Facts of the Case

  • The assessee, Tungsten Automation England Limited, a UK-based tax resident, provided e-invoicing and related services to an Indian entity.
  • The assessee did not file returns in India claiming that its income was not taxable in India in absence of Permanent Establishment (PE).
  • The Assessing Officer initiated reassessment under Section 147 and passed final assessment orders under Section 144C(13) pursuant to DRP directions.
  • The AO and ITAT held that receipts were taxable as Fees for Technical Services (FTS) or income accruing in India.
  • Aggrieved, the assessee filed an appeal before the Delhi High Court under Section 260A.

Issues Involved

  1. Whether receipts from e-invoicing and related services qualify as Fees for Technical Services (FTS) under Section 9(1)(vii) and Article 13 of the India–UK DTAA.
  2. Whether absence of “make available” condition excludes such receipts from FTS classification.
  3. Whether such receipts are taxable in India as business income in absence of a Permanent Establishment (PE).
  4. Whether ITAT erred in holding such income taxable in India. 

Petitioner’s Arguments (Assessee)

  • The services rendered did not “make available” any technical knowledge, skill, or know-how to the Indian customer.
  • The customer was merely granted access to a platform without transfer of technology or source code.
  • Under Article 13 of India–UK DTAA, FTS requires satisfaction of the “make available” test.
  • In absence of a PE in India, the receipts qualify as business income not taxable in India.
  • Reliance placed on judicial precedents including Engineering Analysis Centre of Excellence Pvt. Ltd. and De Beers India Minerals Pvt. Ltd.. 

Respondent’s Arguments (Revenue Department)

  • The services involved technical expertise and were therefore taxable as FTS under Section 9(1)(vii).
  • The income accrued/arose in India as the payer was located in India.
  • The ITAT correctly held that such receipts were taxable in India.
  • The DTAA provisions should not override domestic law where income is clearly taxable.

Court’s Findings / Order

  • The Delhi High Court held that:
    • Mere provision of services requiring technical expertise does not amount to FTS unless technology is “made available”.
    • The assessee did not transfer any technology, know-how, or skill enabling the recipient to independently use it.
    • Access to a platform or software does not satisfy the “make available” condition.
    • Therefore, receipts cannot be classified as FTS under Article 13 of India–UK DTAA.
  • The Court further held:
    • The receipts are business income.
    • In absence of a Permanent Establishment in India, such income is not taxable in India.
  • The High Court set aside the ITAT findings and ruled in favour of the assessee.

Important Clarifications by the Court

  • The DTAA overrides domestic law where it is more beneficial to the assessee.
  • The “make available” test is mandatory for FTS under treaties like India–UK DTAA.
  • Mere access to services, platform, or database is not equivalent to transfer of technology.
  • Ongoing dependence on service provider negates “make available” condition. 

Sections / Provisions Involved

  • Section 147 – Reassessment
  • Section 144C – DRP proceedings
  • Section 260A – Appeal before High Court
  • Section 9(1)(vii) – Fees for Technical Services
  • Section 90 – DTAA override
  • Article 13 – India–UK DTAA (FTS definition)

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/VIB14072025ITA922025_184618.pdf

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