August 2019

Article 12(5) of India-Netherlands DTAA – Rendering of a bouquet of services where the predominant nature is managerial in nature will qualify for exemption from FTS, even if some of the services have the trappings of technical and consultancy services

GEETA JANI | DHISHAT B. MEHTA
Chartered Accountants

15.  [2019] 106 taxmann.com 24 (Mum – Trib.)

DCIT vs. Hyva Holdings B.V.

ITA Appeal No.: 3816 (Mum.) of 2017

A.Y.: 2012-13

Date of order: 30th April, 2019

 

Article 12(5) of India-Netherlands DTAA – Rendering of a bouquet of services where the predominant nature is managerial in nature will qualify for exemption from FTS, even if some of the services have the trappings of technical and consultancy services

 

FACTS

Taxpayer, a company incorporated in the Netherlands, had entered into a service agreement with its Indian subsidiary (ICo) for rendition of a bouquet of services (provision of IT, R&D, strategic purchasing services, etc.) which involved providing certain expertise to support ICo to grow, expand and achieve business independence. Taxpayer contended that the services rendered to ICo are ‘managerial’ in nature and in the absence of coverage of ‘managerial services’ in the Fee for Included Services (FIS) Article of the India-Netherlands DTAA, it would not trigger source taxation under the DTAA.

 

On a perusal of the service agreement, the AO noted that the nature of services provided by the Taxpayer were not confined to managerial service alone but were all-inclusive, comprising managerial, technical and consultancy services. As the services rendered by Taxpayer made available technical knowledge, experience, knowhow and skill, it qualified as FTS under Article 12 of the DTAA.

 

Aggrieved, the Taxpayer filed an appeal before the CIT(A) who reversed the AO’s order and concluded that services rendered by Taxpayer were in the nature of managerial services and hence did not fall within the ambit of FTS under the DTAA. Further, even if such services qualify as technical services, in the absence of satisfaction of make-available condition, it did not qualify as FTS under the DTAA.

 

But the aggrieved AO appealed before the Tribunal.

 

HELD

A perusal of the service agreement indicated that while the services to be rendered under the agreement were t

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