Case Law Details
Spencer Stuart International B.V. Vs ACIT (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, decided the appeal filed by Spencer Stuart International B.V. against the final assessment order dated 1 September 2025 passed under Sections 143(3) read with 144C(13) of the Income-tax Act, 1961 for Assessment Year (AY) 2023-24 pursuant to the directions of the Dispute Resolution Panel (DRP). The principal dispute concerned the taxability of executive search fees received by the assessee from Spencer Stuart India Private Limited under the India–Netherlands Double Taxation Avoidance Agreement (DTAA).
The assessee is a non-resident company incorporated and tax resident in the Netherlands. It is engaged in the executive search business and provides executive search and related support services to group companies and third-party franchisees. During AY 2023-24, it rendered executive search services to Spencer Stuart India Private Limited in relation to multi-country assignments and received fees, including expenses, amounting to ₹26,72,12,061. The assessee did not offer this amount to tax in India on the ground that it constituted business income and, in the absence of a permanent establishment (PE) in India, was not taxable. The Assessing Officer disagreed and held that the receipts constituted Fees for Technical Services (FTS) under Article 12(5)(a) and Article 12(5)(b) of the India–Netherlands DTAA. Without prejudice, the Assessing Officer also held that the receipts qualified as royalty under Article 12(4) of the DTAA and brought the amount to tax. The DRP upheld the Assessing Officer’s view by following its directions for AYs 2018-19 and 2019-20.
Before the Tribunal, the assessee submitted that the issue had repeatedly arisen in its own case from AY 2011-12 onwards and that the Tribunal had consistently held that executive search fees were neither FTS nor royalty. It was argued that the issue was therefore covered by earlier Tribunal decisions. The Departmental Representative relied upon the findings of the Assessing Officer and the DRP.
The Tribunal observed that the controversy was recurring in nature and had continued since AY 2011-12. It noted that while the DRP had followed its earlier directions for AYs 2018-19 and 2019-20, the Tribunal had consistently decided the issue in favour of the assessee from AY 2011-12 onwards, holding that the executive search fees were neither FTS nor royalty. The Tribunal referred extensively to its earlier decisions, including the order dated 4 November 2022 for AY 2019-20, which in turn relied upon earlier decisions covering AYs 2011-12, 2014-15, 2015-16, 2016-17 and 2017-18.
In the earlier decisions reproduced in the order, the Tribunal had examined two separate agreements executed between the parties:
- a Licence Agreement under which licence fees were paid for the use of trade name, trademark, logos, software and related rights; and
- a Service Agreement under which executive search services were provided on a principal-to-principal basis.
The Tribunal had held that these agreements constituted separate and distinct arrangements giving rise to different sources of income. It recorded that executive search fees were independent of licence fees and that the Service Agreement was not ancillary or subsidiary to the Licence Agreement. Under the Service Agreement, executive search fees depended upon the relative contribution of each party, and in appropriate circumstances the Indian entity could also receive search fees from the assessee, whereas licence fees flowed only in one direction.
The Tribunal further noted from its earlier decisions that the principal business of Spencer Stuart India Private Limited was to undertake executive search assignments and that executive search activities could not be regarded as ancillary or subsidiary to the Licence Agreement. It also observed that licence fees were computed as a percentage of search fees earned by the Indian entity, reinforcing the distinction between the two streams of income.
While considering Article 12(5)(b) of the India–Netherlands DTAA, the Tribunal referred to its earlier finding that, for a service to qualify as FTS, it should make available technical knowledge, experience, skill, know-how or processes, or consist of the development or transfer of a technical plan or technical design. The earlier Tribunal had held that executive search services did not satisfy these requirements and therefore were not taxable as FTS under Article 12(5)(b). It had also rejected the conclusion that the Service Agreement originated from or was ancillary to the Licence Agreement.
The earlier decisions also referred to proceedings under Section 201 of the Act relating to Spencer Stuart India Private Limited, in which the First Appellate Authority had held that search fees remitted to the assessee did not represent FTS under Article 12(5)(a) of the DTAA and consequently were not subject to tax deduction under Section 195. Those decisions additionally referred to the Advance Pricing Agreement (APA), under which licence fee transactions and executive search transactions had been benchmarked separately, with the Profit Split Method applied to executive search transactions and the Comparable Uncontrolled Price (CUP) method applied to licence fee transactions. These features were considered consistent with the distinction between the two categories of income.
The Tribunal also referred to the historical treatment of the issue. It noted that for AYs 2008-09 and 2009-10 the Assessing Officer himself had accepted that executive search fees were not taxable in India, while for AY 2011-12 the Tribunal had already upheld the assessee’s position. In this background, the earlier Tribunal observed that the Revenue had not shown why a different view should be adopted when the nature and source of the income remained the same.
The earlier decisions further examined the APA entered into by Spencer Stuart India. They recorded that the APA covered both licence fee transactions and executive search transactions, recognised them as distinct transactions, and adopted different transfer pricing methods for each. The Tribunal also referred to orders passed under Sections 92CA(3), 92CD and 143(3) giving effect to the APA and recording that executive search fee transactions had been accepted at arm’s length.
The Tribunal also considered the Assessing Officer’s alternative contention that executive search fees constituted royalty under clause (iv) of Explanation 2 to Section 9(1)(vi) of the Act read with Article 12(4) of the India–Netherlands DTAA. According to the Assessing Officer, the fees were earned for the use of various Spencer Stuart databases and knowledge management resources referred to in the Licence Agreement. Referring to the earlier decisions, the Tribunal noted that the APA had recognised executive search transactions and licence fee transactions separately. It further noted that the royalty payable under the Licence Agreement had already been separately identified and accepted, and that the Assessing Officer had not provided reasoning demonstrating why executive search services themselves constituted royalty. The earlier Tribunal therefore rejected the alternative characterisation of the receipts as royalty under Section 9(1)(vi) read with Article 12(4).
In the present appeal, the Tribunal observed that the issue continued to be recurring and that the earlier decisions had consistently held in favour of the assessee. It also recorded the submission of the assessee that although the APA covering earlier years did not extend to the year under consideration, the earlier Tribunal decisions had not rested solely upon the APA but had also relied upon the findings rendered in earlier years and the consistent treatment of the issue.
Following its earlier decisions and applying the principle of consistency, the Tribunal allowed the assessee’s ground relating to the taxability of executive search fees.
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