DCIT Vs Flipkart Internet Pvt Ltd. (Karnataka High Court)
Karnataka High Court, in DCIT vs. Flipkart Internet Pvt. Ltd., dismissed the Revenue’s appeal challenging the Single Judge’s order granting Flipkart a ‘Nil Tax Deduction at Source’ certificate under Section 195(2) of the Income Tax Act, 1961. The case revolved around taxability of payments made by Flipkart to its foreign parent entity, Walmart Inc., for seconded employees. The Revenue argued that these payments qualified as Fees for Technical Services (FTS) under Section 9(1)(vii) of the Act and the India-US DTAA, while Flipkart contended that they were mere reimbursements without any markup, thus not taxable.
The Revenue maintained that the employer-employee relationship between the seconded employees and Walmart Inc. continued, making the payments taxable under Section 195. However, Flipkart argued that the secondees were under its control, received salaries through TDS deductions in India, and were treated as its employees. The Single Judge, relying on precedents like DIT (International Taxation) v. Abbey Business Services India (P) Ltd., ruled in Flipkart’s favor, recognizing the secondment as an independent contract of service rather than a technical service arrangement.
The High Court upheld this ruling, emphasizing that under Article 12 of the India-US DTAA, only services that “make available” technical knowledge are classified as FTS. Citing CIT v. De Beers India Pvt. Ltd., it stated that mere provision of services does not constitute “making available” knowledge unless the recipient can use it independently. The Court also referenced GE India Technology Centre Pvt. Ltd. v. CIT, reaffirming that tax liability determination under Section 195(2) is valid even if the entire sum is not taxable.
