ITAT Holds Marketing Advisory Receipts Not Taxable as FTS

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) held that marketing advisory, business development and strategic growth services rendered by a German tax resident in his individual capacity were covered by Article 14 (Independent Personal Services) of the India-Germany Double Taxation Avoidance Agreement (DTAA) and not by the Fees for Technical Services (FTS) provisions under Article 12.

The assessee, a non-resident individual and tax resident of Germany, received payments from M/s PI Industries Ltd. and M/s Sajjan India Ltd. for identifying business opportunities, facilitating market expansion and providing strategic marketing support in Germany. The Assessing Officer treated the receipts as Fees for Technical Services under Section 9(1)(vii) of the Income-tax Act and Article 12 of the India-Germany DTAA, contending that the income had its source in India and was taxable in India.

The assessee argued that he had rendered the services entirely outside India, did not have a Permanent Establishment or fixed base in India, and his physical presence in India during the relevant period was only 35 days. He contended that the receipts arose from independent professional activities and were therefore governed by Article 14 of the treaty, under which India could tax the income only if the individual had a fixed base in India or stayed in India beyond the prescribed threshold.

Accepting the assessee’s contentions, the Tribunal observed that the term “professional services” in Article 14 is broad enough to include vocations requiring specialised knowledge, intellectual skill, personal expertise and independent judgment. The services rendered by the assessee primarily involved leveraging his business network, market intelligence and commercial experience to identify prospective customers and expansion opportunities for the Indian companies in Germany.

The Tribunal noted that the assessee was not providing any technical know-how, manufacturing expertise or specialised technical consultancy that could bring the receipts within the scope of FTS. Rather, the services were in the nature of independent advisory and business development activities performed personally by the assessee.

The Bench further held that where a specific treaty provision such as Article 14 applies to professional services rendered by an individual, it would prevail over the more general FTS provision contained in Article 12. Since the assessee neither maintained a fixed base in India nor exceeded the treaty-prescribed stay threshold, India did not have taxing rights over the income.

Thus, the Tribunal directed the Assessing Officer to delete the additions made for both assessment years and held that the receipts from marketing advisory and business development services were taxable only in Germany under Article 14 of the India-Germany DTAA.

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