Research services provided on year-to-year basis without transferring technical skill, will not make receipts from same as FIS

Since the Assessee did not satisfy the make available clause under Article 12(4)(b) of India-US DTAA, the Delhi ITAT holds that the receipts from provision of consultancy services are not in the nature of FIS.

Finding that the Assessee provided such services to its Indian affiliate continuously since the year 2010 on year-to-year basis, the Division Bench comprising Shri G.S. Pannu, President and Shri Saktijit Dey, Vice-President, observed that the Assessee did not make available technical knowledge, skill, etc. to its Indian affiliate to enable it to apply the said knowledge independently without the Assessee’s assistance

Further, the Bench held that the addition of Assessee’s receipts towards reimbursement of client related expenses as FIS is not sustainable.

Advocate Himanshu Sinha appeared for the Assessee while Revenue was represented by Advocate Vizay B. Vasanta.

Briefly, the Assessee, a US-based company, for AY 2018-19, received Rs.5.24 Cr towards provisions of consultancy services and Rs.10.98 Cr for reimbursement of client related expenses under a cost reimbursement agreement, from its Indian affiliate, Bain and Company India (Bain India). During assessment, the AO noted that the Assessee did not offer the said receipts to tax on the ground that the said receipts are not in the nature of FIS, thus not taxable in India. The AO however held that the said receipts were taxable in India as FIS under Article 12(4)(b) of India-USA DTAA since the Assessee made available technical knowhow, knowledge, skill etc. to the service recipient.

After considering the submission and analysing the consulting service agreement, the ITAT observed that the nature of services provided by the Assessee are related to market research, strategic research and planning, data collection, client engagement etc.

The Bench also noted that the Revenue failed to bring any material on record to demonstrate that the Assessee, while rendering the services, made available technical knowledge, expertise, skill, knowhow etc. to Bain India, to enable them to apply such technology, knowhow etc. independently without the aid and assistance of the Assessee.

The Bench went on to explain that, had the Assessee made available the technical knowledge, knowhow skill etc. to Bain India, there would not have been any occasion for the Assessee to provide such services on year-to-year basis as the making available or transfer of such technical knowledge, knowhow, skill etc. would have enabled Bain India to apply them on its own without requiring the Assessee to continue to provide them.

The Bench also highlighted that Example 7 in the MOU to India-US DTAA provides that a receipt cannot be treated as FIS merely because the service provider used substantial technical skill and expertise, while providing consultancy services where it is not made available to the service recipient.

Thus, the ITAT concluded that Assessee’s receipts towards provision of consultancy services are not in the nature of FIS under Article 12(4)(b) of India-USA DTAA.

Cause Title: Bain & Company, Inc. vs. ACIT [ITA No.567/Del/2022 / 2023-Enterslice-13-ITAT-Del]

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