The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has held that TDS is not deductible on managerial service as it is not ‘technical services’.
The bench of Kavitha Rajagopal (Judicial Member) and Renu Jauhri (Accountant Member) has observed that the assessee’s services were managerial in nature and not technical services. Hence, the assessee is not liable to deduct TDS on the same.
The respondent/assessee, Lloyd’s Register, U.K. is a parent company having various subsidiaries all over the world and has filed return of income as Indian office in the name and style Lloyd’s Register – India Office (LR-IO). The company has two subsidiaries in the UK having their branch office in India. The assessee’s case was selected for scrutiny where the Assessing Officer observed that the assessee company has discontinued its Indian operation as Branch office w.e.f. 01.04.2004. The A.O. observed that ‘LR’ has entered into a licence agreement and management service agreement with its subsidiaries including LRA and LRQA, who are the licensee for which the assessee has declared receipt of licence fee as taxable and management charges from LRA-IBO and LRQA-IBO as ‘exempt’.
The AO has observed that the assessee has claimed the charges as ‘exempted’ and in A.Ys. 2005-06 to 2011-12 it has been held as ‘technical service’ which is chargeable to tax under Article 13(4)(a) of the India-UK DTAA.
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The A.O held that the management services provided by LR are ancillary and subsidiary to the enjoyment of the intellectual property right as per the licence agreement and the management service agreement is nothing but same as that of licence agreement, which is for promoting safety on land, at sea and in air. The management service agreement is interconnected with the licence agreement where the same cannot be enjoyed independently without the existence of the licence agreement.
The A.O. that in case the make available clause (c) of Article 13 is not applicable where the management services are ancillary and subsidiary to the main object of enjoyment of IPR as per the licence agreement. The A.O. extensively relied on the assessment order for the earlier years holding that LRA- IBO and LRQA-IBO are having permanent establishment in India and the payment made on account of managerial charges are claimed as ‘expenditure’ pertaining to the PEs in India along with the other findings for those assessment years.
The A.O. conclusively held that the payment received by the assessee from LRA-IBO and LRQA-IBO is to be treated as ‘fee for technical services’ which are to be taxed at 15% of the gross amount as that of the licence fee offered by the assessee at 15% as per Article 13(2)(ii) of the India-UK DTAA.
The AO passed the assessment order determining the total income at Rs.18,31,93,071/- after making an addition on the ‘management charges’ as fee for ‘technical services’.
The assessee appealed before the CIT(A) who had allowed the appeal filed by the assessee, and held that the management fees are not in the nature of ‘technical service’ as per Article 13(4) of India-UK DTAA.
The department contended that the licence agreement and the management service agreement are similar where the objectives are to promote safety on land, sea and air. The quantum of payments received as licence fee and management charges are also the same which substantiates that both are for the enjoyment of IPR’s rights and are having nexus with each other. The management charges are nothing but technical service provided by the assessee which are deemed to accrue or arise in India, irrespective of the fact that whether there is a PE or not, the same is liable to be taxed in India.
The assessee contended that ‘managerial services’ are not ‘fees for technical services’.
The tribunal while dismissing the department’s appeal held that the assessee is not liable to deduct TDS for the services which are managerial in nature and not technical services for A.Ys. 2010- 11 to 2015-16.
Case Title: Dy. CIT(IT)-3(1)(2) Versus Lloyds Register of Shipping
Case No.: ITA No. 1777/Mum/2024
Date: 30.08.2024
Counsel For Appellant: Vaibhavi Gandhi
Counsel For Respondent: Anil Sant
