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Facts
The Revenue filed appeals against the CIT(A) orders, challenging the decision to not treat income received by the assessee for services rendered under the Global Framework Network Agreement (GNFA) as royalty. The assessee, a foreign company, claimed these fees were for commercial support services and not taxable in India, a position previously accepted by the Revenue in earlier assessment years.
Held
The Tribunal held that the services rendered by the assessee under GNFA were commercial support services and did not qualify as royalty under the Income Tax Act or Article 12 of the India-Netherlands DTAA. It was also not taxable as fees for technical services or business profits as there was no permanent establishment in India.
Key Issues
Whether the fees received by the assessee for services rendered under GNFA constitute royalty or fees for technical services taxable in India, considering the India-Netherlands DTAA.
Sections Cited
143(3), 144C(3), 9(1)(vi)
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Income Tax Appellate Tribunal, “I” BENCH MUMBAI
Before: SHRI SAKTIJIT DEY, HONBLE & SHRI GIRISH AGRAWAL
O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
These two appeals filed by Revenue are against the orders of CIT (A) 55, Mumbai, vide order Nos. ITBA/APL/S/250/2024- 25/1075169546(1) and ITBA/APL/S/250/2024-25/1075170902(1), dated 28.03.2025 passed against the assessment orders by International Taxation, Tax Circle-1(2)(2), Mumbai, u/s. 143(3) r.w.s 144C(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 21.01.2020 for Assessment Year 2017-18 and dated 01.06.2021 for Assessment Year 2018-19, respectively.
Grounds taken by the Revenue are reproduced as under: and 4240/Mum/2025 BCD Travel Services BV AY 2017-18 and 2018-19 i. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not constituting amount of Rs. 13,80,75,471 received by the assessee for services rendered under the Global Framework Network Agreement (‘GNFA') as royalty income, taxable u/s. 9(1)(vi) of the Income-tax Act, 1961 (‘IT Act'). ii. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not considering the said income as royalty as per clause 2 read with clause 3(a) of Article 12 of the DTAA of India and Netherlands. iii. Whether on the facts and circumstances of the case and in law, the Ld CIT(A) has erred in relying on the order of the Hon'ble ITAT, Mumbai in the case of Van Oord Dredging and Marine Contractors BV v. DCIT [111 taxmann.com 163 (Hon'ble Mumbai Tribunal)] which is not acceptable to the revenue and appeal against the same is pending before Hon'ble Bombay High Court and the issue has not attained stage of finality. II.
[A Y 2018-19] i. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not constituting amount of Rs. 11,32,12,904/- received by the assessee for services rendered under the Global Framework Network Agreement (‘GNFA') as royalty income, taxable u/s. 9(1)(vi) of the Income-tax Act, 1961 (‘IT Act'). ii. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not considering the said income as royalty as per clause 2 read with clause 3(a) of Article 12 of the DTAA of India and Netherlands. iii. Whether on the facts and circumstances of the case and in law, the Ld CIT(A) has erred in relying on the order of the Hon'ble ITAT, Mumbai in the case of Van Oord Dredging and Marine Contractors BV v. DCIT [111 taxmann.com 163 (Hon'ble Mumbai Tribunal}] which is not acceptable to the revenue and appeal against the same is pending before Hon'ble Bombay High Court and the issue has not attained stage of finality. 2.1. Both the appeals by the Revenue are on identical grounds relating to one single issue in respect of receipt of income in the nature of fees which has been claimed to be not taxable in India as royalty u/s. 9(1)(vi) of the Act and as per clause (2) read with clause 3(a) of Article 12 of the India-Netherlands Double Taxation Avoidance Agreement (DTAA), received by the assessee for services rendered under the Global Framework Network Agreement (GNFA). Since the issues are identical except for variation in the quantum of addition made for which ld. CIT(A) and 4240/Mum/2025 BCD Travel Services BV AY 2017-18 and 2018-19 has given relief, we take up both the appeals together by passing this consolidated order. For the purpose of drawing facts, we take up the appeal for AY 2017-18 and the observations and findings shall apply mutatis mutandis to the appeal for Assessment Year 2018-19.
