TSYS CARD TECH LIMITED,UNITED KINGDOM V. DCIT CIRCLE 3(1)(1) INTL. TAXATION, NEW DELHI

ITA 2126/DEL/2023

AI Insights

The case involves TSYS Card Tech Limited, a UK-based company, appealing against the final assessment order passed by the Deputy Commissioner of Income Tax, which treated certain receipts as taxable under the head of Fees for Technical Services (FTS) as per the India-UK DTAA. The Tribunal considered the precedents and the specific agreements between the parties, noting that similar receipts were not taxed in the previous assessment year. The Tribunal's decision was influenced by the absence of a permanent establishment in India and the nature of the services provided, which were found not to meet the 'make available' condition required for FTS under the DTAA.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 471511 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2020-2021
• Other Referred Cases: ITA No.2006/Del/2022, DIT vs. M/s Lufthansa Cargo India, Bombardier Transportation India Put. Ltd. vs. DCIT, Metro & Metro, Agra vs Assessee
• Laws Referred To: Income Tax Act, 1961, India-UK Double Taxation Avoidance Agreement
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIJAY B.VASANTA
• Assessee Lawyers: NISHANK VASHISTHA
• Keywords: Business income; TDS; Initiation of penalty proceedings; Double taxation relief; Permanent establishment
• Section: 143(3); 192; 13; 274; 144C; 244A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, ‘D’: NEW DELHI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER AND SHRI BRAJESH KUMAR SINGH, ACCOUNTANT MEMBER ITA No.2126/DEL/2023 [Assessment Year: 2020-21] TSYS Card Tech Limited, Fulford Morr House, Fulfort Road York, YO10 4EY, United Kingdom-999999 Vs Deputy Commissioner of Income Tax, Circle-3(1)(1), International Tax, E-2 Block, Civic Centre, Minto Road, New Delhi-110002 PAN-AADCT5168J Assessee Revenue Assessee by Shri Nishank Vashistha, Adv. Revenue by Shri Vijay B. Vasanta, CIT-DR Date of Hearing 09.12.2024 Date of Pronouncement 03.01.2025 ORDER PER BRAJESH KUMAR SINGH, AM, This appeal by the assessee is directed against the order of the Assessing Officer dated 31.05.2023 passed u/s 143(3)/144C(13) of the Income Tax Act, 1961 (hereinafter ‘the Act’) arising out of order of Dispute Resolution Panel dated 29.03.2023 pertaining to Assessment Year 2020-21. 2. The grounds of appeal are as under:- “On the facts and in the circumstances of the case and in law, the learned Deputy Commissioner of Income Tax, Circle 3(1)(1) (International tax), New Delhi (' Ld. AO') has erred in passing the final assessment order dated May 31, 2023 under section 143(3) read with section 144C of the Income-tax Act, 1961 (the Act') and 2 ITA No.2126/Del/2023 the Ld. Dispute Resolution Panel - II, New Delhi (Ld. DRP') has erred in issuing the directions as per section 144C of the Act, on the following grounds. 1. On the facts and circumstances of the case and in law, the final assessment order passed by the Ld. AO is bad-in-law and liable to be quashed. 2. On the facts and circumstances of the case and in law, the final assessment order has been passed beyond the time limit prescribed under section 144C(13) of the Act and hence, is barred by limitation. 3. On the facts and circumstances of the case and in law, the Ld. AO has grossly erred in passing the final assessment order without considering the material available on record and is bad in law and void-ab-initio since it has been passed without giving sufficient opportunity to the appellant. 4. On the facts and in the circumstances of the case and in law, Ld. AO has erred in alleging that receipts from provision of other related services amounting to Rs 13,97,78,164 is taxable as Fees for Technical Services ('FTS') as per the Act and also as per the provisions of India-UK Double Taxation Avoidance Agreement ('DTAA'). 4.1. In doing so, the Ld. AO has not considered the order of the Hon'ble Income Tax Appellate Tribunal ('ITAT') passed in the case of the Appellant for AY 2019-20, wherein full relief has been allowed by the Hon'ble ITAT on similar facts, as present in the subject AY and has thus, acted not in accordance with law. 5. On the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under section 274 read with section 270A of the Act. 6. On the facts and circumstances of the case and in law, the Ld. AO has erred in short granting of credit of tax deducted at source amounting to Rs 16,75,457 in the computation sheet annexed to the order. 7. On the facts and circumstances of the case and in law, the Learned AO has erred in computing/ granting the interest under section 244A of the Act in the computation sheet annexed to the order. 8. On the facts and circumstances of the case and in law, the Ld. AO has erred in recovering the refund already granted to the Appellant for the subject AY amounting to Rs.6,94,903 in the computation sheet annexed to the order, ignoring the fact that the said refund was never issued to the Appellant. 