Payment received on providing Corporate IT Services to Group Entities is Taxable as Royalty/Fee for Included Services under Indo-US DTAA: ITAT [Read Order]

In M/s. Cargill Incorporated vs. ADIT, Delhi bench of Income Tax Appellate Tribunal (ITAT) held that the payment received on providing corporate Information Technology (IT) services to group concerns is taxable as royalty or fee for included services under the relevant article of the Double Tax Avoidance Agreement (DTAA) between India and USA.

Assessee in the present case is a foreign company incorporated in the United States of America (USA) and also tax resident of USA. And the assessee also maintained an IT department for providing Information and Technology (IT) related services to its group of companies. During the year the assessee company has entered into an agreement with Indian group entity to provide a range of services including corporate (IT) related services like email box services, global core services, Internet web browsing etc and other services.

Assessee maintained that the corporate IT charges received by the assessee pursuant to the agreement were mere reimbursement of cost and therefore not taxable either under the domestic law or under the Double Tax Avoidance Agreement (DTAA). During the course of assessment proceedings, the Assessing Officer (AO) rejected assessee’s contention and accordingly made additions in subsequent assessment years by holding that the charges received from services rendered under said agreement as income in the nature of Royalty/Fee for Included Services under relevant articles of the DTAA.

After considering the rival submissions of both the parties the tribunal bench comprising of Judicial Member H.S.Sidhu and Accountant Member O.P.Kant observed that the sole issue involved in the present case whether the payment received by the assessee on providing corporate IT services etc. to group entities, which is claimed by the assessee as reimbursement on cost basis, is liable to be taxable in the hands of the assessee either as royalty or fee for included services under the relevant articles of the DTAA between India and USA.

While concluding the case, the division bench further declared in the light of the decision of the Supreme Court in a previous case on similar issue, held that the payment received on providing corporate IT services to group entities is Taxable as Royalty/Fee for Included Services under Indo-US DTAA.