High Court: Payments Cannot Be Taxed as FTS Without Knowledge Transfer Proof
High Court: Payments Cannot Be Taxed as FTS Without Knowledge Transfer Proof
The assessee company, a UK-based company and tax resident of the UK, did not file returns for AY 2016-17 and AY 2017-18, claiming no taxable income in India. The Assessing Officer (AO) received information that it received Rs. 2.93 crore (AY 2016-17) and Rs. 3.31 crore (AY 2017-18) from Genpact India. The AO treated the receipts as Fees for Technical Services (FTS) under Section 9(1)(vii) of the Income Tax Act and Article 13 of the India-UK DTAA, completing reassessment u/s 147. The Dispute Resolution Panel (DRP) upheld the AO’s views.
ITAT’s Decision: Aggrieved, the assessee filed an appeal before the ITAT, which was dismissed. The company then approached the High Court under Section 260A.
Main Issue: Whether payments received from Genpact India could be taxed in India as FTS under Article 13(4)(c) of the India-UK DTAA, despite the assessee having no Permanent Establishment (PE) in India.
HC’s Decision: The High Court ruled that the assessee’s earnings were not subject to the India-UK Double Taxation Agreement’s Fees for Technical Services (FTS) tax. The Court emphasised the significance of Article 13(4)(c)‘s “make available” test, which mandates that technical knowledge, skills, or procedures be given to the recipient in a way that allows them to use them on their own. In this instance, the assessee company had not given Genpact India any technical know-how, expertise, or ownership rights in the technology. It just had access to its e-invoicing platform and associated services.
In CIT v. De Beers India Minerals, DIT v. Guy Carpenter, the Court reaffirmed that incidental use of technical services without actual knowledge transfer does not meet the “make available” test condition. As a result, in the absence of a Permanent Establishment (PE), the receipts were regarded as business income and were therefore exempt from Indian taxation. Therefore, the ITAT’s ruling was overturned, and the assessee’s appeal was granted.
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