Mitsubishi Electric Europe B.V. Vs ACIT (ITAT Delhi)
“Design Win” Is Not Technical Know-How: ₹2.96 Crore Referral Commission Escapes FTS Tax
Referring customers and earning a percentage of the resulting sales does not become a technical service merely because the documents use expressions such as “design win fees” or “design approval charges”. In Mitsubishi Electric Europe B.V. v. ACIT, the Delhi ITAT held that referral commission of ₹2,96,41,107 constituted business income and was not taxable in India under Article 7 of the India–Netherlands DTAA, in the absence of a permanent establishment. The Tribunal found that no technical services were provided and no technical knowledge was “made available” to the Indian recipient.
Background: Customer Referrals Generated Commission
The assessee, Mitsubishi Electric Europe B.V., was incorporated in and was a tax resident of the Netherlands. Its principal business involved the sale of industrial, electrical and electronic equipment.
It also referred potential customers to its Indian group company, Mitsubishi Electric India Private Limited, referred to as MEI. When MEI sold products to those customers, the assessee received commission calculated as a specified percentage of the sales value.
For Assessment Year 2022-23, the assessee filed its return on 23 November 2022, declaring nil income. The referral commission of ₹2,96,41,107 was disclosed as income not chargeable to tax under the DTAA, relying on Articles 5 and 7.
