ITAT Rules Consultancy Receipts Not FIS; Subscription Not Royalty

Bain & Company Inc., a US tax resident entity, rendered management consultancy and professional support services to its Indian subsidiary, Bain & Company India Pvt. Ltd., during AY 2022-23. The assessee also earned subscription income from third parties for access to its NPS Prism platform. During assessment, the Assessing Officer, following directions of the DRP, treated consultancy receipts (Rs. 86.80 crore) and support service receipts (Rs. 47.98 crore) as Fees for Included Services (FIS) under Article 12 of the India-US DTAA. Further, subscription fees were characterised as royalty.

The AO also denied TDS credit on certain interest income as it was not reflected in Form 26AS and drew an adverse inference from past settlement under the Vivad Se Vishwas Scheme. Aggrieved, the assessee approached the ITAT contending that identical issues had already been decided in its favour in earlier years and that services did not “make available” any technical knowledge.

Issue Raised: Whether consultancy and support services rendered by a US entity to its Indian subsidiary qualify as FIS under Article 12 of the India-US DTAA, and whether subscription fees for database access constitute royalty.

HC’s Ruling: The Income Tax Appellate Tribunal partly allowed the appeal, granting substantial relief. It held that consultancy and support services did not satisfy the “make available” condition under Article 12(4)(b) of the DTAA, as no technical knowledge or know-how was transferred for independent use. Accordingly, the additions were deleted, consistent with earlier years. Subscription fees for access to the NPS Prism platform were not treated as royalty, since mere database access does not involve the transfer of copyright but only the use of a copyrighted article.

The Tribunal also clarified that opting for the Vivad Se Vishwas Scheme does not imply acceptance of taxability, relying on CBDT Circular No. 9/2020. On TDS credit, it held that credit should be allowed if the assessee substantiates the deduction, even if not reflected in Form 26AS. The issue was remanded to the AO for verification.

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