The payment made by the Indian Company to Foreign Parent Company for the managerial services provided by the latter cannot be taxed as fee for technical services and hence the said payments are not liable to withholding of tax under Section 195 of the Income Tax Act’1961. – High Court Delhi
Decision by Delhi High Court in case: Steria India Limited vs Commissioner or Income Tax
Case No. W.P.(C) 4793/2014 & CM APPL. 9551/2014 dated 28.07.2016
Brief of case:
The Petitioner Steria (India) Limited („SIL‟) is a public limited company registered in India providing IT driven services for its clients’ core businesses. It is stated that the Petitioner is assessed to tax as
a resident in India. Groupe Steria SCA („Steria France‟) is a non-resident company incorporated in France as a limited liability partnership. It is stated that Steria France centralizes technical skills for carrying on management functions such as legal finance, human resources, communication risk control, information systems, controlling and consolidation, delivery and industrialization, technology and management information services. It is also stated that the Steria France does not have any office presence or personnel in India and that it does not have a Permanent Establishment
(„PE‟) in India as defined in the Double Taxation Avoidance Agreement („DTAA‟) between the India and France entered into on 29th September, 1992
A Management Service Agreement was entered into on 1st January, 2009 between the Petitioner and Steria France. Under the said agreement, Steria France was to provide various management services to the Petitioner with a view to rationalise and standardise the business conducted by the Petitioner in India. Services under the broad category of General Management Services included Corporate Communication Services, Group Marketing Services, Development Services, Information System and Services, Legal Services, Human Relation Services etc. It is stated that these services are provided by Steria France through telephone, fax, e-mail etc. and no personnel of Steria France visited India for providing such services.
An application was filed by the Petitioner before the AAR under Section 245Q(1) of the Act seeking a ruling on the following questions:
(i) On the facts and circumstances of the case whether the payment made by Steria (India) for the management services provided by Steria France will not be taxable in India in the hands of Steria France as per the provisions of the DTAA entered into between India and France?
(ii) On the facts and circumstances of the case, if the consideration for management services is not subject to tax in the hands of Steria France in India, whether Steria India will be liable to withhold tax as per the provisions of Section 195 of the Act from the payments made/ to be made to Steria France under the Management Services Agreement?
Consequent on the above ruling of the AAR orders under Section 201(1) and 201(1A) were passed against the Petitioner which have been challenged by the Petitioner by amending the writ petition.
For all of the above reasons, this Court finds that the impugned order dated 2nd May, 2014 of the AAR holding that the payment made by the Petitioner for the managerial services provided by Steria France should be treated as fee for technical services in respect of which tax had to be withheld under Section 195 of the Act, is unsustainable in law. The questions posed by the Petitioner before the AAR are accordingly answered as under:
(i) The payment made by the Petitioner to Steria France for the managerial services provided by the latter cannot be taxed as fee for technical services; and
(ii) The said payments are not liable to withholding of tax under Section 195 of the Act.