ITAT Delhi Rules Routine Support Services Not Taxable as Fees for Technical Services under India-UK DTAA:

ITAT Delhi Rules Routine Support Services Not Taxable as Fees for Technical Services under India-UK DTAA The tribunal ruled that CPPGROUP UK only provided ongoing support and general assistance to its Indian subsidiary; it did not transfer any technical knowledge or skills that made the Indian company self-reliant. Therefore, these service fees are not taxable in India as "Fees for Technical Services" under the India–UK DTAA. The present appeal has been filed by a company named CPPGROUP Services Limited (Appellant) against the Assistant Commissioner of Income Tax (ACIT), Circle-1(2)(1) (Respondent), in the Income Tax Appellate Tribunal (ITAT) Delhi Bench, ‘D’: New Delhi, before Shri Vikas Awasthy (Judicial Member) and Shri Brajesh Kumar Singh (Accountant Member). The case is related to the assessment year 2022-23.

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Background of Case: The assessee is a UK-based company, incorporated and registered in England and Wales. The company is located at 6, East Parade, Leeds, LS1 2AD, United Kingdom (UK), and is involved in providing various services like IT services, Human Resources, Business Development, Marketing, etc., to its group companies, including its Indian subsidiary CPP Assistance Services Pvt. Ltd. (CPP India). During the financial year 2021-22, the assessee earned income from three different types of services:

• IT support services: Rs. 20.81 crore
• Non-IT support services: Rs. 0.89 crore
• IT development services: Rs. 5.32 crore

The company had already paid tax on income generated from providing IT development services and said the other two service incomes are not taxable in India because they are already covered under Equalisation Levy (2%) and did not qualify as “Fees for Technical Services (FTS)” under the India-UK Double Taxation Treaty (DTAA).

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However, the assessing officer (AO) denied the claim of the assessee and considered both IT support and non-IT support income as taxable FTS under Article 13 of the India-UK DTAA. The Dispute Resolution Panel (DRP) mostly agreed with the AO on IT support income; however, the question arose about non-IT income. The assessee, dissatisfied with the action of the assessing officer (AO), then approached the ITAT New Delhi. Issue 1: IT Support Services The AO argued that CPP India was becoming self-sufficient due to new IT development, and therefore, technical knowledge was being “made available”, meaning CPP India could perform IT work on its own later. However, the tribunal noted that the same issue had already been decided earlier (for AYs 2017–18, 2018–19 and 2020–21) in CPP India’s case, where it was held that the “make available” condition was not satisfied. CPP India did not gain any technical know-how; CPP UK just provided ongoing IT support. The agreement between CPP UK and CPP India was perpetual, meaning services continued year after year, proof that CPP India had not become independent. Hence, the tribunal concluded that Rs 20.81 crore in IT support income is not taxable as FTS either under the Income-tax Act or the DTAA.

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Issue 2: Non-IT Support Services The non-IT services included HR, finance, legal, and compliance support. The AO said these involved consultancy and guidance that made employees in India capable of using that knowledge independently, so it should be taxable. However, the DRP disagreed, stating the assessing officer (AO) had no proof of any training, reports or documents to prove that knowledge was transferred. These were only routine group-level support functions, not technical or professional services that “made available” skills to CPP India. The tribunal agreed with DRP and held that Rs. 89.41 lakh of non-IT income is also not taxable as FTS. Since the main issues (Grounds 1 and 2) were allowed in favour of the assessee, the remaining grounds on tax rate, equalisation levy credit, and interest under section 234B became irrelevant (academic). Final Decision

• IT Support Income (Rs. 20.81 crore): Not taxable
• Non-IT Support Income (Rs. 0.89 crore): Not taxable

Meaning, the appeal has been partially allowed in favour of the assessee.