In ITA no.401/Mum./2018- ITAT- ITAT (Mumbai) rules that payment received by Goldman Sachs & Co. for various services did not fall within the scope of FIS under India-US DTAA and were not taxable
Members S. Rifaur Rahman (Accountant) & Sandeep Singh Karhail (Judicial) [08-05-2023]

Read Order: Goldman Sachs & Co. LLC v. Dy. Commissioner of Income Tax

Chahat Varma

New Delhi, May 10, 2023: The Mumbai bench of the Income Tax Appellate Tribunal has held that the payment of Rs. 18,00,83,986, received by Goldman Sachs & Co. LLC (assessee) for various services did not fall within the scope of ‘Fees for included services’ (FIS) under Article 12(4) of the India-US Double Taxation Avoidance Agreement (DTAA) and thus, were not taxable, as the services in question, such as document handling, scheduling assistance, design review, project management, legal services, and telecommunications, can neither be said to be made available to the recipient nor can consist of development and transfer of any technical plan or a technical design.

The brief facts of the case pertaining to the issue was that the assessee, is a partnership firm incorporated in the United States of America and a tax resident there. The assessee’s associated enterprise in India, i.e., Goldman Sachs Services Private Limited (GSSPL), decided to expand its premises by setting up a new campus in Bangalore, and in this connection, GSSPL entered into an agreement with a developer for the development of a new campus.  With effect from 01.04.2012, the assessee entered into a Campus Project Services Agreement with GSSPL. Under this agreement, the assessee agreed to provide services to GSSPL, such as, architectural services, engineering services, and project administration. Further, the agreement stipulated that the assessee would employ or ensure the deployment of qualified personnel to ensure proper fulfillment of the Campus Project Services. According to the terms of the agreement, the parties agreed that GSSPL would pay service fees, which would include the cost of employees engaged in providing the Campus Project Services. During the year under consideration, the assessee received an amount of Rs.60,54,94,657, from GSSPL for services provided in relation to the development of the campus. Out of the aforesaid amount, Rs.42,54,10,671, was offered to tax by the assessee as FTS/FIS, and taxes were withheld by GSSPL. However, the balance amount of Rs.18,00,83,986, was not offered for taxation on the basis that the same is mere reimbursement of expenses, which were initially incurred by the assessee on behalf of GSSPL and were subsequently cross-charged to GSSPL.

The two-member bench of S. Rifaur Rahman (Accountant) and Sandeep Singh Karhail (Judicial) observed that in order to determine whether the income received by the assessee falls under Fees for Technical Services (FTS) or Fees for Included Services (FIS), it is crucial to examine the specific services provided and their compliance with the relevant provisions of the Act/DTAA. “We are of the considered view that merely because the assessee has accepted the amount of Rs.42,54,10,671 to be in nature of FTS/FIS, the other payment for Campus Project Services cannot be treated as FTS/FIS without the examination of each and every service, particularly when the details pertaining to same are available on record. Adoption of such a broad-brush approach without examination of each and every service rendered by the assessee can also lead to a situation where overall the services may appear to be not falling within the ambit of FTS/FIS but a standalone examination of each service may lead to a different conclusion,” the bench said.

The bench also observed that only when the recipient of the services, by virtue of the rendition of services by the assessee, is enabled to provide the same services without recourse to the service provider, the services can be said to have been ‘made available’ to the recipient of services. In the present case, apart from merely using the terminology ‘made available’, the Revenue had not brought any instance on record where GSSPL was shown to have used such information without depending upon the assessee.

The bench further observed that during the assessment proceedings, the assessee had received communication charges totalling Rs. 51.90 crores. Out of this amount, USD 32,85,994 (equivalent to Rs. 17,84,29,474) was identified as payment for accessing specialized online information portals such as Bloomberg, Reuters, Platts, Moody's Analytics, and others. These expenses were categorized as market data expenses. The AO, in the draft assessment order issued under section 143(3) read with Section 144C (1) of the Income Tax Act, treated these amounts as Royalty under Article 12(4) of the India-US DTAA.

The bench remarked that while dealing with the issue of taxability of subscription fees received from the customers for providing market research report on the pharmaceutical sector, the coordinate bench of the Tribunal in IMS AG v. Dy Commissioner of Income Tax LQ/ITAT/2020/5935], has ruled that subscription fees received was not taxable as Royalty. Thus, in view of the aforesaid findings, the bench directed the AO to delete the addition in respect of the recovery of market data charges.