3 ITA No.2126/Del/2023 9. The above grounds and/or sub-grounds are without prejudice to each other.” 3. At the time of hearing of this appeal, the ld. Counsel for the assessee submitted that the assessee company doesn’t want to press ground no.1 to 3; hence, the same are dismissed as not pressed. 4. Brief facts of the case: M/s TSYS Card Tech Ltd. (hereinafter: \"the assessee/ the assessee company\") is a foreign company, incorporated in UK and is a tax resident therein. The assessee is engaged in the business of providing information technology related services to financial payments industry and filed its return of income for Assessment Year 2020-21 on 15.02.2021 declaring income of Rs.15,81,79,710/- claiming the same to be exempt as per the India- UK DTAA. During the impugned assessment year, the assessee had earned revenue from Indian Customer primarily as per the following details:- S. No. Particular Amount (in Rs.) Whether offered to tax in India 1 Sale of Software (Prime) License Fee 1,84,01,550 No 2 Fee for provision for other related services 13,97,78,164 No 3 Receipt in the nature of reimbursement 1,08,12,740 No Total 16,89,92,454 4.1. The Assessing Officer accepted the claim of the assessee regarding its claim for non-taxability in respect of items at Sr.1 and 2 as above. However, the Assessing Officer did not accept the claim of 4 ITA No.2126/Del/2023 the assessee to treat ‘Fees for provisions for other related services’ amounting to Rs.13,97,78,164/- and held that these receipts constitute Fees for technical services (FTS) within the meaning and scope of Article 13(4)(c) of India-UK DTAA. 5. At the outset, the ld. AR submitted that this issue is squarely covered in favour of the assessee by the decision of the Co-ordinate Bench of the Tribunal in assessee’s own case in ITA No.2006/Del/2022, vide order dated 24.01.2023 for AY 2019-20. The Ld. AR further submitted this fact is also accepted by the DRP in its order dated 06.03.2023, wherein, the DRP in para no.6.3 has dealt this issue stating that the DRP vide order dated 09.05.2022 for the AY 2019-20 held the amount relating to ‘Fees for provisions for other related services’ as taxable. Further, in para 6.4 of its order, the Ld. DRP held that since the legal and factual matrix in this case on this issue remains the same, the assessee’s objections in this regard is rejected and DRP confirms to the stand taken by it to treat the receipt of amount of Rs.13,97,78,164/- for the subject assessment year as FTS under India-UK DTAA, taxable at the applicable rate. The relevant discussion by the DRP in para nos. 6.3 to 6.4 is reproduced as below. “6.3. On the issue of taxability of fees for provisions for other related services, the DRP vide its order dated 09.05.2022 for the assessment year 2019-20, held it to be taxable as FTS under India- UK DTAA under article 13(4)(c). The operative part of the order is placed below: 5 ITA No.2126/Del/2023 \"3.6 On the second set of receipts of INR 12,01,30,877 on account of provision of other related services, it is well settled that such services from a distinct set of receipts which need to be examined independently in terms of their taxability or otherwise under specific Article 13 (Royalty/FTS) and cannot be clubbed as business income under Article 7 of the DTAA. Under Article 13(6) of the India-UK DAA, such receipts will fall within the ambit of Article 7 only in a case where the receipts are effectively connected with a permanent establishment. As stated earlier, there is no dispute regarding the fact that the assessee does not have a PE in India. Accordingly, the specific provision provided in the DAA namely Article 13 shall apply in respect of such receipts. Given the above, the issue to be considered is whether the receipts on account of the said services are Fees for Technical Services under the India-UK DTAA. Article 13(4)(c) of the DTAA defines FTS as follows- 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 technical or consultancy services (including the provision of services of a technical or other personnel) which: (a)... (b)... (c) make available technical, experience, skill know-how or process, or consist of the development and transfer of a technical plan or technical design. 3.6.1 On perusal of the Software Licensing Agreement with UTI Bank, it is noted that, inter alia, the Licensor shall: 1. License to the Licensee on a non-exclusives basis run- time version of PRIME under the terms and conditions of this Agreement. 2. Provide service desk support for PRIME in accordance with Appendix IV. 3. Make available to the Licensee new releases of PRIME caused by changes to the relevant mandatory international and regional operating regulations of the payment associations... The sections of the PRIME manuals affected by these changes will also be updated by the Licensor and supply to the Licensee. 