Bengaluru ITAT: ‘Make Available’ Test Not Satisfied – No TDS on Payments to US Software Contractors

Sasken Technologies Ltd. Vs ACIT (ITAT Bangalore)

Bengaluru ITAT: ‘Make Available’ Test Not Satisfied – No TDS on Payments to US Software Contractors

The Bengaluru ITAT held that no tax was deductible under section 195 on payments of ₹10.09 crore made by an Indian software company to overseas contractors through its US branch, since although the payments were for technical services, they did not satisfy the “make available” test under Article 12 of the India–US DTAA. The Tribunal observed that the subcontractors rendered onsite software development services and interacted with clients, but the Revenue failed to establish that the services transferred technical knowledge, skill or know-how enabling the assessee to perform the same functions independently in future. Merely rendering technical services or sharing work products does not amount to making technical knowledge available. Consequently, the payments were not chargeable to tax in India, and the disallowance under section 40(a)(i) was deleted.

The Tribunal, however, upheld the disallowance of ₹7.13 lakh paid to Forrester Research Ltd., UK, holding that the payment was royalty for the right to access and use copyrighted content, branding and logos, and therefore attracted tax deduction at source. It also deleted the section 14A disallowance after holding that the Assessing Officer had failed to record the mandatory satisfaction under section 14A(2) before invoking Rule 8D. Further, following earlier Tribunal decisions, it held that although CSR expenditure is not allowable as a business deduction under section 37(1), deduction under section 80G cannot be denied if the statutory conditions are otherwise fulfilled. For AY 2020-21, the Tribunal restored to the Assessing Officer the issue relating to payment made to Tangent International, UK, directing fresh examination after the assessee furnishes the scope of work. Accordingly, the appeals were partly allowed.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

1. These two appeals have been filed by the assessee for different assessment years. Since they involve common issues and both parties advanced common arguments, they are disposed of together by this common order.

2. ITA No. 2057/Bang/2025 is filed by M/s. Sasken Technologies Ltd. [ THE Assessee/ Appellant] for Assessment Year 2017-18 against the appellate order dated 31 July 2025 passed by the National Faceless Appeal Centre, Delhi [ the ld. CIT (A)]. By the said order, the appeal filed by the assessee against the assessment order dated 3 December 2019 passed under section 143(3) of the Income-tax Act, 1961 [ the Act] by the Assistant Commissioner of Income Tax, Special Range-6, Bengaluru, [ the ld. AO] was partly allowed. Aggrieved by the same, the assessee is in appeal before us.

3. The assessee has raised grounds challenging the disallowance of US branch payments amounting to ₹10,09,20,143 under section 40(a)(i) read with section 195 of the Act; the disallowance of payment to Forrester Research Ltd., United Kingdom, amounting to ₹7,13,486 under section 40(a)(i) read with section 195; the disallowance under section 14A read with Rule 8D; and the disallowance of deduction under section 80G in respect of CSR donations.

4. The assessee is engaged in the business of telecom software services. It filed its original return of income on 29 November 2017 declaring total income of ₹47,18,17,670 and later revised the return on 12 February 2019 declaring total income of ₹45,80,60,670. The return was selected for scrutiny and statutory notices were issued.

5. The Assessing Officer noted that the assessee had made payments through its US branch amounting to ₹10,90,59,330 on which tax had not been deducted at source. He therefore disallowed the same under section 40(a)(i), holding that the payments to foreign entities were sourced in India. On examining the agreements, he further held that the services were fees for technical services and that the “make available” condition was satisfied; consequently, tax was required to be deducted under section 195, which the assessee had failed to do.

6. The Assessing Officer also noted that the assessee had paid ₹7,13,486 to Forrester Research Ltd. without deduction of tax at source and treated the payment as royalty taxable in the hands of the foreign recipient in India, resulting in disallowance under section 40(a)(i).

7. He further observed that the assessee had earned exempt income and computed disallowance under section 14A read with Rule 8D at ₹1,73,53,008.

