Royalty and FTS Taxable on Receipt Basis Only: ITAT Follows Consistent Precedent in Favour of Siemens AG [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has reaffirmed that Siemens Aktiengesellschaft (Siemens AG), a tax resident of Germany, is liable to tax on royalty and fees for technical services (FTS) in India only on a receipt basis, not on accrual.

Siemens AG, a non-resident company, derived income in India by way of royalty and fees for technical services from its Indian associated enterprises (AEs). In its returns for AY 2017–18 and 2018–19, Siemens offered such income to tax on a receipt basis, as it had consistently done for decades.

The AO, however, held that such income had accrued to the assessee and was therefore taxable on an accrual basis, relying on Section 5(2)(b) of the Income Tax Act. The Dispute Resolution Panel (DRP) upheld the addition, disregarding the company’s reference to Article 12 of the India–Germany Double Taxation Avoidance Agreement (DTAA), which expressly uses the term “paid” or “received” with respect to royalties and FTS. Aggrieved by the order, the assessee filed an appeal before the Tribunal.

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Before the Tribunal, Siemens argued that the DTAA overrides domestic law where more beneficial to the taxpayer, and that the issue had already been conclusively decided in its favour by multiple coordinate benches of the ITAT and by the Bombay High Court in earlier years (AYs 1986–87 to 2006–07).

The company submitted that, as per treaty provisions, income could be taxed in India only when it is actually received, and not when it merely becomes due. The Departmental Representative, however, relied on the AO’s reasoning that the income had “accrued” when the right to receive arose, regardless of receipt.

The Tribunal examined the language of Article 12(1) and 12(3) of the India–Germany DTAA, noting that it consistently refers to “payments received” and “payments of any kind received” — thereby signifying that actual receipt, not accrual, is the trigger for taxability.

It was observed that the Bombay High Court, in Siemens AG’s own cases for AYs 1986–87 to 1992–93 and subsequent years, had accepted the same view. It also referred to a series of ITAT rulings from AY 1990–91 onwards, where the same position was consistently upheld.

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The Bench, comprising Beena Pillai (Judicial Member) and Renu Jauhari (Accountant Member), emphasised the principle of judicial consistency, observing that once a view has been upheld by the High Court in the assessee’s own cases, the Department is bound to follow it in subsequent years unless reversed by a higher court. The Tribunal rejected the AO’s reliance on Standard Triumph Motors Ltd., observing that it had been distinguished by the Supreme Court in later decisions and that the factual context was different.

Concluding that there was no reason to deviate from established judicial precedent, the Tribunal held that the royalty and FTS income must be taxed only on a receipt basis, as per the DTAA, and that accrual-based taxation would contravene both treaty language and prior binding rulings. The additions made by the AO and confirmed by the DRP were therefore deleted in full.

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