India: Fees for technical services and royalties under treaties; grounds for denying refund (court decisions)

Three recent tax-related court decisions

Three recent tax-related court decisions

The KPMG member firm in India prepared reports about three recent tax-related court decisions (read more at the hyperlinks provided below).

  • Payments for hydropower plant design, drawings and related services taxable as fees for technical services (FTS): The Ahmedabad Bench of the Income-tax Appellate Tribunal held that payments by an Indian company to a UAE entity for hydropower plant design, drawings and related services were in the nature of FTS, and not royalties. In the absence of an FTS clause in the India-UAE income tax treaty, such payments were taxable as business income. However, because the UAE entity did not have a permanent establishment in India, the Indian company was not required to withhold tax (deduct at source) on the payments made to the UAE entity. The case is: DCIT v. Kalpataru Power Transmission Ltd. Read an April 2023 report [PDF 413 KB]

  • Payment for sponsorship rights of cricket tournament not taxable as royalty under treaty: The Mumbai Bench of the Income-tax Appellate Tribunal held that payment by an Indian company to a Malaysian entity for sponsorship rights of a cricket tournament were not taxable as royalties under the India-Malaysia income tax treaty because there was no transfer of a copyright or the right to use a copyright. Such rights were only for publicity of the sponsor either by displaying the corporate/brand logo or trademark of the sponsor or displaying the sponsor's name as an official sponsor or attending the sponsor's promotional activities. In addition, the tribunal rejected the tax authority’s invocation of the limitation of benefit (LOB) and conduit provisions of the treaty for various reasons including that the Malaysian entity’s head office was in Malaysia where all the senior management team members were located and thus transactions were routed through Malaysia, and the Malaysian company had bona fide business activities and the transaction of sponsorship rights was in the normal course of the business. The case is: ITO v. Total Sports & Entertainment India P. Ltd. Read an April 2023 report [PDF 265 KB]

  • Mere issuance of assessment notice insufficient grounds to deny tax refund: The Delhi High Court held that a refund cannot be denied merely because taxpayer’s case is selected for scrutiny assessment or where an assessment notice has been issued. The Assessing Officer (AO) is required to give detailed and compelling reasons in writing as to how the release of the refund will adversely affect the interest of the tax authority. The case is: Oyo Hotels and Homes Private Limited v. DACIT. Read an April 2023 report [PDF 385 KB]



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