8. Accordingly, the assessment order was passed under section 143(3) of the Act on 23 December 2019, determining the total income of the assessee at ₹68,17,46,780.

9. Aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A), who confirmed the order of the Assessing Officer. The assessee is therefore in appeal before us.

10. Ground No. 1 is general in nature. As no specific arguments were advanced, it does not require separate adjudication and is dismissed.

11. Ground No. 2 relates to the disallowance of payments made through the US branch amounting to ₹10,09,20,143 under section 40(a)(i) read with section 195 of the Act. The grievance of the assessee is that the Revenue authorities held that the payments made by the appellant’s US branch were for services sourced in India, chargeable to tax as fees for technical services, and that such services satisfied the “make available” condition; consequently, according to the Revenue, the provisions of section 195 were applicable.

12. The assessee contends that the services were utilised for business carried on outside India, or for earning income from a source outside India, and therefore the payments were not chargeable to tax in India. It is further submitted that the services did not make available any technical knowledge, experience, skill, know-how or process to the assessee and, accordingly, could not be taxed as fees for technical services. Therefore, no disallowance under section 40(a)(i) was warranted.

13. During the assessment proceedings, the learned Assessing Officer called for details of contract staff expenses and observed that most payments on which tax had not been deducted at source were described as US branch payments. He identified 23 such payments aggregating to ₹10,90,59,332. The assessee explained that it provides onsite and offshore software services to its customers and that overseas onsite services are rendered through its foreign branches. For providing such services, the foreign branches incurred expenditure towards subcontracting certain processes. The assessee furnished copies of the relevant agreements and submitted that these expenses were incurred by its overseas branches to earn overseas onsite revenue in the respective countries. It further stated that the related customers’ revenues were first booked in the overseas branch and, therefore, the payments were made for the purpose of earning income from sources outside India.

14. The Assessing Officer rejected the assessee’s explanation. He held that, being an Indian company operating under an onsite-offshore development model, the assessee had engaged non-resident subcontractors in connection with income accruing or arising in India. Referring to the master service outsourcing agreements between the assessee and the entities rendering services to its US branch, he observed that the services were directed by the assessee and not by the US branch. He further noted that the responsibilities of those entities, as well as the deliverables, were owed to the assessee. On this basis, he concluded that the US branch was merely a payment conduit and that the payments could not be excluded from the provisions of section 9(1)(vii)(b) of the Act. In support, he relied on the rulings of the Authority for Advance Rulings in Infosys Technologies Ltd., 350 ITR 178, and Wallace Pharmaceuticals Pvt. Ltd., 278 ITR 97. He therefore held that the income was sourced in India and that the work performed by the nonresidents could not be regarded as business carried on outside India.

15. The learned Assessing Officer further examined the nature of the services rendered by the entities. In its letter dated 13 May 2019, the assessee stated that it was engaged in providing software services and solutions, including distributed enterprise computing solutions, to overseas clients under a global delivery model, also referred to as the onsite-offshore model. After examining this business model, the Assessing Officer concluded that the assessee secured the contracts and subcontracted a substantial portion of the work to non-resident subcontractors. Their onsite teams directly interacted with clients and acted, depending on client requirements, as solution architects, project managers or consultants. They gathered client requirements, based on which the assessee prepared project specifications, and the assessee thereafter executed the project. The Assessing Officer observed that software development is a highly specialised field and that the subcontractors would necessarily provide technical inputs to the assessee after obtaining client feedback. He therefore held that it was not possible to accept that no technical services were made available to the assessee and concluded that the payments were fees for technical services.

