Calcutta HC ruling which dismissed Revenue’s appeal and upheld ITAT order by holding that services provided by US-based company to its Indian counterpart was in the nature of advisory services, which cannot be treated as Fees for Included Services (‘FIS’) under Article 12(4)(b) of India-US DTAA.

Key excerpts from the case

• A US entity had entered into an agreement for providing services which included providing management services, management information services, information resources, system development etc. to its Indian counterpart. The Indian Company had sought an advance ruling in relation to withholding of taxes for the captioned transaction. Revenue held that services provided by the US entity were in the nature of FIS under Article 12(4)(b) of India-US DTAA.
• In this regard, both CIT(A) and ITAT held that the services did not make available any technology or technical know-how to the recipient and the said services were purely advisory which could not be taxed in terms of Article 12;
• In this context, HC noted that the US entity entered into an agreement with the Indian entity for providing captioned services and such services were provided through its own employees either at the recipients’ facility and place of business on a temporary or expatriate assignment, or by a shorter visit;
• It states that provision of service which may require technical input by the person providing the service does not per se mean that technical knowledge, skill etc. are made available to the person purchasing the service, within the purview of Article 12(4)(b). It also observed that this aspect was considered by CIT(A) and found that there is no transfer of a technical plan or technical design and what was transferred through the agreement was commercial information;
• HC also observes that the payment was for only costs without any mark-up and similarly, the actuals billed by the third parties were paid by the US entity in the USA and were later on reimbursed by the Indian entity. Thus holds that “there was no basis for the assessing officer to conclude that the payments of reimbursement were in the nature of fees for technical services. Also noted that it is not in dispute that the US entity does not have any permanent establishment in India thus, income arising to the US entity in India cannot be taxed under Article 7 as ‘business profits’ either;
• HC dismissed Revenue’s appeal and held that services provided by US entity were in the nature of advisory services and cannot be taxed as FIS under Article 12(4)(b) of India-US DTAA.