Facts of the Case

International Management Group (UK) Ltd. (IMG), a UK-based entity, challenged orders of the Income Tax Appellate Tribunal concerning Assessment Years 2010-11 to 2018-19. IMG had entered into a Memorandum of Understanding and a subsequent Services Agreement with the Board of Control for Cricket in India (BCCI) to provide advisory, managerial, and commercialization services for establishing and operating the Indian Premier League (IPL).

IMG contended that the income earned under these agreements constituted business income taxable only to the extent attributable to its Permanent Establishment (PE) in India under Article 7 of the India-UK Double Taxation Avoidance Agreement (DTAA). It was accepted that IMG had a Service PE in India under Article 5(2)(k).

Issues Involved

  1. Whether income arising from a composite service contract could be bifurcated between business profits attributable to a PE and FTS taxable separately.
  2. Whether the services rendered by IMG satisfied the “make available” condition under Article 13 of the India-UK DTAA.
  3. Whether services performed outside India could still be taxed in India as FTS under Section 9(1)(vii).
  4. Applicability of Article 13(6) — whether FTS effectively connected with a PE should instead be taxed as business profits under Article 7.

Petitioner’s Arguments (IMG)

IMG argued that the receipts arose from a single composite contract and represented business profits. Since a Service PE existed in India, only income attributable to that PE could be taxed in India under Article 7.

It further contended that the remaining income related to services performed outside India and therefore was neither attributable to the PE nor taxable as FTS. IMG emphasized that the services did not “make available” technical knowledge or skills to BCCI, which is a prerequisite for classification as FTS under Article 13.

 Respondent’s Arguments (Revenue)

The Revenue argued that although a portion of income was attributable to the Indian PE, the remaining receipts represented technical and consultancy services that made available specialized knowledge, processes, and frameworks to BCCI. Accordingly, such receipts qualified as FTS under Article 13 of the DTAA and Section 9(1)(vii).

It was also contended that after the retrospective amendment to Section 9(1), FTS could be taxed in India even if services were rendered outside India, provided the payer was resident in India and the income had a nexus with India. 

Court Order / Findings

  • IMG had a Service PE in India, and income attributable to activities performed through that PE was taxable as business profits under Article 7.
  • The contract involved multiple functions, some performed by the PE in India and others directly by the UK entity outside India.
  • Income not effectively connected with the PE could be separately examined under Article 13 as FTS.
  • The “effective connection” test requires a real and substantive nexus between the income and the PE’s activities.
  • The “make available” condition may be satisfied where the recipient is enabled to use technical knowledge independently in the future.
  • Services rendered outside India can still be deemed to accrue in India under Section 9(1)(vii), subject to statutory conditions.

Important Clarification

  • Existence of a PE does not automatically convert all receipts into business profits.
  • Composite contracts may be bifurcated where distinct activities are performed inside and outside the PE.
  • The “make available” test remains central to classification as FTS under the India-UK DTAA.
  • Retrospective statutory amendments can expand taxability of offshore services where a sufficient nexus with India exists.

Link to download the order –  https://www.mytaxexpert.co.in/uploads/1772176084_INTERNATIONALMANAGEMENTGROUPUKLIMITEDVsCOMMISSIONEROFINCOMETAX2INTERNATIONALTAXATIONNEWDELHI.pdf  

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