16. The Assessing Officer then examined whether the subcontractors had made technical services available to the assessee. Referring to the subcontract agreements, he noted the presence of confidentiality and intellectual property clauses. In his view, these clauses indicated that technical and confidential information had been made available to the assessee by the subcontractors. He also referred to clauses requiring the consultants, at their own expense, to periodically deliver information relating to data, designs, diagrams, specifications, acceptance criteria and other material necessary for carrying out the work. He further noted that ownership of the intellectual property rights vested with Sasken and that the agreements also contained non-compete and non-disclosure obligations. According to him, the inclusion of such clauses showed that technical knowledge, skill, experience or know-how had been made available to the service recipient; otherwise, there would have been no reason to incorporate such protective provisions. He observed that each contractor was bound by non-disclosure obligations in respect of information communicated by, or brought to its knowledge through, the other party during implementation of the agreement. On this basis, he inferred that technology had been made available to the assessee and required protection so that it did not pass beyond the assessee, the client and the contractor. The Assessing Officer also relied on the decision of the coordinate bench in Filtrex Technologies Pvt. Ltd., 47 SOT 69 (Bangalore), where a similar view was taken. He held that, for the “make available” test to be satisfied, the services must be aimed at transmitting technical knowledge so that the payer derives an enduring benefit and can use the knowledge or know-how independently in future without the service provider’s assistance. In other words, the technical knowledge, skill or experience must remain with the recipient even after the contract ends. He rejected the assessee’s reliance on the decision of the Hon’ble Karnataka High Court in CIT v. De Beers India Minerals Pvt. Ltd., holding that the facts of that case were distinguishable.

17. Upon examining the relevant agreements, the Assessing Officer concluded that technical and consultancy services had been made available to the assessee and that tax was required to be deducted under section 195. Since no tax was deducted, the payments were disallowed under section 40(a)(i).

18. Aggrieved, the assessee challenged the disallowance before the learned CIT(A). The learned CIT(A) upheld the Assessing Officer’s action, observing that the agreements showed that the subcontractors shared technical know-how, deliverables and related documentation. He held that the contractual clauses demonstrated that knowledge and technical inputs were made available to the assessee for use in its projects, thereby satisfying the “make available” condition. He also noted that the assessee exercised control over the subcontractors’ work and that the services were linked to income accruing or arising in India. Accordingly, this ground was dismissed.

19. The learned authorised representative, Shri Padam Chand Khincha, CA, submitted that the payments fell within the exclusion under section 9(1)(vii)(b), as the services were used for business carried on outside India through the assessee’s foreign branches. He contended that the payments were therefore not fees for technical services chargeable to tax in India and did not require deduction of tax at source. He further submitted that the services did not make available any technical knowledge, experience, skill, know-how or process to the assessee, and that the burden of proving satisfaction of the “make available” condition rested on the Revenue. Reliance was placed on the decision of the Hon’ble Karnataka High Court reported in 346 ITR 465. He accordingly prayed for deletion of the disallowance.

20. The learned Departmental Representative relied on the agreements referred to in paragraph 14 of the assessment order, the judicial precedents cited therein, and the master service outsourcing agreements discussed by the learned CIT(A). He submitted that the authorities below rightly held that the assessee was required to deduct tax at source under section 195. He further contended that the exclusion under section 9(1)(vii)(b) was unavailable, as the payments were made by the assessee through its branches in connection with business carried on in India. It was further submitted that the learned assessing officer has given a reason that why the above payment is considered as fees for technical services and how they make available test is satisfied.

21. We have considered the rival submissions and examined the orders of the lower authorities. The record shows that the assessee made payments to 23 parties, aggregating to ₹10,19,59,332, for onsite software development services. These payments were routed through the assessee’s US branch. The assessee provides both onsite and offshore software services, including overseas onsite services through its foreign branches. To render such services and earn overseas onsite revenue, the foreign branches incurred subcontracting and related service expenses.