2.2. There is a delay of 25 days in filing of present appeals before the Tribunal for Assessment Year 2017-18 and of 26 days for Assessment Year 2018-19 for which Revenue has placed on record a petition for condonation of delay. Delay is due to transfer and posting of the Assessing Officer during the time of receipt of the automated email. Considering the submission made, in the interest of justice and fair play, we find it appropriate to condone the brief delays in the filing the present two appeals before the Tribunal, and take up the matter for adjudication.
Brief facts of the case are that assessee is a foreign company formed under the laws of the Netherlands and is part of the BCD Travel Group. BCD Travel is in the business of corporate travel management services and render services outside India only. It is a resident of the Netherlands and is entitled to benefits under the India-Netherlands DTAA. There is no dispute as to the tax residency status of the assessee. Assessee’s global setup consists of network and regional functions as well as a widespread local presence around the world, as a result whereof, certain global intra-group support is needed for local entities. Such intra-group services are rendered as part of the GNFA.
3.1. For this assessee had entered into a tripartite agreement known as GNFA between the assessee, BCD Travel Technology B.V., a company incorporated under the laws of the Netherlands and BCD Travel India and 4240/Mum/2025 BCD Travel Services BV AY 2017-18 and 2018-19 Private Limited. Pursuant to this agreement, assessee renders global BCD network related services to BCD Travel India Private Limited and other BCD Travel group companies. In accordance with this agreement, global expenses are recovered from all BCD Travel group companies including BCD Travel India Private Limited. These services are rendered from outside India to BCD Travel India Private Limited.
3.2. During the year under consideration, assessee received income in the nature of fees amounting to Rs. 13,80,75,471/- from BCD Travel India Private Limited. It claimed that the fees so received is not taxable in India and as per it, this stand has been accepted by the Revenue in the assessment orders passed for Assessment Year 2011-12 and Assessment Year 2013-14. In these two assessment years, income in the nature of fees from BCD Travel India Private Limited had been held to be not taxable, being in the nature of commercial support services.
For Assessment Year 2017-18, assessee had filed its return of income on 30.11.2017, reporting total income at Rs.2,40,680/-. Assessment was completed u/s. 143(3) r.w.s.144C(3), vide order dated 21.01.2020, whereby total income was assessed at Rs.13,83,16,149/- by making addition of Rs.13,80,75,471/-towards support service fees. While making the addition, ld. Assessing Officer treated the said receipts under GNFA as royalty income under the provisions of the Act as well as under Article 12 of the India-Netherlands DTAA, though claim of the assessee was that the nature of services provided under GNFA include management, sales and account management, pricing, marketing and supplier relations, etc., which are not taxable under the Act as well as under the DTAA.
and 4240/Mum/2025 BCD Travel Services BV AY 2017-18 and 2018-19 4.1. Before proceeding, we look into the nature of services rendered under the GFNA, for which relevant clauses are extracted below: “1.9 BCD Group is a global Travel Management Company primarily targeting multinational clients having global presence. In line with the industry trends that can be identified over the past years, the corporate travel management industry has been impacted by the increased globalization of the corporate travel management industry and their client base. As a result, BCD Group's operating model has been driven by the need to ensure a global presence and this has increased the interdependency of the various BCD Travel local entities. 1.10 Over the years BCD Travel has experienced a gradual transformation from a "legacy country"-based operational model to a global business" model. As a result of this development, functions within BCD Group are increasingly of a global nature and performed for the BCD Travel group as a whole. As part of this gradual change in business operations, BCD Group has chosen to implement a 'functional management reporting, where all functions/activities have been reviewed centrally by BCD Travel's management and classified as either relating to global, regional, local, and/or related to Direct Technology activities. To formalize this structure, the Global Service Level Agreement (GSLA) and was entered between the Appellant and BCD Travel India Pvt. Ltd Private Limited (BCD Travel India Pvt. Ltd) [effective from April 1, 2010]. 