Income Tax Act, 1961 – Sections 9(1)(vii), 143(3) and 144C(13) - The assessee, a company incorporated in the USA, provides consultancy and professional services globally, including in India. During the assessment year 2021-22, the assessee received Rs. 8,81,34,162 as service fees for consultancy and training services provided to its customers in India. The assessee claimed the income was not taxable in India under the India-USA DTAA, arguing that the services rendered did not "make available" technical knowledge or skills as per Article 12(4)(b) of the DTAA. The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) disagreed and classified the income as FIS, making it taxable in India. The case was appealed before the Income Tax Appellate Tribunal (ITAT), Delhi - Whether the service fees received by the assessee qualify as "Fees for Included Services" (FIS) under Article 12(4)(b) of the India-USA DTAA - Whether the services rendered by the assessee "made available" technical knowledge, skills, or processes to the Indian clients - Whether the income should be taxable in India in the absence of a Permanent Establishment (PE) – HELD - The ITAT, relying on its own decision in the assessee’s case for AY 2020-21, held that for a payment to be classified as FIS under the India-USA DTAA, the services must not only be technical or consultancy in nature but must also "make available" technical knowledge, experience, skill, know-how, or processes to the recipient - The Tribunal emphasized that "make available" means the recipient must acquire the ability to apply the technical knowledge independently in the future without further assistance from the service provider - It was observed that the services provided by the assessee—such as organizational strategy consulting, talent acquisition consulting, leadership and professional development, and rewards and benefits consulting—did not transfer any technical expertise enabling the clients to perform these functions independently - The ITAT also noted that the services were recurring in nature, implying that the Indian clients had to repeatedly engage the assessee, further proving that no technical knowledge was made available - As the services did not meet the "make available" criterion, the Tribunal concluded that the income did not qualify as FIS under Article 12(4)(b) of the DTAA - Accordingly, the ITAT directed the deletion of the addition of Rs. 8,81,34,162, holding it as non-taxable in India - The appeal was partly allowed, with the ITAT holding that the service fees were not taxable in India under Article 12(4)(b) of the India-USA DTAA

 

2025-VIL-211-ITAT-DEL

 

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH, ‘D’ NEW DELHI

 

ITA No. 3012/DEL/2023

Assessment Year: 2021-22

 

Date of Hearing: 24.01.2025

Date of Pronouncement: 31.01.2025

 

KORN FERRY (US), CALIFORNIA, UNITED STATES

 

Vs

 

ACIT

 

Assessee by: Ms. Manasvini Bajpai, Adv., Shri Pulkit Pandey, Adv.

Revenue by: Ms. Prajna Paramita, CIT-DR, Shri Pramod Kumar, Sr. DR

 

BEFORE

SHRI ANUBHAV SHARMA, JUDICIAL MEMBER

SHRI BRAJESH KUMAR SINGH, ACCOUNTANT MEMBER

 

ORDER

 

PER BRAJESH KUMAR SINGH, AM,

 

This appeal by the assessee is directed against the order dated 29.09.2023 passed by the Assistant Commissioner of Income Tax, Circle Int. Taxation-2(1)(2)n (in short ‘the AO’) for Assessment Year 2021-22 passed u/s 143(3) r.w.s.144C(13) of the Income Tax Act, 1961 (hereinafter ‘the Act’) arising out of order of Dispute Resolution Panel, New Delhi, directions dated 24.08.2023.

 

2. The assessee has raised following grounds of appeal:-

 

Re: General Grounds

 

1. On the facts and in the circumstances of the case and in law, the Assessment Order passed by the Assessing Officer ("AO") is bad-in-law and liable to be set aside.

 

2. On the facts and in the circumstances of the case, the Assessment Order passed by the AO, is bad in law and perverse as it has been passed without considering the material evidence(s) on record

 

Re: Jurisdictional Ground

 

3. That the directions dated 24.08.2023 passed by the DRP are void ab initio and non-est as the same have been issued without a valid document Identification Number (DIN) and falls foul of the pre-requisites enunciated by CBDT Circular No. 19/2019 dated 14.08.2019 mandating generation/allotment/quoting of system generated Document Identification form Number on all communications/correspondence/order by the Income Tax Department.