22. The Assessing Officer examined the master service outsourcing agreements between the assessee and the foreign service providers. He noted that the consultants were required to provide technical information, data, design diagrams, specifications and acceptance criteria. He further observed that the assessee secured the customer orders, subcontracted the work to 23 non-resident service providers, arranged the contracts from India, retained control over performance and remained responsible for any acts of omission or commission. The non-residents had no independent contractual relationship with the customers and acted only as the assessee’s affiliates or subcontractors. On these facts, he held that the source of income was in India and that the income was deemed to accrue or arise in India. He also relied on the rulings of the Authority for Advance Rulings in Infosys Technologies Ltd., 307 ITR 178, and Wallace Pharmaceuticals Pvt. Ltd., 278 ITR 97. Having considered the agreements and the overall arrangement, we find that the payments were merely routed through the assessee’s US branch. Such routing, by itself, does not bring the case within the exclusion under section 9(1)(vii)(b). The assessee has not established that the services were used for a business or profession carried on outside India, or for earning income from a source outside India. Since the business was carried on in India and the payments were connected with income earned from India, the assessee is not entitled to the benefit of the exception under section 9(1)(vii)(b). Accordingly, this argument is rejected.

23. The next issue is whether the services rendered by the contractors to the assessee fall within the definition of fees for technical services under Explanation 2 to section 9(1)(vii), which covers consideration for rendering managerial, technical or consultancy services, subject to specified exceptions. The assessee stated that it provides software services and solutions, including distributed enterprise computing solutions, to overseas clients under a global delivery model, also known as the onsite-offshore model. The Assessing Officer examined this model and found that the assessee engaged non-resident contractors who directly interacted with clients and acted, depending on client requirements, as solution architects, project managers or consultants. These subcontractors gathered client requirements, on the basis of which the assessee prepared project specifications and executed the projects. The Assessing Officer further observed that software development is a highly specialised technical field and that the subcontractors continuously provided technical inputs to the assessee after obtaining feedback from clients. The agreements with the subcontractors also contained provisions relating to intellectual property rights, contractor responsibilities, non-compete obligations and confidentiality. Considering these clauses and the nature of the services, we find that the services rendered by the subcontractors were technical in nature. Accordingly, the consideration paid by the assessee through its US branch falls within the scope of fees for technical services and is chargeable to tax in the hands of the contractors. We therefore uphold the orders of the Assessing Officer and the learned CIT(A) on this issue.

24. The third issue is whether the “make available” test is satisfied in respect of these payments. This question is material because, even if the payments fall within the definition of fees for technical services under the Act, the recipients are residents of different contracting States [ US] and may claim the benefit of the applicable Double Taxation Avoidance Agreement under section 90(2), where the treaty provisions are more beneficial. In such cases, where the relevant treaty restricts taxation of fees for technical or included services by applying the “make available” condition, the payment would not be taxable in India unless that condition is satisfied. In the present case, the payments were admittedly made to US residents. Under Article 12(1) of the India-US DTAA, royalties and fees for included services arising in one Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. Thus, prima facie right of taxation rests with US. Further, under Article 12(4)(b), fees for included services are taxable in India only if the services make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. Although the contractors rendered technical services to the assessee, the dispute is whether such services were made available to the assessee within the meaning of Article 12(4)(b) of the DTAA.

25. In this context, the Hon’ble Karnataka High Court in De Beers India Minerals Pvt. Ltd. [TS-312-HC-2012(KAR)] explained the scope of the expression “make available” in paragraph 22 as under:

“22. What is the meaning of “make available”. The technical or consultancy service rendered should be of such nature that it “makes available” to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in  transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology “making available”, the technical knowledge, skill?, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered “made available” when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as “fee for technical/included services” only if the twin test of rendering services and making technical knowledge available at the same time is satisfied.”

26. The above principles make it clear that the service must result in the transfer of technical knowledge, experience, skill, know-how or processes to the recipient; the recipient must obtain an enduring benefit; and it must be able to apply such knowledge independently in future without the service provider’s assistance.

27. It is not necessary to infer always, merely because the assessee may continue to engage the same service provider in future, that the services were not “made available” to it. There may be several commercial reasons for such continued engagement, including cost-benefit considerations in deciding whether to perform the work in-house or outsource it. The relevant test is whether the services enabled the assessee to develop the capability to perform the function independently, should the business circumstances so warrant.

