Case Law Details
Alstom (Shared Services) Philippines Inc. Vs DCIT (ITAT Delhi)
The appeals concerned whether consideration received by two non-resident assessees for providing business support and human resources services to their Indian group entities was taxable in India as royalty or otherwise under the applicable Double Taxation Avoidance Agreements (DTAAs). One assessee was a tax resident of the Philippines and the other of Thailand. Both assessment orders had been passed under Sections 147 read with 144C(13) of the Income-tax Act for AY 2018-19. The assessees did not press their challenge to the validity of the reassessment proceedings, and those grounds were dismissed as not pressed.
The Philippine assessee had entered into a Master Service Agreement with its Indian affiliate for providing finance, accounting, procurement, treasury and human resources support services. The Assessing Officer treated the consideration as royalty under Section 9(1)(vi), alleging that drawings, documents, methods and other proprietary information had been furnished to the Indian entity. The assessee denied sharing any such material and contended that the agreement covered only routine administrative and business support services. It further argued that the India-Philippines DTAA did not contain a Fee for Technical Services (FTS) article and, in the absence of a Permanent Establishment (PE) in India, the receipts could only be treated as business profits under Article 7 and were therefore not taxable in India.
The Tribunal examined the Master Service Agreement and noted that the services comprised accounts payable, general ledger, procurement, treasury and human resources functions. It held that these services did not fall within the definition of royalty under Article 13(3) of the India-Philippines DTAA. The Tribunal found that the Assessing Officer had not identified any source or evidence supporting the conclusion that drawings, documents, methods or proprietary information had been shared. It observed that the findings of the Assessing Officer were contrary to the material on record and that the Dispute Resolution Panel had placed undue reliance on those unsupported observations. Since the services were merely routine business support services and no scientific or commercial information had been transferred, the consideration could not be characterised as royalty. The Tribunal also reiterated that where the DTAA provisions were more beneficial, they prevailed over the provisions of the Income-tax Act. Accordingly, the ground challenging the treatment of receipts as royalty was allowed.
On the issue of taxability in the absence of an FTS article in the India-Philippines DTAA, the Tribunal relied upon the decision of the Madras High Court in Bangkok Glass Industry Co. Ltd. and the Coordinate Bench decision in Solvay Asia Pacific (P.) Ltd. It held that, where the treaty does not contain an FTS clause, receipts from such services are to be treated as business profits under Article 7. Since the assessee had no PE in India, those business profits were not chargeable to tax in India. The Tribunal also noted that the contrary view relied upon by the Revenue in TVS Electronics Ltd. had subsequently been held to have been overturned by the Madras High Court. Consequently, the assessee’s ground on Article 7 was accepted.
Regarding the levy of fee under Section 234F and interest under Section 234A, the Tribunal restored both issues to the Assessing Officer for verification of whether the return had been filed within the prescribed time under Section 139(1) and directed that they be decided in accordance with law. The challenge to initiation of penalty proceedings under Section 270A was held to be premature and was dismissed. Accordingly, the first appeal was partly allowed.
The second appeal involved a Thailand-based assessee providing human resources services under a Human Resources Services Agreement. The services included data management, compensation and benefits administration, recruiting and staffing, learning and development, and HR governance. The Tribunal found that these services also did not fall within the definition of royalty under Article 12(3) of the India-Thailand DTAA. Since the issues and treaty provisions were materially identical to those in the first appeal, the Tribunal applied its earlier reasoning and held that the receipts were not royalty. It further held that the service receipts constituted business profits under Article 7 and, in the absence of a PE in India, were not taxable in India. The challenge to reassessment was dismissed as not pressed, while the remaining issues were decided consistently with the findings in the first appeal. The second appeal was also partly allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
These two appeals by the two different assessees are taken up together as the facts germane to the issues raised in both appeals are identical and the grounds raised by the assessees in their respective appeals are also identical. For the sake of convenience, appeals are decided in seriatim.