1.11 As part of BCD Travel's gradual shift of its operational business model to the current state of affairs, which became visible through the outcomes of the functional reporting, BCD Travel also wanted to ensure its Transfer Pricing model was adequately aligned with its business operations. Accordingly, the Appellant replaced GSLA by GFNA with BCD Travel India Pvt. Ltd. Pursuant to this agreement, the Appellant continues to render global BCD network related services to BCD Travel India Pvt. Ltd. These services, inter alia, include global account management, marketing, procurement, co-ordination and administrative facilitating services, etc. These services are rendered from outside India. Under the GFNA the global expenses will be recovered based on the allocation key from all BCD Travel companies (including BCD Travel India Pvt. Ltd) along with appropriate mark-up.” 4.2. Assessee submitted that the nature of commercial services rendered by the assessee during the year under consideration remained unchanged vis-a-vis past years. In the past, the agreement was titled as Global Service Level Agreement (GSLA), which was entered into, effective from 01.04.2010. In this respect, it was submitted that the nature of services under the erstwhile GSLA and the present GFNA remains the same. Service fees received by the assessee under the erstwhile GSLA were accepted as non-taxable in India in the preceding assessment years. According to the assessee, since there is no change and 4240/Mum/2025 BCD Travel Services BV AY 2017-18 and 2018-19 in the nature of services rendered by the assessee to BCD Travel India Private Limited during the year under consideration, the support service fees received is not taxable in India. Ld. Assessing Officer has disregarded the assessment orders of the preceding years as well as the submissions made by the assessee in the course of assessment proceedings and concluded that the service fee received by the assessee is royalty, both within the meaning of the provisions of the Act as well as DTAA.
4.3. Assessee has repeatedly pointed out that taxability of service fees received was examined by the ld. Assessing Officer in the assessee's own case for Assessment Year 2011-12 to Assessment Year 2013-14. In all these assessment years, ld. Assessing Officer had concluded the assessment proceedings accepting the position taken by the assessee that income earned is not taxable in India. Relevant observations of the ld. Assessing Officer in the assessment order for Assessment Year 2013- 14 are reproduced below for ready reference, whereby it is held that the nature of services rendered by the assessee are commercial services. These services do not result in rendering of managerial or specific consultancy services and therefore, not covered within the provisions of Article 12 and hence not taxable in India. Ld. Assessing Officer also notes that assessee has not made available any technical knowledge, skill, etc. and therefore it is not royalty nor FTS under the provisions of Article 12 of India-Netherlands DTAA. “7. The submissions made by the assessee have been considered. The services rendered by the assessee viz finance, administration, legal, partner network, account management, marketing, business solutions, sales support etc are in the nature of 'commercial' services. These services do not result in rendering of managerial or specific consultancy services to BCD Travel India Pvt. Lid. Therefore, the services rendered are not covered within the provisions of the Article 12(5)(b) and consequently the income earned by the assessee is not taxable in India as the assessee has not made available any technical knowledge, skill, etc to BCD Travel India Pvt. Ltd In view of the above discussion, and 4240/Mum/2025 BCD Travel Services BV AY 2017-18 and 2018-19 the income earned by the assessee in the form of support fees is neither royalty nor FTS under the provision of Article 12 of India-Netherlands Double Taxation Avoidance Agreement." (Emphasis supplied)”
4.4. In the observations of the ld. Assessing Officer, for the information communicated, the same is special commercial knowledge, experience and skill generated over a period of years by the BCD group. Assessee submitted, by referring to the commentary of Organization for Economic Cooperation and Development (OECD) of 2017, wherein it has given certain observations on payment for supply of know-how and payments for provision of services. Relevant para of OECD Commentary, 2017 on Article 12 of tax treaty are extracted below for ready reference: "11. In classifying as royalty’s payments received as consideration for information concerning industrial, commercial or scientific experience, paragraph 2 is referring to the concept of "know-how". Various specialist bodies and authors have formulated definitions of know-how. The words "payments ... for information concerning industrial, commercial or scientific experience" are used in the context of the transfer of certain information that has not been patented and does not generally fall within other categories of intellectual property rights. It generally corresponds to undivulged information of an industrial, commercial or scientific nature arising from previous experience, which has practical application in the operation of an enterprise and from the disclosure of which an economic benefit can be derived. Since the definition relates to information concerning previous experience, the Article does not apply to payments for new information obtained as a result of performing services at the request of the payer. 11.1 In the know-how contract, one of the parties agrees to impart to the other, so that he can use them for his own account, his special knowledge and experience which remain unrevealed to the public. It is recognised that the grantor is not required to play any part himself in the application of the formulas granted to the licensee and that he does not guarantee the result thereof. 