quite clear that they are in the nature of advisory services in certain areas as per the terms of the agreement. From the nature of services, it is quite evident that assessee's role in the services provided is purely to assist the Indian AE or other participating group entities in making correct decision on the aspects specifically referred to in the agreement. Thus, the nature of services provided to the Indian AE does not seem to be falling in the category of either technical or consultancy services. In fact, in the assessment orders, the Assessing Officer himself has stated that some of the services are of the nature of FTS. Thus, the Assessing Officer clearly admits that all the services rendered by the assessee are not in the nature of FTS. In spite of that the Assessing Officer has treated the entire receipts as FTS and added at the hands of the assessee. This, in our view, is unacceptable. 11. Having said so, it is necessary to examine whether the other condition of Article 13(4) of India - UK treaty is fulfilled. Even assuming that as per the Assessing Officer's version, few of the I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 22 services are in the nature of technical and consultancy nature, the crucial factor needs to be examined is whether while rendering such services the assessee has made available technical knowledge, experience, skill, know-how or processes to the India AE. The expression 'made available' has not been defined in India - UK DTAA. However, in this context reference can be made to the MoU to India - US DTAA wherein the term 'make available' has been explained. For ease of reference such explanation provided in the protocol to India - USA DTAA is reproduced hereunder: \"Paragraph 4(b) of Article 12 refers to technical or consultancy services that make available to the person acquiring the services, technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design to such person. (For this purpose, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person). This category is narrower than the category described in paragraph 4(a) because it excludes any service that does not make technology available to 'the person acquiring the service. Generally speaking, technology will be considered \"made available\" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc., are made available to the person purchasing the service, within the meaning of paragraph 4(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available.\" 12. The expression 'make available' has been subjected to judicial interpretation in various decisions. As per the interpretation given to the said expression, technological skill, know-how etc. to render the services should get transferred to the service recipient in a manner so that the service recipient is able to perform the same services independently on its own in future, without the aid and assistance of the service provider. In other words, in course of rendition of service, the service provider must transfer the technology, technical know-how, skill etc. to the service recipient to the extent that service recipient can perform such services in future without required the assistance of the service provider and without depending upon the service provider. Meaning thereby, the service recipient must be in a position to acquire technical knowledge, knowhow, skill etc., so as to independently apply it. In the facts of the present case, evidently, the services provided by the assessee to the Indian AE are merely for enabling and assisting the Indian AE in making the correct decisions on certain aspects as specifically provided under the group service agreement. Such rendition of services do not result in transfer of technical knowledge, know-how, skill etc. to the Indian AE. Therefore, in our view, the 'make available' condition provided under Article 13(4)(c) remains non-compliant. That being the position, I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 23 the receipts would not fall within the definition of FTS as provided under Article 13(4) of India - UK DTAA. While coming to such conclusion, we have drawn support from the judicial precedents cited before us by learned counsel for the assessee. 13. In view of the aforesaid, we hold that the receipts, not being in the nature of FTS under Article 13(4) of India - UK DTAA, are not taxable at the hands of the assessee in India. Grounds are allowed. 10.1. Hon’ble Karnataka High Court in case of CIT vs. De Beers India Mineral Pvt. Ltd.(supra) observed as under : 22. What is the meaning of \"make available\". The technical or consultancy service rendered should be of such a nature that it \"makes available\" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology \"making available\", the technical knowledge, skill?, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered \"made available\" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as \"fee for technical/included services\" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied. 10.3. The Ld.CIT(A) after analysing various services reported rendered under IT-SIS and GSC observed that, none of the services are made available to the recipient of any technical knowledge, knowhow etc., so that the recipient could derive an enduring benefit and utilise such knowledge and knowhow in the I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 24 future without any aid of the assessee. Neither the Ld.AO nor the Ld.DR brought anything on record to establish that, the affiliate could independently render services without the aid of assessee under GSC and IT-SIS category. Therefore in our opinion there is no infirmity in the view taken by the Ld.CIT(A) and the same is upheld. Accordingly, Grounds 2-4 raised by the revenue for assessment years 2016-17 stands dismissed. 11. There are additional issues raised by the revenue for the assessment year 2018-19 to 2021-22. It is submitted that the Ld.AO alleged that middle east and south Asia regional charges and other support charges received by the assessee were FTS under section 9(1)(vii) of the act read with Article 13 of the DTAA. 11.1. It was submitted that these charges were received by the assessee in relation to the Middle East and South Asia regional team based in United Arab Emirates that rendered finance, legal, and regional human resource support function. It was submitted that these reimbursement were received on cost to cost basis without any element of income embedded there in. It was also submitted that, other support charges incurred were on account of various operational account extended by the assessee to its affiliates relating to recruitment charges, new employee on boarding, legal and professional charges etc. which was reimbursed to assessee on cost to cost basis without there being any element income embedded in it. 11.2. The assessee submitted that, identical charges were paid to the assessee for assessment year 2016-17 and 2017-18 for which I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 25 no addition was made by the Ld. AO. The Ld.AO however made the disallowance in the hands of the assessee by treating MESA charges and other support service charges as FTS under section 9(1)(vii) of the Act read with Article 13 of DTAA. 11.3. The Ld. CIT(A) after analysing the various services rendered under these categories observed that, managerial services are not covered in definition of the FTS under Article 13(4) of India UK DTAA. In so far as the other services under MESA as well as OSC, is concerned it was observed that the services did not make available any knowledge or technical expertise etc. to the affiliate and therefore these receipt are not taxable as FTS under Section 9(1)(vii) read with article 13 of India UK DTAA. Aggrieved by the order of the Ld. CIT(A) the revenue is in appeal before this Tribunal. 12. The Ld. DR vehemently relied on the order passed by the Ld. AO. 12.1. On the contrary, the Ld.AR relied on the arguments advanced reproduced herein above and the decisions relied in support if the view taken by the Ld.CIT(A). We have perused the submissions advanced by both sides in light of records placed before us. 13. Admittedly, the MESA regional charges are cross charges to the group affiliate in the region. These charges are recovered on cost to cost basis by the assessee from its affiliate without any mark up or income element there in. It is also admitted fact that for assessment year 2016-17 and 2017-18 identical charges were not held to be taxable in the hands of the assessee as FTS under I.T.A. No.3047 & 3048/Mum/2022 A.Y. 2016-18 I.T.A. No.5725 - 5728/Mum/2024 A.Y. 2018-22 26 section 9(1)(vii) read with article 13 of India UK DTAA. It is also noted that neither the Ld.AO nor the Ld.DR brought on record any evidence in support to established that these services make available the knowledge/technical skill etc. to recipient. Further managerial services do not form part of the FTS and under article 13(4) of India UK DTAA based on the observations in the preceding paragraph we do not find any infirmity in the view taken by the Ld. CIT(A) and the same is upheld. Accordingly, Ground No. 3-4 raised by the revenue for assessment year 2018-19 to 2021-22 stands dismissed. In the result all appeals filed by the revenue stands dismissed. Order pronounced in the open court on 31/01/2025 Sd/- Sd/- (MS. PADMAVATHY S) (BEENA PILLAI) Accountant Member Judicial Member Mumbai: Dated: 31/01/2025 Poonam Mirashi/Dragon Stenographer Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By order "