ITA 2014/DEL/2025
2. This appeal by the assessee is directed against the assessment order passed u/s.147 r.w.s. 144C(13) of (hereinafter referred to as ‘the Act’) dated 27.01.2025, for assessment year 2018-19.
3. Shri Kamal Sawhney, appearing on behalf of the assessee at the outset stated that the assessee does not wish to press ground no. 2 of appeal challenging validity of reassessment proceedings. In light of statement made by ld. Counsel for the assessee, ground no. 2 of appeal including its sub grounds i.e. 2.1 to 2.3 are dismissed as not pressed.
4. The ld. Counsel submits that the assessee is tax resident of Philippines. The assessee has entered into an arrangement with Bombardier Transportation India Ltd. (BTIN) for providing certain services viz. finance, accounting, procurement, treasury, to BTIN. The assessee received Rs.2,32,36,611/- as consideration for rendering services to BTIN. The said receipts by the assessee can be classified as Fee for Technical Services (FTS) as per the provisions of the Income Tax Act. India-Philippines Double Tax Avoidance Agreement (DTAA) does not contain any provisions relating to FTS. In the absence of any specific Article on FTS the consideration received by the assessee is not taxable to India. The ld. Counsel submits that the Assessing Officer (AO) in draft assessment order without referring to any document merely on presumption held, “During the course of providing services the Assessee has furnished drawings, documents, methods and other information which remains the exclusive property of the assessee. The user has been allowed use of information, processes, like manuals, drawings etc. The right to such drawings, documents, methods and other information is retained by the parties supplying them. If this is not Royalty, what else! should be.” The ld. Counsel submits that the assessee categorically denies that any such information, processes, manuals, drawing, etc. were provided by the assessee to BTIN. On perusal of agreement dated 27.10.2014 at pages 104 to 134 of the paper book, which also defines scope of services, it would be evident that the services are merely in the nature of business support services and no such information, drawings, etc. were shared by the assessee with BTIN, so as to result in receipt for the same to fall within the meaning of royalty.
5. He further submits that as there is no FTS clause in India-Philippines DTAA, the AO has tried to tax receipts from Indian entity as royalty. It is a settled position that in the absence of FTS clause in treaty, the said income can be taxed only as business income. Since, the assessee has no Permanent Establishment (PE) in India, the said income is not taxable in India even as ‘Business Income’. In support of his arguments, the ld. Counsel placed reliance on following decisions: –
(i) Bangkok Glass Industry Co. Ltd. vs. ACIT, 257 CTR 326 (Madras);
(ii) Solvay Asia Pacific (P.) Ltd. vs. DCIT, 159 com 90 (Delhi-Trib.);
(iii) CIT vs. Hireright Ltd., 161 com 45 (Delhi).
6. Per contra, Shri M.S. Nethrapal, representing the department defended the impugned assessment order. The ld. DR submits that the AO in the order has categorically observed that the assessee has furnished drawings, documents, method and other information which remains exclusive property with BTIN. The amount received by the assessee in lieu of share of drawings, documents, method, etc. is in the nature of royalty within the meaning of section 9 of the Act. The ld. DR further submits that it is the contention of the assessee that the payments are in the nature of FTS. If FTS clause is absent in India-Philippines DTAA, such payments do not automatically become business income, the receipts are to be examined under the provisions of the Act. In support of his arguments, the ld. DR placed reliance on the decision in the case of DCIT vs. TVS Electronics Ltd., 22 taxmann.com 215 (Chennai). The ld. DR further contended that where payments are received for providing various specialized services for running operations in India, as is in the case of assessee, the said receipts are in the nature of FTS, hence, taxable in India under provisions of the Act. To support this proposition, the ld. DR placed reliance on the decision in the case of Volvo Information Technology AV vs. DCIT, 162 taxmann.com 679 (Delhi-Trib.).