28. In the present case, though services were rendered and information generated from the subcontractors’ work was shared with the assessee, the Assessing Officer has not shown that the assessee was thereby enabled to perform the same functions on its own. This is the essential requirement for holding that fees for included services were “made available” and were consequently taxable in India. Mere provision of services, or transfer of information or work product, is insufficient unless the recipient is equipped to use the underlying technical knowledge or expertise independently in future without further assistance from the service provider.

29. In view of the above findings, we hold that the assessee was not required to deduct tax at source, as the income was not chargeable to tax in India in respect of the payment of ₹10,09,20,143 made to foreign contractors for rendering technical services. Consequently, no disallowance could be made under section 40(a)(i) read with section 195 of the Act. Accordingly, Ground No. 2 of the assessee’s appeal is allowed.

30. Ground no 3 is issue concerns the disallowance of ₹7,13,486 paid to Forrester Research Ltd., United Kingdom, without deduction of tax at source, resulting in disallowance under section 40(a)(i). During assessment, the assessee was asked to furnish the agreement with the foreign entity. On examining the purchase agreement and its renewal, the Assessing Officer found that the assessee had paid for access to Forrester’s website and licence to use its content. The website and related material carried Forrester’s corporate notice, branding and logo. The Assessing Officer held that the assessee had not merely obtained website access but had also acquired the right to use the foreign entity’s copyright notice, branding and logo. He therefore treated the payment as royalty, being consideration for the use of, or right to use, intellectual property such as copyright, trademark or similar property. Since the assessee had not deducted tax at source, the amount was disallowed under section 40(a)(i).

31. On appeal, the learned CIT(A) confirmed the disallowance, holding that the assessee had obtained a licence to access Forrester’s website and to use material bearing its logo and corporate credentials. The learned CIT(A) held that the payment was in the nature of royalty and relied on the decision in Engineering Analysis Centre of Excellence Pvt. Ltd. and the provisions of Explanation 4 and Explanation 5 to section 9(1)(vi) of the Act. Accordingly, this ground of appeal was dismissed.

32. The learned authorised representative submitted that the services rendered by Forrester Research Ltd. were in the nature of market support services for generating business leads. Referring to the India-UK DTAA and relying on judicial precedents, he contended that the payment was not chargeable to tax in India and, therefore, no tax was required to be deducted at source. He placed specific reliance on the decisions in ITO (International Taxation) v. Vida Clinical Research Pvt. Ltd., DIT v. Guy Carpenter & Co. Ltd., 20 com807 (Delhi), and Raymond Ltd. v. DCIT, 86 ITD 791 (Mumbai). He further submitted that the India-UK DTAA does not contain a “make available” clause and referred to paragraph 94 of Raymond Ltd. for interpreting the India-UK DTAA in light of comparable treaty provisions.

33. The learned Departmental Representative supported the orders of the lower authorities and submitted that the payment was in the nature of royalty and not fees for technical services. He specifically referred to paragraph 3.1 of the assessment order and submitted that the licence fee paid by the assessee to the non-resident entity for use of its branding and logo on the website constituted royalty under the Income-tax Act as well as the applicable Double Taxation Avoidance Agreement. Accordingly, he contended that the assessee was required to deduct tax at source under section 195 and that failure to do so rightly resulted in disallowance under section 40(a)(i).

34. We have carefully considered the rival submissions and perused the orders of the lower authorities. The Assessing Officer noted that the assessee had paid ₹7,13,486 to Forrester Research Ltd. On examining the purchase agreement with the foreign entity, he found that the assessee had acquired a licence to post content on Forrester’s website and that the presentation hosted on the website would carry Forrester’s corporate notice and approved logo. He therefore held that the assessee had not merely obtained website access but had also acquired the right to use Forrester’s copyright notice and logo. On this basis, he treated the payment as royalty under the Income-tax Act and made a disallowance under section 40(a)(i) for failure to deduct tax at source. Before the learned CIT(A), the assessee submitted that the payment was sales and marketing expenditure incurred for services rendered by Forrester Research Ltd. and was not chargeable to tax in India under section 9(1)(vii)(b) of the Act.

