ITAT: Management Support Fees Not Taxable as FTS Under India-Singapore DTAA

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has granted relief to Tech Data (Singapore) Pte Ltd, holding that the management and business support fees received by it from its Indian subsidiary are not taxable in India as Fees for Technical Services (FTS) under the India-Singapore tax treaty.

The tax department wanted to tax an amount of Rs.49,68,78,301 approximately received by the company from Tech Data Advanced Private Limited during the assessment for AY 2023-24. The payments were for services including strategic business advisory, information technology, finance, logistics, branding, tax, legal, human resources, compliance and administrative support.

The company argued that these services were mainly management and support functions and did not entail any transfer of technical knowledge, skills, know-how or expertise to the Indian subsidiary. Therefore, the payments could not be defined as FTS under Article 12 of the India–Singapore Double Taxation Avoidance Agreement (DTAA), which requires technical knowledge to be “made available” to the recipient.

The AO disagreed and held that the services were in the nature of managerial and consultancy services and hence taxable as FTS. In earlier years the ITAT had also passed orders in favour of the assessee on the same issue. The Dispute Resolution Panel (DRP) had also ruled in favour of the revenue.

While hearing the appeal, the Tribunal noted that the issue was identical to those considered in Assessment Years 2019-20, 2020-21, and 2021-22. In those years, the Tribunal had consistently held that the services provided by Tech Data Singapore did not satisfy the “make available” requirement under the treaty because no technical knowledge or technology was transferred to the Indian company for independent use.

The Tribunal, after perusing the service agreement and nature of services rendered held that the services were essentially operational, managerial and support services. They did not involve the transfer of technical plans, designs, know-how or any specialised knowledge that would allow the Indian subsidiary to perform the functions on its own without further assistance.

The Tribunal also noted that even if such services are covered by the broader definition of FTS under the Income Tax Act, the provisions of the India-Singapore DTAA are more beneficial to the assessee and hence override. As the conditions for taxing the payments as FTS were not met as per the treaty, the amount could not be taxed in India.

Accordingly, the Tribunal held that the amount of Rs.49,68,78,301 received by Tech Data Singapore from its Indian subsidiary is not taxable in India as Fees for Technical Services under Article 12(4) of the India-Singapore DTAA. The appeal was partly allowed in favour of assessee and addition made by tax authorities was deleted.