7. Rebutting the submissions made by ld. DR, the ld. Counsel for the assessee pointed that the ratio laid down in the case of DCIT vs. TVS Electronics Ltd. (supra) has been reversed by Hon’ble Madras High Court in the case of Bangkok Glass Industry Co. Ltd. vs. ACIT (supra). The ld. DR referred to the decision of Coordinate Bench in the case of DCIT vs. Campus Eai India P. Ltd. in ITA No. 355/Del/2021 for AY 2017-18 decided on 20.10.2023 in support of his argument.
8. We have heard the submissions made by rival sides and have examined the orders of lower authorities. We have considered the documents furnished by the assessee in the form of paper book and the decisions on which both sides have placed reliance in support of their respective submissions. The assessee in appeal has assailed findings of the AO primarily for holding payments received for providing support services are in the nature of royalty. The assessee has entered into Master Service Agreement with its AE in India i.e. BTIN, A copy of agreement is placed on record at pages 104 to 134 of the paper book. Similar agreements have been entered by the assessee with each of its affiliate companies for providing bouquet of back office administrative support services. The support services provided by the assessee to its affiliates including BTIN are detailed in Annexure-1 to the said agreement. The service provided by the assessee are broadly categorized under following heads:-
(i) Accounts payable and travel expenditure process;
(ii) General ledger, accounts receivable, cash management and intercompany reconciliations;
(iii) Closing and reporting and internal accounting- forecast and budget;
(iv) Procurement including involvement in Bid phase, cost performances, procurement project management, issue of purchase order and supply chain management, etc.
(v) Treasury which includes control financial transactions with banks, reporting, payments, reporting invoices and reconciliation, etc.;
(vi) Human Resources including staffing, recruiting, training and development, compensation and data management.
The above services provided by the assessee do not involve any of the activities which would fall within the sweep of the definition of royalties as per Article 13 of India-Philippines DTAA. For the sake of ready reference, the definition of royalties under Article 13(3) of India-Philippines DTAA is reproduced herein below:-
“3. The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films, or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.”
9. The ld. DR has emphasized that in the draft assessment order (page-9), the AO has observed that the assessee has furnished drawing, documents, method and other information. The payments for which would fall within the meaning of royalty. The relevant extract of AO’s said observations have already been reproduced in para 4 of the order. We are unable to comprehend as to from where the AO has come to the conclusion that the assessee has furnished drawing, documents, method and such other information which is exclusive property of the assessee that have been shared by the assessee with BTIN. The AO while recording such findings has not even mentioned the source of such information available to the AO. In our considered view, the said observations of the AO are contrary to the material available on record. The Dispute Resolution Panel (DRP) has also given too much weightage to the said findings of the AO and based on said observation has come to the conclusion that the payments are in the nature of royalty. The nature of services provided by the assessee to its associates as per Agreement (supra) would show that they are in the nature of routine support services for administration of business and no scientific or commercial data is shared by the assessee. Further, the AO has held that the payments received by the assessee are in the nature of royalty u/s.9(1)(vi) of the Act. It is no more res integra that where the provisions of the DTAA are more favorable to the assessee, the provisions of DTAA would override the provisions of the Act. Hence, we find merit in the submissions of the assessee that the payments received in lieu of rendering support services are not in the nature of royalty. The assessee succeeds on ground no. 3 of appeal.