35. According to the assessee, the payment was governed by Article 7 read with Article 5 of the India-UK Double Taxation Avoidance Agreement. Since the payee did not have a permanent establishment in India, no income accrued or arose in India. Accordingly, the assessee contended that the payment was not chargeable to tax in India and no disallowance was warranted.

36. We find that the arguments advanced by the learned authorised representative proceed on the footing that the payment was fees for technical services and must satisfy the “make available” test. However, the Assessing Officer treated the payment as royalty. The decisions relied upon by the assessee relate to fees for technical services and the requirement of making technical knowledge available. That test has no application to royalty payments, either under the domestic law or under the India-UK Double Taxation Avoidance Agreement. Since the payment is in the nature of royalty, we find no infirmity in the orders of the Assessing Officer and the learned CIT(A) in making the disallowance under section 40(a)(i) of the Act. Accordingly, Ground No. 3 of the assessee’s appeal is dismissed.

37. The next ground [ Ground no 4] relates to disallowance under section 14A read with Rule 8D. During the year, the assessee earned exempt income and made a Suo motu disallowance of ₹19,78,314. The Assessing Officer observed that the assessee had substantial investments, including investments in mutual funds and other non-current and non-trade investments. Having regard to the volume of investment activity, he held that the disallowance offered by the assessee was not adequate and proceeded to compute disallowance under Rule 8D at ₹1,73,53,008.

38. Before the learned CIT(A), the assessee submitted that the Assessing Officer had ignored the Suo motu disallowance made in the return of income. It further contended that it was a debt-free company and had not incurred any interest expenditure for making investments. The assessee also argued that the Assessing Officer invoked section 14A without recording proper satisfaction as to the incorrectness of the assessee’s computation. The learned CIT(A) noted that the assessee had claimed exempt income, including dividend from mutual funds, interest from tax- free bonds and dividend on preference shares, and had made a disallowance of ₹19,78,314. He directed the Assessing Officer to verify investments in joint ventures and domestic companies which did not yield exempt income and to exclude them while computing the average value of investments for the purpose of section 14A read with Rule 8D. The disallowance was therefore directed to be recomputed.

39. Before us, the learned authorised representative referred to the assessment order and submitted that the assessee had earned exempt income of ₹11,94,22,510 and had made a Suo motu disallowance of ₹19,78,314 under section 14A of the Act. He contended that the Assessing Officer had not complied with the mandatory requirement of recording proper satisfaction that the assessee’s claim was incorrect. Although paragraph 5.3 of the assessment order states that the Assessing Officer was not satisfied with the correctness of the assessee’s claim, the learned authorised representative submitted that such satisfaction must be recorded having regard to the assessee’s accounts. Since there was no reference to the assessee’s accounts before recording satisfaction, he argued that the disallowance of ₹1,73,53,008 deserved to be deleted on this ground alone. In support, he relied on several judicial precedents, including the decision of the Hon’ble Supreme Court in Maxopp Investment Ltd. v. CIT, 91 com154, and the decision of the Hon’ble Karnataka High Court in Hindustan Aeronautics Ltd. v. Assistant Commissioner of Income Tax, 125 taxmann.com 80. He therefore submitted that, in the absence of satisfaction recorded in accordance with section 14A (2), the disallowance made by the Assessing Officer was unsustainable and should be deleted.

40. The learned Departmental Representative supported the orders of the lower authorities and referred to paragraph 5.3 of the assessment order. He submitted that the Assessing Officer had duly recorded satisfaction that the disallowance offered by the assessee was not in accordance with section 14A of the Act. He further contended that the Assessing Officer had considered the assessee’s accounts before recording such satisfaction. Accordingly, he submitted that the Assessing Officer was justified in making the disallowance under section 14A.