 

Re: Payment received as "Service Fees" being taxed as FIS

 

4. That the AO/DRP has erred in bringing to tax the receipts of INR 8,81,34,162, received as Service Fees in lieu of consultancy services and training provided to its customers, as being in the nature of Fees for Included Services ('FIS') under Article 12 of the India-USA Double Taxation Avoidance Agreement ('DTAA") read with section 9(1)(vii) of the Act.

 

5. That the AO/DRP failed to appreciate that in absence of any "make-available", payments received by the Appellant as Service fees could not be taxed as FIS under Article 12 of the India-USA DTAA read with section 9(1)(vii) of the Act.

 

6. That the AO/DRP failed to appreciate that the training(s) were provided to employees of the customers for their internal consumption and hence, would not satisfy the requirement of "make-available" under Article 12(4)(b) of the India-US DTAA.

 

7. That assuming, without admitting, that these trainings were technical in nature, even then they cannot be taxed as FIS under Article 12(4)(b) of India-US DTAA, as "technical trainings" have been specially excluded from the ambit of FIS under the Protocol to India-US DTAA.

 

8. That the AO/DRP failed to appreciate that mere technical input by the person providing the service does not per se mean that technical knowledge, skills, etc., have been made available to the person receiving the service.

 

9. That apart from making general observations, the AO/DRP have failed to discharge the onus cast upon them to establish as to how the recipient of such services could apply the same.

 

10. That the AO/DRP also failed to appreciate that these services were recurring in nature which clearly establishes that there was no element of "make-available" and it was repeat business for the Appellant.

 

11. That the AO/DRP have failed to appreciate the true nature of the services rendered by the Appellant in India and have erroneously characterized HR Consultancy services as marketing and business development services.

 

12. That the AO erred in levying interest under section 234A and 234B of the Act in the computation sheet annexed with the Assessment Order.

 

13. That the AO erred in short-granting of credit of Tax Deducted at Source to the extent of INR 82,722 in the computation sheet annexed with the Assessment Order.

 

14. That the AO erred in making an incorrect adjustment on account of 'recovery of refund already issued to the Appellant amounting to INR 1,00,79,539 in the computation sheet annexed with the Assessment Order.

 

15. On the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under section 274 read with section 270A of the Act.”

 

3. Ground No. 1 and 2 are general in nature and therefore, same are dismissed.

 

4. Ground No.3 is not pressed by the assessee; hence, the same is dismissed as not pressed.

 

5. Brief facts of the case:-The assessee company is incorporated under the laws of USA and is engaged in the business of providing consultancy and professional services. During the year, the assessee received an amount of Rs.4,21,80,420/- on account of ‘Digital Product License Fees’ which has been offered to tax as royalty. However, the amount received as ‘Services Fees’ of Rs.8,81,334,162/-. has been claimed as non-taxable. The Assessing Officer taxed the amount of Rs.8,81,34,162/- holding it that it as ‘Fees for Included Services’ (FIS) which came under the purview of the FIS under section 12 of India-USA DTAA. Similar view was taken by the Assessing Officer in AY 2020-21 in the case of the assessee for identical services.

 

6. The Assessing Officer during the assessment proceedings, asked the assessee if there was any change in the business as compared to last year. The assessee replied that there was no change in the business module during the present year also. The relevant extract in assessment order in para no.6 is reproduced as under:-

 

“6. Vide show cause notice dated 02.12.2022, the assessee was asked to submit response to following query:

 

1. Please explain as to whether there was any difference/change in the factual matrix in business module during the subject assessment year as compared to that in the earlier years. If yes, please furnish detail alongwith supporting documentary evidence in this regard.

 

2. If there is no change as compared to previous year, please explain why the assessment proceedings of this year should not be completed on the basis of findings of or before due date mentioned in this notice, please note that in case of non-compliance previous assessment year. You are required to send the details/documents/explanation on or before due date mentioned in this notice, please note that in case of noncompliance the case shall be decided on merits as per details/documents available on record.

 

7. In response the assessee submitted its submission on 07.12.2022, the relevant excepts of which are mentioned hereunder:

 

At the outset, it is submitted that there has been no change in the factual matrix in the business module of the assessee basis the preceding AY(s). Further, as already stated in our earlier submissions, the assessee is a global provider of talent management solutions that help clients to attract, deploy, develop, retain and reward their talent. The assessee provides organizational consulting services and solutions across four lines of business i.e. Consulting, Digital, Executive Search and RPO & Professional Search.

