The Income Tax Appellate Tribunal (ITAT), Delhi Bench held that the intermediary services provided by Bombardier Transportation, Sweden to Bombardier Transportation India does not amount to Fees for technical services (FTS) and so it is not taxable under India-Sweden Double Taxation Avoidance Agreement (DTAA).
The appellant, Bombardier Transportation, Sweden had rendered intermediaries services like marketing, sales, business development, project management, customer services etc. to Bombardier Transportation India Ltd (BTIN) and received fees for intermediary services amounting to Rs.1,16,81,407.
The appellant company is registered and incorporated under the laws of Sweden and is a non-resident and tax resident of Sweden. The appellant is engaged in the business of manufacturing train control and signalling systems for mass transit systems.
During the year, the appellant entered into international transactions with its Associated Enterprises (AE). The case was referred to the TPO drawn no adverse inference with respect to international transactions carried out by the appellant and, therefore, no adjustment was made to the taxable income.
The appellant has received fees for intermediary services amounting to Rs. 1,16,81,407. The Assessing Officer asked the assessee to show cause as to why revenues received from intermediary services may not be taxed in India as FTS.
While explaining as to why FTS is not applicable, the assessee stated that it has claimed benefit of provisions of Article 12 of India Sweden DTAA since they are more beneficial to it.
The assessee also placed reliance on Protocol 7 of the treaty according to which, if the scope of taxability of FTS is restricted on account of agreement between India and a third state, which is a member of OECD, then such limited scope would apply to Swedish treaty in the same manner.
On the other hand, the entire submissions of the assessee were rubbished by the AO who was of the firm belief that the nature of intermediary services provided by the appellant to BTIN are not disputed and thus are admittedly in the nature of FTS as per provisions of the Act. The Assessing Officer was of the opinion that it is not only technical knowledge or skill that must be made available, but even common place ‘experience’, ‘know-how’ or ‘processes’ if made available can result in taxability of FTS.
The two member bench of Suchitra Kamble and N.K. Billaiya clarified that 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.
The tribunal held that the intermediary services rendered by the appellant do not make available any technical knowledge, skill etc to BTIN and BTIN is not equipped to apply technology contained in services rendered by the appellant.
Therefore, the ITAT relied on the Judgement of Karnataka High Court in the case of De Beers India Minerals Private Limited and held that the intermediary services provided by the appellant to BTIN do not tantamount to FTS and accordingly, shall not be taxable in India.
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