11.2 This type of contract thus differs from contracts for the provision of services, in which one of the parties undertakes to use the customary skills of his calling to execute work himself for the other party. Payments made under the latter contracts generally fall under Article 7. 11.3 The need to distinguish these two types of payments, i.e. payments for the supply of know-how and payments for the provision of services, and 4240/Mum/2025 BCD Travel Services BV AY 2017-18 and 2018-19 sometimes gives rise to practical difficulties. The following criteria are relevant for the purpose of making that distinction: Contracts for the supply of know-how concern information of the kind described in paragraph 11 that already exists or concern the supply of that type of information after its development or creation and include specific provisions concerning the confidentiality of that information. In the case of contracts for the provision of services, the supplier undertakes to perform services which may require the use, by that supplier, of special knowledge, skill and expertise but not the transfer of such special knowledge, skill or expertise to the other party. In most cases involving the supply of know-how, there would generally be very little more which needs to be done by the supplier under the contract other than to supply existing information or reproduce existing material. On the other hand, a contract for the performance of services would, in the majority of cases, involve a very much greater level of expenditure by the supplier in order to perform his contractual obligations. For instance, the supplier, depending on the nature of the services to be rendered, may have to incur salaries and wages for employees engaged in researching, designing, testing, drawing and other associated activities or payments to sub-contractors for the performance of similar services." (Emphasis supplied)
4.5. In order to explain the issue of imparting of any knowledge or experience vis-a-vis application of the knowledge and experience to provide the services, assessee referred to and relied upon the decision of Hon'ble Jurisdictional High Court of Bombay in the case of Diamond Services International Private Limited vs. Union of India [2008] 169 taxmann.com 201 (Bom), which explained the factors which need to be considered for the term ‘royalty’ under Article 12 of DTAA. Relevant paras of the decision are reproduced for ready reference. "Impart in Webster's Encyclopaedic Unabridged Dictionary has been defined "to give, to bestow, communicate; to grant a part or share of". In Oxford English Reference Dictionary it is prescribed as "give a share of (a thing)". A plain reading. therefore, of the meaning of the word "impart" implies that it means to give, to bestow, communicate, to grant a part or share of or give a share of a thing. Considering that the term 'royalty' envisages grant or share of industrial or commercial experience. In other words there should be a transfer of "industrial or commercial experience" from assignor to the assignee for a consideration. Therefore, to fall within and 4240/Mum/2025 BCD Travel Services BV AY 2017-18 and 2018-19 the meaning of the term 'royalty' under article 12 of the DTAA it must envisage the person who is the owner of any intellectual property right, designs or model, plan, secret formula or process, etc. to retain the property in them and permit the use or allow the right to use such patents, designs or models, plans, secret formula, etc. to another person. Where there is no transfer of the right to use, payment made cannot be treated as royalty. To be considered as royalty normally the following factors should be present in the transaction:- a) There should be a consideration for use or transfer of right to use; b) The payment shall be towards grant or share for acquiring inter alia information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information: c) Such use or right to use of such property or information shall be for the stipulated period in accordance with the terms of the contract." “………..It is true that GIA may have the experience of grading. However, there is no imparting of its experience in favour of the client What the client receives is the report where the GIA uses its commercial or technical knowledge to give a report to the client. Illustrative example would be a lawyer giving advise to his client, a doctor giving his medical opinion; a laboratory submitting blood analysis report and the like. These cannot be said to be imparting of information by the person who possesses such information. What such person does is to use of his experience and technical know-how for a consideration without parting with that information. Therefore, considering the definition of royalty under article 12, there was no parting or rendering of technical services either of managerial, technical or consultancy nature or industrial, commercial or scientific experience." (Emphasis supplied)
4.6. From the above, it was thus submitted that merely application of the knowledge/experience to render services does not result in imparting of information concerning industrial, commercial or scientific experience to be construed as royalty.
