ATOS IT SOLUTIONS & SERVICES INC. (FORMERLY KNOWN AS ATOS ORIGIN INC.,MUMBAI vs. DY. CIT (INTL TAX) RG.-1(2), MUMBAI

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ITA 670/MUM/2022Status: DisposedITAT Mumbai10 September 2026AY 2018-1917 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the services rendered did not involve making available technical knowledge or expertise to the Indian recipient in a manner contemplated by the treaty. The receipts were considered business profits attributable to a Permanent Establishment (PE) which the assessee did not have in India.

What were the facts?

The assessee, a US-based IT services company, received Rs. 1,19,64,455 from its Indian subsidiary for various IT support and project services. The Assessing Officer treated these receipts as royalty or fees for included services (FIS) under the India-USA DTAA.

What were the issues?

Whether the consideration received for IT support services constitutes royalty or FIS under the India-USA DTAA, or if it should be treated as business profits in the absence of a PE in India.

Which sections of the Income-tax Act were involved?

Section 270A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘I’ BENCH

For Appellant: Ms. Nidhi Agarwal
For Respondent: Shri Sridhar Menon, SR DR
Hearing: 17/08/2026Pronounced: 10/09/2026

आदेश / O R D E R PER AMIT SHUKLA (J.M):

The aforesaid appeal has been filed by the assessee against the final assessment order dated 17.02.2022 passed

2 ITA No.670/Mum/2022 Atos IT Solutions and Services INC under section 143(3) read with section 144C(13) of the Income-tax Act, 1961, in pursuance of the directions issued by the learned Dispute Resolution Panel under section 144C(5), for the assessment year 2018–19. Though various grounds have been raised, the principal dispute before us relates to the taxability of consideration aggregating to Rs.1,19,64,455 received by the assessee from Atos India Private Limited for rendering certain services, which has been brought to tax by the Assessing Officer under Article 12 of the Double Taxation Avoidance Agreement between India and USA as royalty and/or Fees for Included Services (“FIS”). The case of the assessee, on the other hand, is that the impugned receipts are in the nature of business profits falling within Article 7 of the India-USA DTAA and, in the absence of any Permanent Establishment (“PE”) of the assessee in India, no part thereof is chargeable to tax in India.

2.

Brief facts are that the assessee is a company incorporated in and tax resident of the United States of America and is engaged in the business of providing information technology and allied services. During the relevant previous year, the assessee rendered certain services to Atos India and received aggregate consideration of Rs.1,19,64,455 comprising Rs.37,42,692 towards co-ordination services relating to the Tower Watson Project, Rs.82,58,843 towards services relating to the McGraw Hill Cap IQ Project and Rs.9,26,110 towards

3 ITA No.670/Mum/2022 Atos IT Solutions and Services INC MHS Storage services. The services under the Tower Watson arrangement essentially comprised service-desk and co- ordination support in relation to IT incidents, problems and service requests, whereas the services pertaining to the McGraw Hill Cap IQ Project comprised various project- support functions including bid-management support, invoicing and invoice resolution, creation of CCRs, contract management, reporting of KPIs/SLAs, communications, deal- solutions support and GOSS management. The MHS component pertained to storage-support services. The assessee did not offer the aforesaid receipts to tax in India on the ground that they constituted its business profits within Article 7 of the India-USA DTAA and, admittedly, it did not have any PE in India to which such receipts could be attributed.

3.

The Assessing Officer, however, did not accept the aforesaid position and proceeded on the premise that the services rendered by the assessee involved specialised and technical knowledge, information, experience, software and intellectual inputs and, therefore, the consideration received therefor fell within the ambit of royalty and/or FIS under Article 12 of the India-USA DTAA. According to him, the arrangements entered into by the assessee enabled Atos India to utilise the technical knowledge, experience and intellectual resources possessed by the assessee and, therefore, the

4 ITA No.670/Mum/2022 Atos IT Solutions and Services INC consideration was liable to be characterised as royalty. Alternatively, he held that the nature of interaction and technical support contemplated under the arrangements resulted in technical knowledge, experience, skill and processes being made available to Atos India so as to satisfy Article 12(4)(b). On this reasoning, the receipts were proposed to be brought to tax under Article 12 of the DTAA.

