ITAT: Consulting & Support Fees Not Taxable as FIS, Subscription Charges Not Royalty

Bain & Company, Inc., a US tax resident company, filed its return for AY 2022-23 declaring income of Rs. 47.72 crore. The assessment was completed determining total income at Rs. 183.09 crore.

The additions arose as Rs. 86.80 crore received from Bain & Company India Pvt. Ltd. for management consulting services was treated as “Fees for Included Services” (FIS) under Article 12 of the India-US DTAA; Rs. 47.98 crore received for support services was also taxed as FIS; and Rs. 57.45 lakh received as subscription fees for access to the NPS Prism platform was taxed as royalty.

The Assessing Officer further relied on the assessee’s settlement of earlier disputes under the Direct Tax Vivad Se Vishwas Scheme to presume acceptance of taxability and denied TDS credit of Rs. 22.66 lakh for want of reflection in Form 26AS. The assessee appealed to the Tribunal.

Issue Raised: Whether receipts for management consulting and support services qualified as FIS under the India-US DTAA by satisfying the “make available” condition; whether subscription fees for database access constituted royalty; whether settlement under the Vivad Se Vishwas Scheme implied acceptance of taxability; and whether TDS credit could be denied merely due to non-reflection in Form 26AS.

Tribunal’s Ruling: The Tribunal noted that similar issues had been decided in the assessee’s favor in past years. It held that the management consulting services did not satisfy the “make available” test under Article 12(4)(b), as no technical knowledge or skill was transferred enabling the Indian subsidiary to perform services independently. The addition of Rs. 86.80 crore was deleted.

The Tribunal reiterated that even if consultancy in nature, the “make available” requirement remained unfulfilled, the addition of Rs. 47.98 crore was also deleted.

Regarding subscription receipts, the Tribunal followed the Delhi High Court rulings in Relx Inc. v. ACIT and Springer Nature Customer Services Centre GmbH v. DCIT, holding that mere access to a database amounts to use of a copyrighted article and not transfer of copyright. The receipts were therefore not royalty under the DTAA.

The Tribunal held that settlement under the Direct Tax Vivad Se Vishwas Scheme does not amount to conceding a legal position. The Assessing Officer’s presumption was rejected.

The Tribunal directed verification of the supporting evidence and corresponding inclusion of interest income to ensure correct computation of TDS credit. The appeal was partly allowed.

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