The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) ruled that IT support service payments made by CPP Assistance Services Private Limited to its UK-based group entity do not qualify as Fees for Technical Services (FTS) under Article 13 of the India-UK Double Taxation Avoidance Agreement ( DTAA ).
CPP Assistance Services Private Limited, the assessee, made payments of Rs.14,56,35,000 for AY 2018-19 and Rs. 14,71,82,129 for AY 2020-21 to its non-resident group company for IT support services. The revenue argued that these payments should be classified as FTS and subjected to withholding tax under the Income Tax Act, 1961. The Assessing Officer (AO) disallowed the payments on this ground.
On appeal, the CIT(A) held that the IT services did not “make available” any technical knowledge, skill, or expertise as required under Article 13 of the India-UK DTAA. The revenue then filed an appeal before the ITAT challenging this decision.
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The revenue counsel argued that the IT support services provided to CPP India involved technical expertise and should be classified as Fees for Technical Services (FTS) under Article 13 of the India-UK DTAA, which made them subject to withholding tax.
They also argued that the continuous and perpetual nature of these services indicated their technical necessity for the business and relied on domestic tax laws and the OECD Model Commentary claiming that such payments should fall within the FTS category under Indian tax provisions.
The two-member ITAT Bench comprising Anubhav Sharma (Judicial Member) and Brajesh Kumar Singh (Accountant Member) considered the submissions made by both parties. The tribunal examined the IT support services agreement and observed that similar payments had already been adjudicated for AY 2017-18 where it was held that the services did not result in the transfer of technical knowledge or expertise.
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The tribunal observed that the IT services were provided remotely from the UK and were not exclusive to CPP India as they were extended to the entire CPP group. The tribunal observed that the agreement between the entities was perpetual and recurring, explaining that no technical knowledge or expertise was transferred to the assessee. The tribunal reasoned that if the services had truly “made available” technical knowledge, CPP India would not have required continued reliance on CPP UK for ongoing support.
Based on the above findings, the tribunal ruled that the Make Available test was not satisfied and that IT support services do not qualify as FTS under Article 13 of the India-UK DTAA. The tribunal upheld the CIT(A)’s decision and directed the Assessing Officer to delete the disallowance of the payments. The appeal was dismissed.
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