Receipts Not Qualify as FTS if No Technology Transfer: Delhi HC Rules Income Not Taxable Under India-UK DTAA [Read Order]
The Delhi High Court held that payments for e-invoicing services were not taxable as Fees for Technical Services under the India–UK DTAA due to absence of technology transfer.
DTAA India UK
DTAA India UK
In a recent decision, the Delhi High Court held that payments received by a UK-based company from an Indian entity are not taxable in India under the India-UK Double Taxation Avoidance Agreement (DTAA), as the services provided did not involve any transfer of technology and did not qualify as Fees forTechnical Services (FTS).
The case arose from reassessment orders for the assessment years 2016-17 and 2017-18, where the Income Tax Department treated payments made by Genpact India Pvt. Ltd. to Tungsten Automation England Limited as taxable FTS.
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The company filed appeals against the assessment, arguing that the receipts were business income and not taxable in India due to the absence of a Permanent Establishment (PE) and the nature of the services provided.
The appellant’s counsel argued that Tungsten had only granted GIPL a non-exclusive license to use its cloud-based e-invoicing platform and that no technical knowledge, know-how, or process was transferred. They submitted that the services did not “make available” any technical skills to the Indian entity, a requirement under Article 13 of the India–UK DTAA for income to be classified as FTS.
The income tax department’s counsel argued that the services involved technical expertise and included training, which amounted to making technical knowledge available. They argued that this satisfied the DTAA conditions for FTS and made the income taxable in India.
The bench comprising Justice Vibhu Bakhru and Justice Tejas Karia observed that although the services used advanced technology, GIPL was not given access to the underlying software, source code, or technical know-how. The court observed that the training provided was only for using the software and did not enable the Indian company to perform the services independently in the future.
The court further observed that merely allowing access to a technology-based service platform does not meet the “make available” condition under the DTAA. It clarified that for services to be treated as FTS, the Indian recipient must be able to apply the technical knowledge on its own in future dealings, which was not the case here.
Concluding that the receipts did not fall within the scope of FTS under Article 13(4)(c) of the DTAA, the court held that the income was not chargeable to tax in India. The court set aside the reassessment orders passed by the tax authorities and allowed the appeal.
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