Flywire Payments Corporation Vs CIT(A) (ITAT Kolkata)
Background
- Assessee, a US tax resident, acts as an international payment gateway for foreign universities/colleges to collect fees from Indian students.
- For Indian transactions, Flywire entered into an agreement (01.03.2013) with Muthoot Forex Ltd. for currency conversion & remittance.
- As per agreement, Muthoot retained 1% margin of INR value as commission; remaining fees transferred to Flywire for onward remittance to foreign universities.
- AO treated payments from Muthoot to Flywire as “royalty”, alleging Muthoot used Flywire’s software/portal to facilitate remittances.
- CIT(A) upheld AO’s view, noting Muthoot lacked technical know-how & relied on Flywire’s proprietary systems.
Assessee’s Contentions
- No technology transfer or software rights were granted to Muthoot.
- Muthoot merely acted as a collection agent handling forex conversion.
- Flywire’s income comprised only exchange fluctuation margin; no service provided to Muthoot.
- All receipts were routed through banking channels & fully disclosed.
Tribunal’s Observations /Decision
- Agreement shows no reference to technology/software being provided to Muthoot.
- Payments were only forex margins/commissions; Flywire acted as payment intermediary.
- No charges collected from students; Muthoot retained 1% fee only.
- Therefore, no “royalty” element arises under IT Act or DTAA.
- However, since Flywire itself disclosed these receipts as royalty in India return (and Muthoot deducted TDS u/s 195), ITAT directed AO to:
- Verify inclusion of these receipts in Flywire’s US tax return (gross income schedule).
- If already offered abroad, inform US tax authorities for consistency.
- Addition as “royalty” deleted.
- AO directed to verify US return disclosure for cross-border tax compliance.
- Appeal allowed in assessee’s favour, subject to verification.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
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