Payments by Deloitte for Global Brand, Communication & IT Support Not ‘Royalty’: ITAT rules No TDS applicable u/s 195 [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) ruled that payments made for global brand management, global communications, and global technology or knowledge management services do not qualify as “royalty” under Article 13(3) of the India-United Kingdom Double Taxation Avoidance Agreement (DTAA). Therefore, no tax was required to be deducted at source under Section 195 of the Income Tax Act, 1961.

The appellant in the present case was the Deputy Commissioner of Income Tax (International Taxation), Mumbai, while the respondent was Deloitte Haskins & Sells LLP, a limited liability partnership engaged in rendering professional services and forming part of the global Deloitte network.

The dispute arose from payments made by Deloitte Haskins & Sells LLP to Deloitte Global Holdings Services Limited, a United Kingdom based entity, under a Shared Services Agreement. Under this agreement, the global entity coordinated and facilitated services such as global branding, communications, and technology or knowledge management for member firms across the Deloitte network. The global entity operated on a cost-sharing and break-even basis, recovering only proportionate expenses without any mark-up.

For the relevant assessment years, the assessee sought permission to remit payments without deduction of tax under Section 195 of the Income Tax Act, 1961. The Assessing Officer held that a portion of these payments constituted royalty under the DTAA and directed deduction of tax at source. The appellate authority deleted the demand, holding that the payments were not in the nature of “royalty”. Aggrieved by this relief, the Revenue filed appeals before the Income Tax Appellate Tribunal.

The Revenue contended that payments in consideration for the use of intellectual property or for information concerning commercial experience. It was argued that such payments fell within the definition of “royalty” under Article 13(3) of the DTAA and were therefore chargeable to tax in India. Further, the assessee was obligated to deduct tax at source under Section 195 of the Income Tax Act, 1961, and that refunds granted pursuant to the appellate authority’s order were premature, since similar issues for earlier years were pending adjudication.

The assessee argued that the payments were made purely for internal support services within the Deloitte network and did not involve any transfer of copyright, trademark, or other intellectual property. The services provided were managerial, advisory, and facilitative in nature and were incapable of being characterised as “royalty”. Further, the global entity did not render services to third parties, did not engage in commercial exploitation of intellectual property, and merely recovered shared costs without profit.

The Bench of Amit Shukla, Judicial Member and Girish Agrawal, Accountant Member dismissed the appeals filed by the Revenue. The Tribunal held that services relating to global brand and communications involved formulation of common policies, internal guidance, training, and alignment of messaging across member firms, and did not constitute any transfer of intellectual property or confer any independent right of commercial exploitation on the assessee.

Simultaneously, global technology and knowledge management services involve providing access to technology tools and databases strictly for internal use, without granting any right to exploit or sub-license software or systems.

The Tribunal ruled that for a payment to qualify as royalty under Article 13(3) of the DTAA, there must be consideration for the use of, or the right to use, intellectual property or for imparting confidential commercial or scientific experience. Such routine support and coordination services rendered within a professional network did not fulfill this threshold.

Therefore, the payments were not chargeable to tax in India. As a result, no obligation arose to deduct tax at source under Section 195 of the Income Tax Act, 1961. Accordingly, the orders of the appellate authority were upheld.

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