Global Brand, Communication & Technology Support Payments Not Taxable as Royalty under India-UK DTAA: ITAT Deletes TDS Demand against Deloitte [Read Order]

The Income Tax Appellate Tribunal (ITAT) Mumbai Bench held that payments made by Deloitte Touche Tohmatsu India LLP towards global brand, communication, and technology support services to its UK-based group entity could not be treated as royalty under Article 13(3) of the India–UK Double Taxation Avoidance Agreement (DTAA).

(DGSHL), a UK tax resident entity, as royalty liable for tax deduction at source under Section 195 of the Income Tax Act. The payments were made under a Shared Services Agreement covering services relating to global brand management, global communications, and global technology/knowledge management.

According to the Revenue, the services involved use of software, literary works, and commercial experience, thereby falling within the definition of royalty under Article 13(3) of the India–UK DTAA. Relying on earlier rulings including the Authority for Advance Rulings decision in EY Global Services Ltd., the Assessing Officer held that 3% of the remittances were taxable and raised TDS demands.

However, Deloitte contended that DGSHL merely operated as a coordinating entity for the benefit of member firms worldwide and recovered costs on a break-even basis without any markup. It was argued that no copyright, intellectual property, or commercial know-how was transferred to the assessee and that the services were purely internal support services.

The assessee stated that mere use of copyrighted articles without transfer of copyright does not amount to royalty.

The Tribunal observed that the services rendered under the agreement merely facilitated internal coordination, communication alignment, knowledge sharing, and technology standardization within the Deloitte network.

The The two member bench comprising Beena Pillai and Bijayananda Pruseth dismissed the Revenue’s appeals for Assessment Years 2018–19 and 2019–20 and upheld the order of the Commissioner of Income Tax (Appeals) and held that there was neither transfer of copyright nor imparting of confidential commercial experience as contemplated under Article 13(3) of the DTAA.

Accordingly, the Tribunal ruled that the payments were not taxable as royalty and that Deloitte India was under no obligation to deduct tax at source under Section 195 while making the remittances.

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