M/s ABB Switzerland Ltd vs. Deputy Commissioner of Income Tax, International Taxation, Bangalore, Circle 1(1) [TS-646-ITAT-2023(Bang)] dated 3rd August, 2023

Facts:

• The assessee, a Switzerland based company received royalty of Rs.184.07 Cr from ABB India Ltd. (sister concern company) which was offered to tax at 10% in the return of income and had created a provision for royalty of Rs 1.62 cr since the consideration was not received.
• Revenue on the basis of Form 3CEB observed that the assessee has received Rs.185.69 Cr from its sister concern, however, it merely offered Rs. 184.07 Cr as royalty in the return of income.
• The Revenue issued a show cause notice as to why the remaining amount of Rs.1.62 Cr should not be taxed.
• Aggrieved, the assessee filed an appeal with the ITAT.

Issue:

Whether the remaining amount of royalty of Rs 1.62 crore should be taxed on receipt basis or accrual basis?

Held:

• Before ITAT, assessee relied on coordinate bench ruling in ABB AG wherein the Bombay HC ruling in Siemens Aktiengesellschaft was relied upon and in context of India-Germany DTAA it was held that royalty and FTS could be taxed on receipt basis.
• While the Revenue contended that as per Article 12 of India-Switzerland DTAA, royalty and fees for technical services arising in India and paid to non-resident should be taxed on accrual basis.
• ITAT relied on coordinate bench ruling in ABB AG wherein it was held that FTS is taxable only in the year of receipt as per the provisions of India-Germany DTAA.
• ITAT observed that Article 12 of DTAA defines royalty and fees for technical services in the same manner and also the DTAA provisions of India-Germany and India-Switzerland are similar.
• Thus, ITAT ruled in the favour of the assessee.

M/s Campus Eai India Pvt. Ltd. vs. Deputy Commissioner of Income Tax, Circle-4(2),International Taxation, New Delhi [TS-631-ITAT-2023(DEL)] dated 20th October, 2023

Facts:

• The assessee was engaged in the business of computer software. The assessee filed its return of income on 07.10.2017 declaring income of Rs. 6,99,57,250/-. The case of the assessee was selected for scrutiny through CASS.
• Revenue observed that assessee made foreign remittances to multiple entities for development of an android app, marketing and sales support services and web hosting services and no tax was deducted on such payments. Revenue held the foreign remittances to be in the nature of payments for royalty and fees for technical services and accordingly made addition of Rs. 9.34 Cr under Section 40(a)(i) for non-deduction of tax on payments made by the assesse to: (i) Brain Point Consultants, UAE of Rs. 4.29 Cr, (ii) Dubai Leading Technologies UAE of Rs. 2.40 Cr and (iii) OIT Managed Services Mauritius of Rs. 2.65 Cr.
• Aggrieved, the assessee filed an appeal with the ITAT.

Issue:

• Whether the TDS is to be deducted on foreign remittance for development of an android app to UAE, marketing and sales support services to UAE and web hosting services to Mauritius?

Held:

• ITAT opined that payment for development of an android app can cannot be brought within the ambit of Fees for Technical Services (FTS) in absence of a specific clause relating to FTS in the India-UAE DTAA.
• Relying on Bangalore ITAT ruling in Kingfisher Airlines, the said income is not chargeable to tax in India in absence of a PE.
• As regards the payment for marketing and sales support services, ITAT relied on Delhi HC ruling in Eon Technology to hold that the income of a non-resident agent from provision of marketing and sales support services rendered for overseas client in UAE cannot be included under section 5(1) as the same does not deem to accrue or arise in India.
• ITAT held that the web hosting services availed by the assessee in Mauritius do not constitute royalty or FTS, by relying on coordinate bench ruling in MOL Corporation and Millenium Infocom Technologies.
• Thus, ITAT ruled in the favour of the assessee.

M/s. McKinsey & Company Singapore Pte Ltd, vs Joint Commissioner of Income Tax (OSD),IT-3(2)(1), International Taxation, Mumbai [TS-622-ITAT-2023(Mum)] dated 28th September, 2023

Facts:

• Assessee, part of McKinsey group of entities and a Singapore based Company, received Rs.9.21 Cr, for AY 2012-13, from its Indian AE (McKinsey India) for provision of borrowed services in the nature of strategic consultancy services.
• Assessee did not offer the same to tax in India, on the premise that the said services were performed outside India and since the assessee has no PE in India, the incidence of tax does not arise in India.
• Revenue dismissed assessee’s claim and treated the income from provision of borrowed services to its Indian AE to be taxable in India as FTS and accordingly made the addition.
• Aggrieved, the assessee filed an appeal with the ITAT.

Issue:

• Whether the provision of borrowed services in the nature of strategic consultancy services will be taxable in India as FTS?

Held:

• ITAT opined that “borrowed services from the assessee which is predominantly in the nature of provision of statistical or qualitative inputs cannot by any stretch of imagination be regarded as being in the nature of FTS under Article 12 of the Treaty”.
• ITAT observed that the end product delivered to the client by McKinsey India itself is not in the nature of FIS/ FTS.
• Relying on the coordinate bench ruling in assessee’s own case for AY 2011-12 to observe that the said income shall be classified as business income liable to tax under Article 7 of the India-Singapore DTAA. however in the absence of the permanent establishment (PE) in India, the borrowed service charge received would not be taxable in India.
• Thus, ITAT ruled in the favour of the assessee.