Payment Received From Foreign Company On Account Of Business Support Services Not Taxable As FTS: ITAT

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that payments received from foreign companies on account of business support services are held to be taxable as fees for technical services (FTS).

The two-member bench of Anubhav Sharma (Judicial Member) and Shamim Yahya (Accountant Member) has observed that Article 12(5) of the 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 the India-Netherlands DTAA.

The appellant/assessee is a company incorporated in the Netherlands and is a tax resident of the Netherlands. The AO concluded that the payment of Rs. 11,85,39,571 received by the assessee from a foreign company on account of business support services was taxable as FTS at the rate of 10% plus surcharge and education cess and added to the total income of the assessee.

The assessee submitted that the AO, pursuant to the directions of DRP, erred in treating the receipts of fees for business support services as FTS as per Article 12 of the tax treaty between India and the Netherlands without appreciating that the services are managerial in nature and hence do not fall within the definition of FTS.

The tribunal held that the payment received cannot be treated as FTS under Article 12(5) of the India-Netherlands DTAA and that the addition made is to be deleted.

The ITAT noted that neither the Assessing Officer nor the DRP has established that, by rendering the services, the assessee has made available technical knowledge, know-how, skill, etc. to the recipient of the services, which would have enabled the recipient of the services to utilize it independently without the aid and assistance of the assessee.

Case Title: Inteva Products Netherlands BV Versus ACIT

Citation: ITA No.7963/Del./2019

Date: 02.03.2023

Counsel For Appellant: K.M. Gupta, Rishabh Malhotra

Counsel For Respondent: Mahesh Shah

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