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

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: 30^th 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 termed as management services,
some of the services such as information technology, R&D, etc. rendered by
Taxpayer were in the nature of technical or consultancy services. Nevertheless,
the core activity of Taxpayer under the agreement was rendering managerial
services.

Further, as the AO did not demonstrate that the amount can be
attributed towards technical or consultancy services, the payment received by
Taxpayer does not qualify as FTS under the DTAA.