ITAT: Marker Testing Receipts Taxable as Royalty; IT Support Reimbursements Not FTS under India-Netherlands DTAA

Nunhems Netherlands B.V., a company incorporated in the Netherlands, rendered marker testing services and double haploid (DH) services to its Indian group entity, Nunhems India Pvt. Ltd., to support vegetable breeding programmes. For A.Y. 2021-22, the assessee received Rs. 3.58 crore towards testing services and Rs. 10.66 crore towards reimbursement of IT support services. The assessee filed its return declaring NIL income, claiming both receipts as non-taxable under the India-Netherlands DTAA.

The Assessing Officer, by order passed under section 143(3) read with section 144C(13), treated the testing service receipts as royalty under Article 12(4) of the DTAA and the IT support receipts as fees for technical services (FTS) under section 9(1)(vii) and Article 12(5). The DRP, by majority, upheld both additions. Aggrieved, the assessee appealed before the ITAT.

Issues Before ITAT: Whether consideration received for marker testing and double haploid services constituted “royalty” under Article 12(4) of the India–Netherlands DTAA. Whether reimbursement of IT support service costs amounted to fees for technical services under section 9(1)(vii) of the Act and Article 12(5) of the DTAA.

ITAT’s Verdict: The Tribunal held that the receipts from marker testing and double haploid services were taxable as royalty under Article 12(4) of the India–Netherlands DTAA, as they involved provision of information concerning scientific experience with clear commercial and industrial implications for the Indian AE. The Tribunal rejected the assessee’s contention that the “make available” condition was required for royalty under Article 12(4).

The Tribunal held that the amounts received were mere cost-to-cost reimbursements for routine IT support services procured through a third-party service provider, with no technology, skill, or know-how made available to the Indian AE. Therefore, the IT support receipts were held not taxable as FTS under the DTAA. The appeal was therefore partly allowed.

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