 

During the subject AY, the assessee has rendered following key solutions to its clients in India and have received service fee amounting to INR 88,134,162:

 

* Organisational Strategy: Consulting services for outlining effective talent mapping strategy and assistance in outlining organisational structure to help convert clients' plan into action.

 

* Assessment and Succession: Consulting services for carrying talent assessment, by comparing the clients' needs with the talent they have and talent they need, and outline strategy to help close the gap between the two.

 

* Talent Acquisition: Consulting services for attracting and retention of right people across all functions / levels.

 

* Leadership and Professional Development: Consulting services in relation to leadership and professional development.

 

* Rewards and Benefits: Consulting services to help organisations evaluate their reward (such as compensation, ESOPs, etc.) and payment structure from talent retention standpoint.

 

The copy of invoices in relation to rendition of such services, on sample basis, are enclosed as Annexure 2. The aforesaid consulting services are generally rendered by assessee through emails, webinars, etc. and given the fact that such services do not make available/ impart technical knowledge to its clients to enable them to apply the technology contained therein, the "make available condition, as outlined under Article 12 of the India-USA Double Taxation Avoidance Agreement ('DTAA') for services to qualify as Fees for Included Services (FIS') is not satisfied. Further, given the fact that the assessee is a foreign company and it does not have any office/ fixed place of business in India, it does not constitute a Permanent Establishment (PE) in India [as defined under Article 5(1) of the India-USA DTAA], business profits from provision of aforesaid services are not liable to tax in India as per provisions of Article 5(1) read with Article 7 of India-USA TAA. Accordingly, the said income has not been offered to tax in the return of income (ROI'). Copy of the Tax Residency Certificate and No-PE declaration is enclosed as Annexure 3 and Annexure 4 respectively.”

 

7. At the outset, the ld. AR submitted that the issue in dispute is squarely covered in assessee’s favour by the order dated 29.07.2024 of the Tribunal in assessee’s own case in ITA No.2393/Del/2023, Assessment Year 2020-21.

 

8. The Ld. DR fairly conceded that the issue is covered by the aforesaid order of the Tribunal in favour of the assessee.

 

9. We have considered the rival submissions and perused the materials available on record. On perusal of the Dispute Resolution Panel directions for the present assessment year in para 5.8, it is seen that while agreeing with the findings of the Assessing Officer, the DRP has given identical finding for the present assessment year as stated in para 5.5 of its order for AY 2020-21. The relevant directions of Ld. DRP for AY 2020-21 and AY 2021-22 are reproduced in tabular form as under: -

 

 

10. On similar facts, the Co-ordinate Bench of the Tribunal in the aforesaid order for AY 2020-21 holding that similar receipts was not taxable as it was not in the nature of FIS under Article 12(4)(b) of the India USA DTAA. The relevant extract of the order is reproduced hereunder: -

 

13. Heard the arguments of both the parties and perused the material available on record. 14. The relevant extract of India-USA DTAA is as under:

 

Article 12 of India-USA DTAA on "Royal ties and Fees for Included Services"

 

For purposes of this Article, " fees for included services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services ( including through the provision of services of technical or other personnel ) i f such services:

……….

 

(b) make available technical knowledge, experience, skill , know-how or processes, or consist of the development and transfer of a technical plan or technical design.

 

Thus, in order for a payment to qualify as FIS under the India-USA DTAA, the services should be in the nature of technical or consultancy services, and these services should "make available technical knowledge, experience, ski l l know-how or processes. " The services which are in the nature of " technical " or "consultancy in nature and which satisfy the "make available" condition gets covered under the definition of FIS as per the India-USA DTAA.

 

Further, " technical services" means the services requiring expertise in a technology which could be related to a particular subject, art or craft or its techniques requiring special knowledge to be understood in the context in which i t is used. FIS is meant to cover technical as are capable of being provided by the way of providing services for a fee. Use of expertise in technology in providing the services is a requisite to treat a service as technical .