4.

The assessee raised objections before the learned DRP; however, the learned DRP substantially concurred with the approach adopted by the Assessing Officer. In relation to the Microsoft licence component connected with the McGraw Hill arrangement, the DRP was of the view that the consideration had the character of royalty, whereas in relation to the Tower Watson arrangement, after referring to the Master Services Agreement and the service-desk arrangement, it inferred that the assessee possessed specialised technical knowledge and intellectual property and that the nature of interaction and support contemplated under the arrangement resulted in such technical knowledge and experience being made available to Atos India. The DRP also referred to its directions rendered in the assessee’s case for the earlier assessment year and distinguished the authorities relied upon by the assessee. Consequent to these directions, the Assessing Officer passed the impugned final assessment order bringing

5 ITA No.670/Mum/2022 Atos IT Solutions and Services INC the entire receipt of Rs.1,19,64,455 to tax under Article 12 of the India-USA DTAA.

5.

Before us, learned counsel for the assessee submitted that the entire approach of the authorities below proceeds on an erroneous assimilation of two conceptually different situations, namely, use of technical expertise, systems or intellectual resources by a service provider in rendering services and transfer or making available of such expertise, knowledge, know-how or intellectual property to the recipient of the services. Insofar as the Tower Watson Project is concerned, learned counsel drew our attention to the decision of the Tribunal in the assessee’s own case for assessment year 2014–15 in ITA No.6841/Mum/2017, order dated 01.03.2023, wherein the identical arrangement relating to the Tower Watson service desk was examined and the Tribunal held that the consideration did not constitute royalty or FIS and was in the nature of business profits under Article 7 of the DTAA. It was submitted that there has been no material change either in the underlying contractual arrangement or in the nature and scope of the services rendered during the year under consideration and, therefore, there is no basis for taking a view different from that taken in the assessee’s own case.

6 ITA No.670/Mum/2022 Atos IT Solutions and Services INC 6. As regards the McGraw Hill Cap IQ Project and MHS Storage services, learned counsel submitted that these are essentially project-support and operational services involving functions such as bid-management support, invoicing and invoice resolution, creation of CCRs, contract management, reporting of KPIs and SLAs, communication support, deal- solutions support, GOSS management and storage support. None of these functions, according to him, involves grant of any copyright or right to use any copyright, patent, process, know-how or industrial, commercial or scientific experience belonging to the assessee. It was submitted that the mere circumstance that sophisticated technology, software or technical expertise may have been deployed by the assessee in rendering such services does not alter the character of the consideration into royalty. On the alternative characterisation as FIS, learned counsel submitted that Article 12(4)(b) incorporates an additional and indispensable condition of “make available”, which requires technical knowledge, experience, skill, know-how or processes to be transmitted to the recipient in such a manner that the recipient acquires the capability to apply the same independently thereafter. In support, reliance was placed, inter alia, upon the judgment of the Hon’ble Supreme Court in Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT (2021) 432 ITR 471 (SC), the judgment of the Hon’ble Karnataka High Court in CIT v. De Beers India Minerals (P.) Ltd. (2012) 346 ITR

7 ITA No.670/Mum/2022 Atos IT Solutions and Services INC 467 (Kar.), the decision in Sandvik Australia Pty. Ltd., as well as the Memorandum of Understanding accompanying the India-USA DTAA.

7.

The learned Departmental Representative, on the other hand, strongly relied upon the assessment order and the directions of the learned DRP and submitted that the services rendered by the assessee cannot be regarded as mere routine or administrative support services. According to him, these services were rendered within an integrated technological framework and involved specialised technical knowledge, experience, software, intellectual property and proprietary inputs of the assessee. It was thus contended that the authorities below were justified in holding that the consideration was in the nature of royalty and, in any event, the close technical interaction between the assessee and Atos India resulted in technical knowledge and expertise being made available to the latter within the meaning of Article 12(4)(b).

8.