41. We have carefully considered the rival contentions and perused the orders of the lower authorities. During the year, the assessee earned exempt income of ₹11,94,22,510 and made a suo motu disallowance of ₹19,78,314 under section 14A of the Act. In paragraph 5.3 of the assessment order, the Assessing Officer stated that he was not satisfied with the correctness of the assessee’s claim after having regard to the accounts. However, the order does not show which accounts were examined or how the assessee’s computation was found to be incorrect. The Assessing Officer merely observed that the assessee had not maintained separate books for its investment activity and referred to the quantum of current and non-current investments. He did not specifically deal with the assessee’s suo motu disallowance of ₹19,78,314. Under section 14A (2), the Assessing Officer must record objective satisfaction, having regard to the assessee’s accounts, that the claim made by the assessee is incorrect. A general reference to figures in the financial statements, followed by a bare conclusion that the disallowance offered is not correct or not in accordance with law, does not satisfy this statutory requirement. In view of these facts, we hold that the Assessing Officer failed to record proper dissatisfaction regarding the correctness of the assessee’s claim. The decisions relied upon by the assessee, including the judgment of the Hon’ble Supreme Court in Maxopp Investment Ltd. and the judgment of the Hon’ble Karnataka High Court in Hindustan Aeronautics Ltd., support this conclusion. Accordingly, the disallowance made by the Assessing Officer and partly confirmed by the learned CIT(A) under section 14A is directed to be deleted. Ground No. 4 of the assessee’s appeal is allowed.

42. Ground No. 5 concerns the disallowance of deduction under section 80G in respect of CSR donations. During the assessment proceedings, the Assessing Officer noted that the assessee had incurred CSRexpenditure of ₹1,37,50,000 and claimed deduction for the same amount under section 80G. The assessee submitted that, although CSR expenditure is not allowable as business expenditure under section 37(1) in view of Explanation 2, deduction under section 80G is independently available if the conditions prescribed under that section are satisfied. The Assessing Officer rejected the claim and disallowed the deduction, which the learned CIT(A) confirmed.

43. The learned authorised representative submitted that this issue is covered in favour of the assessee by several decisions of coordinate benches of the Tribunal. He contended that the bar under Explanation 2 to section 37(1) applies only to allowance of CSR expenditure as business expenditure. It does not prohibit deduction under section 80G where the donation satisfies the requirements of that provision. Accordingly, he argued that the deduction claimed under section 80G ought to be allowed.

44. The learned Departmental Representative supported the orders of the lower authorities. He submitted that the expenditure was incurred towards CSR obligations and was specifically disallowable under section 37(1). According to him, allowing deduction under section 80G for the same expenditure would defeat the statutory restriction on CSR expenditure. He therefore contended that the disallowance made by the Assessing Officer and confirmed by the learned CIT(A) was justified.

45. We have considered the rival submissions and perused the orders of the lower authorities. The assessee incurred CSR expenditure of ₹1,37,50,000, which was disallowed under section 37(1) in view of Explanation 2 read with section 135 of the Companies Act, 2013. However, the record shows that the assessee made donations to eligible entities and claimed deduction under section 80G of the Act. There is no specific bar in the Act denying deduction under section 80G merely because the donation forms part of CSR expenditure. The coordinate bench decisions relied upon by the learned authorised representative, including First American India Pvt. Ltd. in ITA No. 1762/Bang/2019 and JMS Mining Pvt. Ltd. v. Principal Commissioner of Income Tax, 130 taxmann.com 118, support the assessee’s claim. We therefore direct the Assessing Officer to allow deduction under section 80G, subject to verification that the other conditions prescribed under that section are fulfilled. Accordingly, Ground No. 5 of the assessee’s appeal is allowed.

46. Ground No. 6 is general in nature and does not require separate adjudication.

47. In the result, ITA No. 2057/Bang/2025 filed by the assessee for Assessment Year 2017-18 is partly allowed.

48. We now take up the assessee’s appeal for Assessment Year 2020-21.

49. Ground No. 3 concerns the disallowance under section 14A read with Rule 8D. Both parties agreed that the facts are identical to those considered in ITA No. 2057/Bang/2025 for Assessment Year 2017-18 while deciding Ground No. 4. In that appeal, we directed deletion of the disallowance because the Assessing Officer had not recorded satisfaction as required under section 14A (2). For the same reasons, we direct the Assessing Officer to delete the disallowance of ₹83,98,218 for Assessment Year 2020-21. Accordingly, Ground No. 3 is allowed.

