In ITA No. 820/Del/2022- ITAT - ITAT (Delhi) rules in favor of Infobip Limited, holds services provided to its associated enterprise-bSmart Tech Pvt. Ltd., not classified as FTS under India-UK DTAA
Members G.S. Pannu (President) & Astha Chandra (Judicial) [26-05-2023]

Read Order: Infobip Limited v. Assistant Commissioner of Income Tax

Chahat Varma

New Delhi, May 27, 2023: The Delhi bench of the Income Tax Appellate Tribunal has ruled in favor of Infobip Limited (assessee), stating that the services provided by the assessee to its associated enterprise (AE), bSmart Tech Pvt. Ltd. (BTPL), including financial support services, technical support services, sales support services, and legal support services, did not fulfill the requirements of the 'make available' clause mentioned in Article 13(4)(c) of the India-UK Double Taxation Avoidance Agreement (DTAA), and therefore, the fees for these services cannot be classified as fees for technical services (FTS) under the provisions of Article 13(4)(c) of the India-UK DTAA.

Factual matrix of the case was that the assessee, was a foreign company based in the UK. The company provided communication and messaging solutions globally through a cloud-based delivery model. They entered into contracts with global customers for the provision of SMS messaging solutions. During the relevant assessment year, the assessee had provided various centralized services to its AE, BTPL, under a Business Cooperation Agreement. However, the assessee did not offer the consideration received for these services to tax. During the assessment proceedings, the assessee was show caused as to why the total consideration received by it for management support services during the relevant AY should not be held as FTS under section 9(i)(vii) of the Income Tax Act and Article 13 of the India-UK DTAA. The reply filed by the assessee was not found tenable by the Assessing Officer (AO). The AO proposed an addition of Rs. 83,04,370/- to the total income of the assessee on account of FTS for the reason that the services provided by the assessee make available technical knowledge, skill, experience, know-how, etc. and fall within the purview of FTS under Article 13(4)(c) of the India-UK DTAA.

The two-member bench comprising of G.S. Pannu (President) and Astha Chandra (Judicial) observed that the services rendered by the assessee were ancillary to the functioning of the corporate management function of BTPL and, therefore, qualified as managerial services. The bench determined that these services fell outside the scope of the definition of FTS under Article 13(4) of the India-UK DTAA.

The bench held that mere rendering of services was not considered as ‘make available’ unless the person utilising the services was able to make use of technical knowledge etc., by himself in his business or for his own benefit and without recourse to the performer of services in future.

The bench also placed reliance on Mahindra and Mahindra Ltd. vs. Dy CIT [LQ/ITAT/2009/727], wherein it has been held that where the payer only obtained the benefit from the services, but did not get any technical knowledge experience or skill in its possession for future use, it cannot be said that technical know-how was made available.