We have heard the rival submissions and perused the relevant material placed on record. At the outset, it needs to be borne in mind that “royalty” under Article 12(3) and “Fees for Included Services” under Article 12(4) are distinct treaty concepts having separate and specific ingredients, and a receipt cannot be brought within either merely because the

8 ITA No.670/Mum/2022 Atos IT Solutions and Services INC service in question has technological content or requires specialised technical expertise for its rendition. For determining whether a payment constitutes royalty, the enquiry has to be directed towards whether the consideration is for the use of, or right to use, any of the rights, property or information specifically contemplated under Article 12(3). Similarly, for bringing a technical or consultancy service within Article 12(4)(b), it is not enough that technical knowledge, experience, skill or know-how has been employed by the service provider in rendering the service; such technical knowledge, experience, skill, know-how or process must be made available to the recipient. The true enquiry, therefore, is not merely how sophisticated or technically intensive the service is, but what, in substance, has been granted, transmitted or left with the recipient as a consequence of its rendition.

9.

Coming first to the receipt of Rs.37,42,692 pertaining to the Tower Watson Project, we find that the very same arrangement had come up for consideration before the Tribunal in the assessee’s own case for assessment year 2014–15 in ITA No.6841/Mum/2017, order dated 01.03.2023. The Tribunal examined the Master Services Agreement, the sub-contract arrangement and the nature of the service-desk facility maintained by the assessee in the USA for the Tower Watson Group and noted that it served as

9 ITA No.670/Mum/2022 Atos IT Solutions and Services INC a single point of contact for incidents, problems and service requests relating to IT services. The Tribunal specifically found that the service-desk activity was distinct from the sub- contract entered into with Atos India and that there was nothing on record to indicate that the services resulted in any knowledge being made available to Atos India. It was accordingly held that the receipt fell under Article 7 of the treaty and the addition was directed to be deleted. The factual matrix before us in the present year has not been shown by the Revenue to be materially different. Neither any alteration in the contractual framework nor any change in the scope or manner of rendition of the Tower Watson services has been demonstrated before us. When an identical stream of receipts emanating from the same service arrangement has already been examined in the assessee’s own case and its treaty character determined, a departure in a subsequent year must necessarily rest upon some material change in facts or contractual terms. In the absence of any such distinguishing feature, we find no reason to take a different view and accordingly hold that the consideration received towards the Tower Watson Project does not constitute royalty or FIS under Article 12 and retains its character as business profits under Article 7.

10.

We now proceed to examine the character of the remaining receipts. Insofar as the Revenue seeks to

10 ITA No.670/Mum/2022 Atos IT Solutions and Services INC characterise them as royalty, there is a fundamental distinction between a person employing its own technical knowledge, experience, software, systems or other intellectual resources for rendering a service and that person granting to the customer the use of, or right to use, the underlying copyright, process, know-how, information or experience itself. The former is a case where technology or intellectual property constitutes the means employed by the service provider for producing the contractual result; the latter involves the subject matter of the right itself being placed at the disposal of the payer. This distinction has received authoritative exposition from the Hon’ble Supreme Court in Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT (2021) 432 ITR 471 (SC). While considering the royalty provisions under various DTAAs, including the distinction between copyright and a copyrighted article, the Hon’ble Supreme Court held that where the distribution agreement or end-user licence does not create any interest or right in the distributor/end-user amounting to the use of or right to use copyright, the consideration cannot be regarded as royalty merely because copyrighted software is involved. What has to be examined is the real nature of the rights flowing from the arrangement and whether any of the rights comprised in copyright itself have been parted with. Thus, the presence of software, technology or intellectual inputs in an arrangement cannot, by itself, determine the character of the payment; the

11 ITA No.670/Mum/2022 Atos IT Solutions and Services INC decisive consideration is whether the payer has acquired the use of, or right to use, the underlying copyright or other right contemplated by Article 12(3).

11.

Tested on the aforesaid principle, we do not find anything in the nature of the McGraw Hill Cap IQ Project or MHS Storage services which demonstrates that Atos India acquired any proprietary right to exploit a copyright, patent, process or proprietary information of the assessee or that any industrial, commercial or scientific experience belonging to the assessee was imparted to Atos India for its independent use. The functions brought before us are essentially in the nature of continuing project and operational support. