The Income Tax Appellate Tribunal (ITAT), Mumbai Bench ruled that receipt from supply planning services cannot be taxed as fees for technical services/royalty.
The Tribunal stated that the amount of Rs. 536,843,276 cannot be held to be taxable within the purview of royalty or under FTS as per India United Kingdom Double Taxation Avoidance Agreement.
The tribunal dismissed all the grounds of the appeal raised by the assessing officer and upheld the order of the CIT – A.
Facts
The assessee is a company Incorporated in the United Kingdom and is a tax resident of that country. During the year under consideration the assessee was primarily involved with selling draft diamonds to worldwide customers. Assessee filed return of income on 29 September 2014 declaring total income at Rs. Nil.
The case of the assessee was picked up for scrutiny, notice under section 143 (2) was issued on 31/8/2015. The assessing officer found that the assessee has received a sum of Rs. 536,843,276 towards surrendering of services called supply planning services to Indian service recipients who have entered into a contract to receive the same. Assessee claimed that such receipts are not taxable in India.
The supply planning services consist of ntention to offer and maintaining integrity of supplier of choice.
According to the intention to offer, the assessee communicates in advance to every sight holder the aggregate value of each box it intends to make available to the sight holder during the selling., Categorized by box and by site. This communication is termed as intention to offer. T
he intention to offer consist of provision of consistency of boxes thus the assessee under stakes to use its reasonable efforts to ensure that there is a consistency as to the size, type, quality, and Lake color of diamond is contained in each box in any category that it supplies during any given intention to offer period.
The other services provision of extra net wherein the site holder extranets accelerate efficiency in the process and provides a platform for saving the information, third-party content plus tailored access each sight holder their own specific business information and process via secure, web-based, information sharing and business platform. The third service comprising therein is the provision of key account management wherein the main point of contact between sight holder and the assessee and assist in managing that relationship. The key account management manages and provides support in planning the intention to offer and delivery schedules. They are based in the United Kingdom.
On the basis of the services the assessing officer held that the services provided are value-added services provided in earlier years. The dispute resolution panel for assessment year 2007 – 08, 2008 – 09 and 2009 – 10 has upheld treatment of value-added services as fees for technical services and taxed them at the rate of 10%.
Thus, even the coordinate bench for assessment year 2007 – 08 and assessment year 2008 – 09 has upheld taxability of such value-added services receipt as fees for technical services and royalty.
The AO was also of the view that in the group concern of the assessee de Beers global sight holders sales Pty Ltd the activity and operations are identical, and the income has been offered for taxation under fees for technical services so it can be clearly inferred that the assessee’s claim of that such services are not fees for technical services is not tenable.
Therefore, the assessing officer held that the supply running services receipt of Rs. 536,843,276 falls under the head of fees for technical services and royalty and was taxed accordingly. According to that draft assessment order was passed on 9/12/2016.
Assessee aggrieved with that preferred an appeal before the learned CIT – A, who passed an order on 21/2/2024 wherein in paragraph number 5.2 he held that that the coordinate bench has decided in case of the assessee for assessment year 2009 – 10 to assessment year 2013 – 14 on similar lines.
The Tribunal has considered the SOC contract also. The coordinate bench in the combined order held that the receipts from supply planning services do not constitute fees for technical services or royalty and therefore are not taxable in India. Thus, the appeal of the assessee was allowed.
The assessing officer is aggrieved and has preferred the appeal.
Case Name : ACIT V/s Dee Beers U K Limited
Judicial Level & Location : ITAT Mumbai
Case Number : ITA No2466/Mum/2024
Date Of Ruling : 29-07-2024
Ruling In Favour Of: Assessee
Coram: Prashant Maharishi (AM) And Sunil Kumar Singh (JM)
Petitioner Advocate: Pranay Gandhi
Respondent Advocate: Anil Sant