10. The assessee in ground no. 4 of appeal has urged that in the absence of FTS clause in India-Philippines DTAA, service receipts would fall under Article 7 of the DTAA i.e. “business profits”. In the absence of PE such receipts would not be chargeable to tax in India. The above argument of the assessee, finds support from the decision rendered by Hon’ble Madras High Court in the case of Bangkok Glass Industry Co. Ltd. vs. ACIT (supra). The relevant excerpts from the aforesaid judgment are reproduced herein under:-
“18. It must be pointed out herein that the consideration as to whether the receipt would fall for consideration as royalty or fees for technical services would depend on the clauses in the agreement between the assessee and MBDL. In a detailed discussion made on the various clauses under the agreement, read in the context of art. 12 of the DTAA, the CIT(A) pointed out that the word “royalty” under the agreement is a very comprehensive one and that the case on hand is distinguishable from the decision of the Karnataka High Court in Citizen Watch Co. Ltd. v. IAC [1984] 148 ITR 774/[1983] 15 Taxman 438 as well as the decision of the Tribunal which “was relied on by the assessee. Given the fact that the services rendered by the assessee covered transfer of know-how as well as giving, technical assistance and technical advise, learned counsel appearing for the assessee pointed out that what went in as by way of technical advice was with reference to the resolving of the day-to-day problems in the implementation of the transfer of technical know-how. The technical advice given related to resolving the issues in the actual working of the transferred knowledge and there was no transfer of technical know-how to fall for consideration under the head of “royalty”, hence, the entire payment has to be treated as falling for consideration between payment of royalty and payment of rendering technical advice. On going through arts. 2 and 3 of the agreement between the assessee and the Indian company, we agree with the view of the CIT(A) that the entirety of the payment cannot be considered as one falling for consideration under art. 12. Further, taking note of the fact that the assessee company was also involved in training Indian personnel in India and abroad and taking note of the clauses in the agreement as regards the payment and the additional payment depending on the period of training, over and above what was to be paid under the agreement for the duration specified therein, the CIT(A) rightly came to the conclusion that the component of technical services in India included the extra months of training, so too the training abroad. In computing the said amount, rightly the CIT(A) arrived at a finding that a sum of 1,12,500 USD and 69,750 USD would be the amount which would be treated as received for technical services rendered by the assessee and the amount of 4,79,640 USD relates to royalty payment, assessable as per art. 12.
19. Even though the Revenue canvassed this issue before the Tribunal, in the absence of any material to read the clauses otherwise, rightly, the Tribunal came to the conclusion that a sum of 4,79,640 USD alone would fall for consideration under art. 12 as royalty income and the other to be assessed as by way of technical services. As already pointed out even herein, with the finding of the assessing authority on the remand order that the assessee had no PE, the said amount cannot be brought under art. 7. In the light of the above, we have no hesitation in confirming the order of the Tribunal.”
11. The Coordinate Bench in the case of Solvay Asia Pacific (P.) Ltd. vs. DCIT (supra) in a similar case after referring to the judgment in the case of Bangkok Glass Industry Co. Ltd. vs. ACIT (supra) held that where an assessee company incorporated in Thailand had rendered business support services to its Indian entity and the AO held the receipts for rendering such services to be taxable as FTS, in absence of FTS clause in India-Thailand DTAA such receipts would be considered as business income. Further, the Tribunal held that since the assessee has no PE in India, the business income of the assessee is not liable to be tax in India.
12. The ld. DR has placed reliance on the decision rendered in the case of DCIT vs. TVS Electronics Ltd.(supra) to contend that where DTAA does not specifically provide for FTS such payment does not automatically become business income and has to be tested in light of provisions of the Act. The ld. Counsel for the assessee to counter submissions of the DR placed reliance on the decision of Coordinate Bench in the case DCIT vs. Campus Eai India P. Ltd. (supra). The Co-ordinate Bench in the said case has held that the ratio laid down in the case of DCIT vs. TVS Electronics Ltd.(supra) has been overturned by Hon’ble Madras High Court in the case of Bangkok Glass Industry Company Ltd. vs. Asst. CIT (supra).
13. Thus, in light of the facts of case and the decisions discussed above, we find merit in ground no. 4 of appeal. Ergo, the same is accepted.
14. The assessee in ground no. 5 of appeal has assailed levy of fee u/s.234F of the Act. The contention of the assessee is that the return was filed within the time specified u/s.139(1)of the Act, hence, no fee u/s.234F of the Act is leviable. We deem it appropriate to restore this issue back to the AO for the verification and to decide the same in accordance with law. Thus, ground no. 5 of appeal is allowed for statistical purpose. In ground no.6 of appeal, the assessee has assailed initiation of penalty u/s. 270A of the Act. Challenge to penalty proceedings at this stage is premature. Accordingly, ground no. 6 of appeal is dismissed.
