ITAT: German Company’s Audit Service Income Not Taxable as FTS in India

ITAT: German Company’s Audit Service Income Not Taxable as FTS in India

The Income Tax Appellate Tribunal (ITAT), Mumbai, dismissed the appeal filed by the Income Tax Department against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2022-23.

The Income Tax Department went against the order of the Commissioner (Appeals), who had deleted an addition of Rs 79,014,632 made by the assessing officer.

The assessing officer is treating the receipts from audit and certification services as fees for technical services (FTS) under Section (u/s) 9(1)(vii) of the Income Tax Act, 1961, as well as Article 12(4) of the India-Germany ‘Double Taxation Avoidance Act’ (DTAA).

A German company named TUV SUD earned Rs. 7,42,42,889 from audit and certification services in India. It claimed the income was not taxable in India since the services were provided from outside India.

However, the assessing officer treated the receipts as fees for technical services (FTS) under the Income Tax Act and the India-Germany DTAA and brought them to tax.

After considering the submissions of the assessee, the First Appellate Authority found that in the assessee’s own case, the Honourable Bombay High Court had decided that the receipts are not in the nature of FTS. He further observed that the assessing officer himself, while completing assessments in the case of the assessee in assessment years 2016-17, 2017-18, 2020-21 and 2021-22, has taken a view that the receipts are not in the nature of FTS. He further noticed that in the in the assessee’s case in Assessment Year 2023-24, the Dispute Resolution Panel (DRP) has held the receipts not to be in the nature of FTS.

Considering these facts The First Appellate Authority, ultimately, held that the receipts cannot be treated as FTS either under the domestic law or under the treaty. Accordingly, he deleted the addition.

The ITAT observed that both the taxpayer and the tax department agreed that the issue had already been decided in the assessee’s favour for AY 2000-01. The Tribunal also noted that this earlier decision was subsequently upheld by the Bombay High Court.

After considering all the facts of the present case, the ITAT observed a similar case came up for consideration before the coordinate bench in the assessee’s case in assessment year 2000-2001. While deciding the issue in ITA No. 7588/Mum/2004, the coordinate bench, in an order dated 6-7-2012, has held that the receipts should not qualify as FTS either under Article 12(4) of the India-Germany DTAA or Section 9(1)(vii) of the Act, as the services carried out by the assessee do not come within the realm of ‘professional services’.

The Bombay High Court, in its judgement dated April 20, 2015 (ITA No. 1303/Mum/2013), had approved the view expressed by the Coordinate Bench.

ITAT said, “Keeping in view the aforesaid factual position, we do not find any infirmity in the decision of the learned First Appellate Authority in deleting the addition.”

As a result, the appeal is dismissed.