We have heard both the parties and perused the material on record. We have also given our thoughtful consideration to the material placed on record including the assessment orders of the preceding years as well as case law compilation. We note that in the preceding and 4240/Mum/2025 BCD Travel Services BV AY 2017-18 and 2018-19 assessment years, Revenue has accepted the position taken by the assessee in respect of the addition made by the ld. Assessing Officer in the present case. It has been held in the assessments for Assessment Year 2011-12, 2012-13 and 2013-14 that the nature of services rendered by the assessee are commercial services and do not result in rendering of managerial or specific consultancy. Ld. Assessing Officer in those assessment years has taken considered view that these services are not covered within the provisions of Article 12 of the India- Netherlands DTAA nor it is covered within the provisions of section 9(1)(vi) of the Act, to treat it as royalty, to bring it into tax net. It is also an admitted position that the nature of services rendered by the assessee to BCD Travel India Private Limited is under the same agreement of GFNA which continues to operate in the preceding years as well as in the year under consideration. Thus, there is no material change in the factual position when compared with the preceding years.
5.1. Further, we note that as per sub-clause (vi) to Explanation 2 of section 9(1)(vi) of the Act, royalty means rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v). As already noted above, from the nature of services contained in GFNA, these include services in the field of finance, account management and human resource. These services are not in relation to transfer of all or any rights, imparting of any information concerning the working of, or the use of, a patent, invention, model, design, use of any patent, invention, model, etc. as contained in sub-clauses (i) to (iv), (iva) and (v) of Explanation 2. Considering these provisions under the Act, the services rendered by the assessee under the GFNA do not qualify to be royalty under the Act. and 4240/Mum/2025 BCD Travel Services BV AY 2017-18 and 2018-19 5.2. Further, we refer to Article 12(4) of the India- Netherlands DTAA which defines fees for technical services (FTS) according to which FTS means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provisions of such services through technical or other personnel), if such services - (a) ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know- how or processes or which enables the person acquiring the services to apply the technology contained therein; or (c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein.
5.3. From the above, we note that assessee has not provided any intellectual property or any other right. Support service fees charged by the assessee is not technical in nature but in the nature of commercial services as accepted by the Department in the assessments for the preceding three assessment years. Accordingly, in the given set of facts, provisions contained in Article 12(4)(a) do not apply. Further, in reference to Article 12(4)(b), it is worth noting that BCD Travel India Private Limited would not be capable to render similar services without getting support from the assessee. The India entity continues to receive such support services from the assessee and therefore, the requirement of make available technical knowledge, skills etc., for the services to be characterized as FTS remains unfulfilled. Accordingly, services which and 4240/Mum/2025 BCD Travel Services BV AY 2017-18 and 2018-19 are commercial or business services are not covered in the definition of FTS and hence, not taxable under Article 12 of the DTAA.
5.4. We note that the support service fee received by the assessee is neither royalty nor FTS. It is also not taxable as business profits under Article 7 of the DTAA, since business profits earned by a foreign company from operations in India are taxable in India only if, there is a permanent establishment (PE) of the foreign company in India. Thus, the business income of assessee would become taxable in India only if it had a PE in India. It is a fact on record that the services rendered by the assessee under GFNA were provided from outside India. Also, assessee does not have any office, employee, bank account or any other form of physical presence in India. Thus, activities of the assessee which have been performed from outside India do not constitute a PE in India and consequently, its income from support services is not taxable in India as business profits under Article 7 of the DTAA.
In the conspectus of the above discussion and the factual position including the accepted position of the Revenue in the preceding assessment years arising out of the common GFNA, the support service fee received by the assessee is not taxable both, under the provisions of the Act and the DTAA. Accordingly, grounds raised by the Revenue in this respect are dismissed.
In the result, appeal filed by the Revenue is dismissed.
Since identical grounds are raised in the appeal for assessment year 2018-19, there being no change in the fact pattern and the terms of the agreement as well as the position of law both under the Act and and 4240/Mum/2025 BCD Travel Services BV AY 2017-18 and 2018-19 the Treaty, our observations and findings in appeal for Assessment Year 2017-18 apply mutatis mutandis. Accordingly, appeal for Assessment Year 2018-19 is dismissed.
In the result, both appeals of the Revenue are dismissed.
Order is pronounced in the open court on 29 September, 2025