15. In ground no. 7 of appeal, the assessee has assailed charging of interest u/s.234A of the Act. The contention of the assessee is that the return of income was filed within the prescribed time limit as specified u/s.139(1) of the Act. We deem it appropriate to restore this issue back to the AO for verification and decide the same, in accordance with law.
16. In the result, appeal of the assessee is partly allowed.
ITA No.2015/Del/2025
17. This appeal by the assessee is directed against the assessment order passed u/s.147 r.w.s. 144C(13) of (hereinafter referred to as ‘the Act’) dated 27.01.2025, for assessment year 2018-19.
18. The ld. Counsel for the assessee submits that facts germane to the issue in present appeal are similar to the facts in ITA 2014/Del/2025, except that in the present appeal, the assessee is based in Thailand and India-Thailand DTAA has to be considered. The provisions of India-Thailand DTAA in so far as the FTS clause is concerned are pari mate Hence, the submissions made in ITA No.2014/Del/2025 would equally hold good for the present appeal as well.
19. The ld. DR fairly admitted that the facts in instant appeal are similar to the facts in ITA No.2014/Del/2025 (supra).
20. We find that the grounds of appeal raised by the assessee in present appeal are identical to the one adjudicated by us in ITA No.2014/Del/2025 (supra). The primary issue assailed by the assessee in the present appeal is consideration received for providing support services held as royalty. The assessee has placed on record copy of Human Resources Services Agreement dated 01.01.2025 at pages 125 to 154 of the paper book. The scope of services rendered by the assessee to its Indian Group Associates are as under:-
“a. Data Management: Maintenance of employment data and use of Information Systems for acquiring, storing, analyzing, maintaining and distributing information to various stakeholders to enable improvement in traditional processes.
b. Compensation & Benefits: Process compensation request, support annual salary and benefit review process, maintain data and reporting.
c. Recruiting and Staffing Activities: Job posting, screening of candidates, organizing interviews, travel arrangements, maintain data and reporting.
d. Learning and Development: Maintain training catalogue, administer training events, process request for training and reporting.
e. HR Governance: Facilitates compliance with legal and ethical obligations relating to people management practices.”
From perusal of the scope of services mentioned above it emerges that the consideration received for rendering aforesaid services by the assessee does not fall within the sweep of definition of royalty as per Article 12(3) of India-Thailand DTAA. The detailed reasons given by us while adjudicating identical issue in ITA No.2014/Del/2025 would mutatis mutandis apply in instant appeal. For parity of reasons, ground no. 3 of appeal is allowed.
22. The assessee in ground no. 4 of appeal has assailed that as per India-Thailand DTAA service receipts amounting to Rs.1,72,96,297/- would fall under Article 7 as ‘Business Profits’. In absence of assessee’s PE in India, such receipts are not chargeable to tax in the hands of assessee. We find that ground no. 4 in the instant appeal is identical to ground no. 4 in ITA No.2014/Del/2025 (supra). The findings given by us while adjudicating the issue in ITA No.2014/Del/2025 would mutatis mutandis apply to the instant appeal. For parity of reason, the ground no.4 of appeal is allowed.
23. The ld. Counsel for the assessee has made statement at Bar that the assessee does not wish to press ground no. 2 of appeal challenging validity of reassessment proceedings. In light of the statement made by ld. Counsel for the assessee ground no. 2 of appeal is dismissed as not pressed.
24. In so far as other grounds raised by the assessee in appeal, we find that these are identical to the grounds raised in ITA No.2014/Del/2025. The findings given therein would mutatis mutandis apply to the remaining grounds of the present appeal.
25. In the result, appeal of the assessee is partly allowed.
26. To sum up, ITA No. 2014/Del/2025 and ITA no. 2015/Del/2025 are partly allowed.
Order pronounced in the open court on Wednesday the 24th of June, 2026.
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