4. In consideration of the Licensing Fees paid under this Agreement, the Licensor will provide two sets of hard copies (as available) of the PRIME System Manuals to the 6 ITA No.2126/Del/2023 Licensee. All of the documentation, including Project Design and Planning Reports, PRIME Manuals and specification documents for agreed enhancements, provided by the Licensor in respect of PRIME will be in the English language only. 5. Provide the project services in respect of PRIME as specified in Appendix XIV. Install PRIME and provide a training programme on the use of PRIME to the Licensee's nominated personnel in accordance with clause (A) 4.2 of Appendix XIV. 9. The Licensor shall use its best endeavours to provide Service Desk support to the Licensee under this Agreement using locally-based consultants, based on the technical expertise required for the service. Until the establishment of the Licensor's locally-based Service Desk, the Licensor shall provide such support to the Licensee from the Licensor's existing Service Desk in Dubai. \" 3.6.2 In this regard, clause III (A)(12) of the Agreement provides that the Licensee shall \"nominate the operational personnel for whom training on the use of PRIME is to be provided, and ensure that the nominated personnel have full access to the PRIME Manuals and are familiar with the contents of the PRIME Manuals.\" 3.6.3 The assessee has stated that it has provided implementation services, enhancement services, annual maintenance services and consultancy services under the Agreement during this year. From the above clauses of the Agreement, it is seen that the assessee provides maintenance/technical/consultancy support services for PRIME package to end- users. Such support services in relation to the assesssee's products clearly require technical expertise which is rendered by the assessee. These services involving human intervention and skill entail application of the technology contained therein to enable the end-user to independently use the products. Considering the significant technical expertise involved in such services in respect of specialized products, these services duly make available the technical knowledge, experience and know-how available to the user. This is affirmed by the above-mentioned clauses of the Agreement whereby the assessee not only provides the project services but also required to provide all of the documentation, including Project Design and Planning Reports, PRIME Manuals and specification documents for agreed enhancements to the Licensee in lieu of Licensing Fees paid under the Agreement Apart from provision of specialised consultancy services for which the Licensor has the necessary expertise and know-how as per Appendix XIII of the Agreement, the Licensor shall also provide training on the use of 7 ITA No.2126/Del/2023 PRIME to nominated personnel who in turn have full access to PRIME Manuals containing current version including any updates of all the relevant documents. Appendix III of the Agreement details all such documentation which includes system manuals, specifications of enhancements and project design and planning reports. The specialised training provided by the assessee accordingly allows the user to acquire/develop the capability to independently use the products. Further, through the service desk provided by the assessee, the user obtains access to the assessee's live and online technical support resources. 3.6.4 In addition, under the Software License Agreement with ICICI Bank, custom services shall provide a by the Licensor which include ICICI Bank-specific customisations, modifications and/or enhancement of products and/or such other mutually agreed services (Clause 2.2 (Grant of License)l. In addition to repair and maintenance services, the Licensor shall also provide adequate, general technical advice and consultation to ICICI Bank from the Licensor's site during the Licensor's business hours, with scope for additional, project specific remote or on-site consultancy services from the Licensor as mutually agreed (Clause 7.5) The support services are therefore neither standard nor routine, but are specific and exclusive to the assessee's products and customised to the specific needs of the user so as to enable their usage. Under similar circumstances and in the context of specialised maintenance and repairs vis-à-vis routine service contracts such as cleaning, it has been held by Hon'ble Delhi High Court has in DIT us. M/s Lufthansa Cargo India (ITA 95/2005) held as follows- \"Unlike normal machinery repair, aircraft maintenance and repairs inherently are such as at no given point of time can be compared with contracts such as cleaning etc. Component overhaul and maintenance by its very nature cannot be undertaken by all and sundry entities. The level of technical expertise and ability required in such cases is not only exacting but specific, in that, aircraft supplied by manufacturer has to be serviced and its components maintained, serviced or overhauled by designated centers. It is this specification which makes the aircraft safe and airworthy because international and national domestic regulatory authorities mandate that certification of such component safety is a condition precedent for their airworthiness. The exclusive nature of these services cannot but lead to the inference that they are technical services within the meaning of Section 9(1)(vii) of the Act.