The amount received from the Indian associate for the “support service” is not an “included service fee” and is not subject to tax: ITAT


The Income Tax Appeal Tribunal of Delhi Court (ITAT) ruled that the amount received from Indian associate for ‘support service’ is not ‘fee for included services’ and is not subject to tax.

The caller M/s. Russell Reynolds, was incorporated under the laws of the United States of America and is engaged in providing human resources consulting services to its clients, recruiting and retaining senior executives and further assisting them in mitigating senior management risks. level appointment. It also provides management support services to its group companies.

The income tax return filed by the appellant only shows the royalty income received from Russell Reynolds Associates India Private Limited (RRAIPL) in terms of a “license agreement” for the use of intellectual property rights. AO u/s 143(3) added the amount of support services under the “services agreement” as a charge for included services (FIS) under s. 12(4) )(a) of the India-US DTAA. The CIT(A) confirms the addition and the aggrieved person has appealed to the ITAT.

The appellant argued that these services are rendered for the day-to-day management of RRAIPL’s work and are considered “management” services, which are not taxable under Section 12 of the India-US DTAA. The appellant further argued that receipts from support services are not “income” per se in the hands of the recipient in the absence of any element of profit and therefore not taxable in India. Further, the Support Services are not incidental and subsidiary to the Services provided pursuant to the License Agreement pursuant to Article 12(4)(a) of the Treaty as held by the First Appellate Authority.

The Court observed that there was no recital in the agreement which would indicate that the use of tangible assets by the Indian associate was in any way necessary for the enforcement or effective enjoyment of the right , property or information, for which the royalty was agreed to be paid. The services rendered were not habitually provided, nor is it established by the tax authorities on the basis of convincing evidence that such services are habitually provided in cases of license agreements for the use brands.

The Coram of Sri Anil Chaturvedi, Accounting Member, and Sri Anubhav Sharma, Judicial Member, while allowing the appeal, held that “thus, the scholarly FAA erred in correcting the assessee’s case in terms of the memorandum to the treaty and concluding that the predominant factor is the granting of the license to use the name which gives rise to royalties and all other payments and the agreement flow between the main licensor and the licensee agreement. Thus, the FAA’s conclusion that the five determining factors for counterparty classification under paragraph 4(a) are clearly met in the appellant’s case is not tenable. Thus, the conclusions of the FAA scientist deserve to be invalidated. The ground is supported”.

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Ms. Russell Reynolds Associates Inc. v. DCIT

Appellant’s Counsel: Shri SKAggarwal, CA

Counsel for the Respondent: Sh. Sanjay Kumar, Sr DR



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