50. Ground No. 4 relates to deduction under section 80G for CSR donations. The issue is identical to Ground No. 5 in the assessee’s appeal for Assessment Year 2017-18, where we directed the Assessing Officer to allow the deduction under section 80G, subject to verification of the prescribed conditions. For the same reasons, Ground No. 4 for Assessment Year 2020-21 is allowed.

51. Ground No. 5 relates to interest charged under section 234B of the Act. Since the issue is consequential, this ground is dismissed.

52. Ground No. 1 is general in nature. As no specific submissions were made, it requires no separate adjudication and is dismissed.

53. The only remaining issue is Ground No. 2 for Assessment Year 2020-21, concerning the disallowance of ₹47,38,170 under section 40(a)(i) read with section 195 in respect of payments made to Tangent International, UK. Tangent International, a UK resident, provided contract staffing services to the assessee in the nature of manpower supply. In response to the query on non-deduction of tax at source, the assessee submitted that the payment was covered by section 9(1)(vii)(b), as it was made for earning income from a source outside India and was therefore not chargeable to tax in India. It further contended that the payment was not fees for technical services under Explanation 2 to section 9(1)(vii), as it related only to contract staffing or manpower supply. The assessee accordingly submitted that no tax was required to be deducted at source.

54. The Assessing Officer rejected the explanation. He held that the assessee, an Indian company operating under an offshore-onsite development model, had subcontracted a substantial part of its software development work to non-residents. He observed that the assessee retained control over all stages of client contracts, from negotiation to completion, and remained responsible for deliverables and contractual risks. The decision to engage foreign entities and direct them to perform onsite software development work was also taken by the assessee. After examining the agreements, the Assessing Officer concluded that the services were not confined to activities outside India and that the source of income was in India. He further held that the services constituted fees for technical services and satisfied the “make available” condition. Accordingly, he held that the assessee was required to deduct tax at source under section 195.

55. Before the learned CIT(A), the assessee challenged the disallowance. In paragraph 4.2 of the order, the learned CIT(A) noted the assessee’s contention that not all vendors had provided software-related services. However, as the assessee itself had stated that mixed services were rendered, he rejected the claim that some vendors had supplied only manpower. Referring to the agreement with Tangent International and material from the earlier assessment year, he held that the consultants were required to provide software-related services to the assessee. He also noted that the assessee had furnished details only for certain entities and not for Tangent International. In the absence of the relevant scope of work, it could not be verified whether Tangent International’s services were limited to manpower supply or whether they involved making available technical knowledge or expertise. The learned CIT(A) therefore confirmed the disallowance in respect of the payment made to Tangent International.

56. The learned authorised representative submitted that the issue is similar to Ground No. 3 in the assessee’s appeal for Assessment Year 2017-18, which also concerned a payment to a UK entity. He therefore contended that the payment was not chargeable to tax in India. The learned Departmental Representative supported the orders of the lower authorities.

57. We have considered the rival contentions and perused the orders of the lower authorities. The assessee has not furnished the scope of work assigned to Tangent International, UK. It is therefore not possible to determine whether the payment was only for manpower supply services or for software development services involving technical inputs. In the interests of justice, we grant the assessee an opportunity to furnish the scope of work before the Assessing Officer within 90 days from the date of receipt of this order. If the assessee submits the relevant details, the Assessing Officer shall examine them and decide the issue afresh in accordance with law. If the assessee fails to do so within the prescribed time, the Assessing Officer may retain the disallowance. Accordingly, Ground No. 2 is allowed for statistical purposes.

58. In the result, the assessee’s appeal for Assessment Year 2020-21 is partly allowed.

Order pronounced in the open court on 29^th June 2026.