\" 3.6.5 On the same principle, the maintenance and support services provided by the assessee are specialized in nature requiring specialised personnel having the requisite technical 8 ITA No.2126/Del/2023 knowledge, skill and experience. Through these services, such technical knowledge, skill and experience is made available to the user. Even in respect of services provided to Indian customers through system/servers located outside India, Hon'ble ITAT, Kolkata has held in ITA No. 2601/Kol/2018 that income from such services is taxable as Fees for Technical Services in India even if the technical services were performed outside the country since the payment for the same is not for the process but for the results of testing which is used in India. Further, in Metro & Metro, Agra us Assessee (I.T.A. No. 393/Agra/2012), Hon'ble Agra Bench of ITAT observed as under- \"20. The principle of law, as clearly discernable from the observations made by Hon’ble Delhi High Court in Bharati Cellular's case (supra), is that \"the word technical as appearing in Explanation 2 to Section 9 (1) (vii) would also have to be construed as involving a human element.\" In other words, when services have no human element involved, such services cannot be treated as 'technical services' for the purposes of Section 9(1)(vii). 21. In Siemens case (supra), however, the coordinate bench went much beyond what was held by the Hon'ble Courts above. The coordinate bench has concluded that, \"Thus if a standard facility is provided through a usage of machine or technology, it cannot be termed as rendering of technical services. Once in this case it has not been disputed that there is not much of the human involvement for carrying out the tests of circuit breakers in the Laboratory and it is mostly done by machines and is a standard facility, it cannot be held that......(the assessee) is rendering any kind of technical services to assessee\". These observations are not only based on erroneous analysis of the legal position but directly contrary to the law laid down by Hon'ble Supreme Court wherein it is held that even in a case of completely automated process like interconnect and port access facility, which is facility to use the gateway and the network of other cellular operator, the Assessing Officer is still required to examine \"whether at any stage, any human intervention is involved\". It is not a question of more of, or less of, human involvement. It is, in our humble understanding, the question of presence of or absence of human involvement...\" (Emphasis supplied) 3.6.6. As seen above, even in a case of admittedly completely automated process like interconnect and port access facility, there is possibility of human involvement. In the present case, the complex solutions I systems developed by the assessee involves substantial human involvement. As held by Hon'ble 9 ITA No.2126/Del/2023 Ahmedabad ITAT in Bombardier Transportation India Put. Ltd. vs. DCIT (ITA Nos. 192 to 196 & 235 to 239/Ahd/2015) in the context of claim of AMC services, it is not the medium of contract or payment, but the nature of services rendered by the payee which is the crucial factor to determine whether or not they amount to technical or professional services of the nature of FTS. As seen from the preceding paragraphs, the Agreements clearly provide that the Licensor shall provide various implementation, enhancement, maintenance and consultancy services to the users for its products and shall train the nominated personnel of the licensee on all PRIME related systems and solutions under Agreement. From the foregoing discussion, it is seen that 'make available clause under Article 13 of the DTAA stands satisfied. The decisions relied upon by the assessee are distinguishable on above contract-specific facts. The said receipts are held to constitute fees for technical services within the meaning and scope of Article 13(4)(c) of India-UK DTAA. The objections in this regard are dismissed.\" 6.4. Since the legal and factual matrix in this case remains same on the above issue, the assessees objections in this regard is rejected and the DRP confirms to the stand taken by it to treat the receipt of amount Rs.13,97,78,164/- for the subject assessment year as FTS under India-UK DTAA, taxable at the applicable rate.” 6. The Ld. DR supported the orders of the authorities below. 