 

“Consultancy services” involves the provision of advice or advisory services by a professional . It can be said that not all kind of advisory could qualify as technical services. For any consultancy to be treated as technical services, it would be necessary that a technical element is involved in such advisory. Thus, the consultancy should be rendered by someone who has special skills and expertise in rendering such advisory.

 

“Make available” arise when the person acquiring the service is enabled to apply the technology independently. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc are made available to the person purchasing the service.

 

15. From the above, it can be said that mere rendering of services is not roped into FIS unless the person utilizing the services is able to make use of the technical knowledge, etc. , by himself in his business or for his own benefit and without recourse to the performer of the services in future. The technical knowledge, experience, skill , etc. must remain with the person utilizing the services even after the rendering of the services has come to an end. Thus, the consideration for technical services can be taxed as FIS under the India- USA DTAA) only when the person acquiring the service is able to apply the technology on its own i.e. the recipient acquires a means to an end. This means that the recipient in this situation is able to reproduce and make use of the technical knowledge, etc. by itself in the business or for their own benefit and without recourse to the performer of the services, in future. "Make available" is akin to the concept of transfer and involves the transfer of technical knowledge, experience, skill , know-how, or processes to the recipient by the service provider so that the recipient can apply the same on his own. Further, merely because the rendering of consul ting service requires any expertise by the person providing the service would not per se mean that technology has been made available to the service recipient.

 

16. In the instant case, the assessee has received payment for rendition of consultancy service in the field of organizational strategy, talent, reward and benefits etc. While rendering of such services, the assessee does not transmit any knowledge, skill or technical knowhow in a manner that clients/customers are able to perform the aforesaid functions in future on its own without recourse to the service providers and hence, the element of "make available" in absent in such services. The same is clearly evident from the fact that such services are rendered on continuous basis from preceding years. In the present case, assessee is merely providing consul ting services such as organizational strategy, talent strategy, consul ting in relation to rewards and benefits and related leadership and development consul ting services for which clients / service recipients need to come back to assessee, as and when they have such requirement and service recipients do not get equipped in providing such services.

 

17. We find that the assessee has provided services to Deloitte, Flipkart and gone through the work order and the scope of service, details of project team and cost of services. On going through the entire details, we find no technical knowledge has been made available to the client. Similarly, the review of ESOPs is a continuous process taking into consideration various parameters. Even in that, it cannot be said that the assessee “Korn Ferry” has made the clients enriched by imparting or passing permanently any technical inputs. From the terms of agreements and also from the conduct of the party, it cannot be said that the “make available” requirement has been satisfied. Hence, we hold that the services rendered were not in nature of FIS under Article 12(4) (b) of the India-USA DTAA.

 

11. On perusal of the assessment order for the present assessment year, it is seen that the Assessing Officer has not brought about any distinguishing facts about the nature of receipt amounting to Rs.8,81,34,162/- being ‘Service Fees’ received during the year as against the sum of Rs.7,18,00,000/- received as ‘Consultancy and Training Fees’ received in AY 2020-21. As stated above, the DRP has given identical finding for both the Assessment Years. Therefore, respectfully following the above order of the Tribunal on identical facts, it is held that the amount of Rs.8,81,34,162/- is not taxable as the same is not in the nature of FIS under Article 12(4)(b) of the India-USA DTAA and therefore, the same is deleted. Hence, the ground nos. 4 to 11 are allowed.

 

12. Ground No.12 is with respect to the levy of interest u/s 234A and 234B of the Act. Charging of interest is consequential and the AO will levy interest as per law.

 

13. In ground no. 13, the assessee submits that the AO has erred in short granting of credit of tax deducted at source amounting to Rs.82,722/- in the computation sheet. The AO is directed to verify the claim of the assessee and to allow TDS credit as per law.

 

14. In ground no.14, the assessee submits that the AO has erred in making an incorrect adjustment on account of ‘recovery of refund already issued to the Appellant’ amounting to Rs.1,00,79,539/- in the computation sheet. The AO is directed to verify the claim of the assessee and to modify the tax computation as per law.

 

15. Ground no.15 is with respect to initiation of penalty proceeding u/s 274 r.w.s. 270A of the Act. This ground is premature in nature and the same is dismissed.

 

16. In the result, this appeal of the assessee is partly allowed.

 

Order pronounced in the open court on 31st January, 2025.

 

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