IT And Admin Services By Singapore Entity To Its Affiliate In India Can’t Be FTS: Delhi High Court

The Delhi High Court has held that information technology and other administrative services provided by the respondent or assessee to its affiliate in India could be construed as fees for technical services (FTS).

The bench of Justice Rajiv Shakdher and Justice Girish Kathpalia has observed that services offered by the respondent or assessee to its Indian affiliates did not come within the purview of FTS, as reflected in Article 12(4)(b) of the Indo-Singapore DTAA, and concluded that they did not fulfil the criteria of the “make available” principle.

The Assessing Officer (AO), via the draft assessment order, concluded that the services provided by the respondent or assessee to the Indian subsidiary were in the nature of “management support services” and hence taxable at the rate of 10% plus surcharge and education cess under the Indo-Singapore DTAA.

The objections lodged before the Dispute Resolution Panel (DRP) by the respondent or assessee did not result in success. The DRP proceeded to reject the objections filed by the respondent or assessee. Consequently, the final assessment order was passed by the AO under Section 143(3) read with Section 144C(13) of the Income-tax Act, 1961. It led to the institution of an appeal by the respondent or assessee before the Tribunal.

The Tribunal ruled in favour of the respondent or assessee. The Tribunal, in concluding that services offered by the respondent or assessee to its Indian affiliates did not come within the purview of FTS, as reflected in Article 12(4)(b) of the Indo-Singapore DTAA, concluded that they did not fulfil the criteria of the “make available” principle.

The department contended that the assessee is providing professional advice to its Indian subsidiary through studies, evaluation, review of reports, liaison work, advice on key policy issues and business operations, HR management, and financial management, among other things.

The court, while upholding the Tribunal’s order, held that the agreement between the respondent/assessee and its Indian affiliate had been effective from January 1, 2010, and if, as contended by the appellant/revenue, technical knowledge, experience, skill, and other processes had been made available to the Indian affiliate, the agreement would not have run its course for such a long period.

Counsel For Appellant: Mr Puneet Rai, Sr Standing Counsel with Mr Ashivini Kumar and Mr Rishabh Nangia

Counsel For Respondent: Dr Sashwat Bajpai

Case Title: The Commissioner Of Income Tax (International Taxation)-1, Delhi Versus M/S Bio-Rad Laboratories (Singapore) Pte. Ltd.

Citation: 2023 LiveLaw (Del) 1019

Case No.: ITA 564/2023

Click Here To Read The Order