Receipts From IT & Admin Services Provided By Non-Resident Taxpayer Is Not FTS If ‘Make Available’ Principle Was Not Satisfied: Delhi HC

The Delhi High Court upheld the Delhi ITAT ruling holding that income from information technology and other administrative services provided by the Assessee to its Indian affiliate cannot be construed as Fees for Technical Services (FTS), under Article 12(4)(b) of India-Singapore DTAA.

The High Court agreed with ITAT’s analysis and conclusion that the agreement between the Assessee and its Indian affiliate had been effective from Jan 1, 2010 and if 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, i.e. till relevant AY 2019-20.

The Division Bench comprising of Justice Rajiv Shakdher and Justice Girish Kathpalia observed that “The Tribunal, in concluding that services offered by the respondent/ 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 'make available' principle”.

Advocate Dr. Shashwat Bajpai appeared for the Assessee while the Revenue was represented by Advocate Puneet Rai.

As per the brief facts, the Revenue Department for AY 2019-20, held the services provided by the Assessee to the Indian subsidiary to be in the nature of management support services and chargeable to tax as FTS under the India-Singapore DTAA. On appeal, the DRP rejected Assessee’s objections, however ITAT ruled in favour of the Assessee.

The Revenue Department contended that the Assessee is providing professional advice to its Indian subsidiary through studies, evaluation, review of reports, liaising work, advice on key policy issues and business operations, HR management, and financial management among other things, thus the said services falls under the ambit of FTS.

After considering the submission, the Bench upheld the ITAT’s observation, “to invoke make available clauses, technical knowledge and skill must remain with the person receiving the services even after the particular contract comes to an end and the technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider”.

Thus, the High Court concurred with the ITAT that services provided by the Assessee to its Indian affiliate cannot be charged to tax as FTS as it did not fulfil the criteria of ‘make available’ principle since the recipient of the services is not enabled to provide the same service without recourse to the Assessee.

Cause Title: Commissioner Of Income Tax v. Bio-Rad Laboratories (Singapore) Pte Ltd. [Neutral Citation: 2023: DHC: 7734-DB]

Click here to read/ download the Order