7. We have considered the rival submissions and perused the material available on record. The Co-ordinate Bench in assessee’s own case in ITA No.2006/Del/2022 for AY 2019-20 has held that similar receipts amounting to Rs.12,01,30,877/- on account of ‘Fees for provisions for other related services’ was not taxable. The relevant ground and the discussion in the order of the Tribunal is reproduced as under:- “ xxxxxxxxxxxxxx 5 . On the facts and in the circumstances o f the case and in law, Ld. AO/ DRP has erred in alleging that receipts from provision o f other related services amounting to Rs.12,01,30,877 is taxable as FTS as per the Act read with India- UK DTAA. xxxxxxxxx 10 ITA No.2126/Del/2023 4. Brief facts of the case is that the assessee M/s TSYS Card Tech Ltd. Ltd is a company. Assessee is engaged in the business of providing information technology related services to financial payments industry. During the subject AY, the assessee had earned revenue from Indian Customer primarily for rendition of software license (referred to as ‘PRIME) and provision of software related services including implementation services, enhancement services, annual maintenance services and consultancy services as per the request of the Customers. 5. During the year the assessee received an amount of Rs.5,21,17,082/- on account of software (Prime) License fee and fee for provision for other related parties of Rs.12,01,30,877/- and receipt in nature of reimbursement o f Rs.7,24,821/- totaling to Rs.17,29,72,780/-. xxxxxxxxxxxxxxxx 9. However, the ld DRP held that the second set o f receipts of Rs.12,01,30 ,877 on account of provision of other related services, it is well settled that such services from a distinct set of receipts which need to be examined independently in terms of their taxability or otherwise under specific Article 13 (Royalty/FTS) and cannot be clubbed as business income under Article 7 of the DTAA. The ld DRP held that taxable under Article 13 India-UK DTAA under the head ‘FTS’. The ld DRP held that the make available clause under Article 13 are also stand satisfied. The main argument taken before us is that the other related services provided are in connection with utilization of the software (PRIME) which are intricately and extricably associated. The services are in respect of training programme and updations in connection with utilization of the software PRIME. Hence, we hold that when software itself is not taxable, the training and the related activities concerned with utilization and installation cannot be held to be FTS. Further, simply latching on to use of words “Make Available” in the agreement, it cannot be said that conditions of Article 13(4)(c) are satisfied. Burden is on the Revenue to demonstrate that make available condition is satisfied. Appeal of the assessee on Ground Nos. 4 and 5 are allowed.” 8. On perusal of the draft assessment order and the final assessment order, we note that during the present assessment year i.e. AY 2020-21, the Assessing Officer has accepted the claim of the assessee that the ‘sale of software (prime) license fee amount to Rs.1,84,01,550/- was not taxable. The Co-ordinate Bench of the Tribunal in AY 2019-20 in the case of the assessee (supra) held that when software itself was not taxable, the training 11 ITA No.2126/Del/2023 and the related activities concerned with utilization and installation cannot be held to be FTS. The Ld. CIT-DR could not bring any distinguishing facts to controvert the findings of the above order of the Tribunal. Further, the Department has not brought any evidence on record to substantiate that ‘make available’ condition is satisfied in the case of the assessee for this assessment year. Therefore, following the decision of the Co-ordinate Bench of the Tribunal in assessee’s own case, we are of the considered view that when software itself is not taxable, the ‘Fees for provisions for other related services’ amounting of Rs.13,97,78,164/ will also not be taxable. Hence, the addition of Rs.13,97,78,164/- made by the Assessing Officer treating the ‘Fees for provisions for other related services’ as taxable is not acceptable and the same is deleted. Ground no.4 raised by the assessee is allowed. 9. Ground No.5 is against the initiation of penalty proceedings u/s 274 read with section 270A of the Act. This ground is premature in nature and the same is dismissed. 10. In ground no.6, the assessee submits that the AO has erred in short granting of credit of tax deducted at source amounting to Rs.16,75,457/- in the computation sheet. The AO is directed to verify the claim of the assessee and to allow TDS credit as per law. 11. With respect to ground no.7, the AO is directed to verify the claim of the assessee and to allow interest u/s 244A of the Act as per law. 12. In ground no.8, the assessee submits that the AO has erred in recovering the refund already granted to the assessee for the impugned 12 ITA No.2126/Del/2023 assessment year amounting to Rs.6,94,903/- in the computation sheet. The AO is directed to verify the claim of the assessee and to modify the tax computation as per law. 13. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 3rd January, 2025 Sd/- Sd/- [VIKAS AWASTHY] [BRAJESH KUMAR SINGH] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated 03.01.2025. f{x~{tÜ f{x~{tÜ f{x~{tÜ f{x~{tÜ Copy forwarded to: 1. Assessee 2. Respondent 3. PCIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi "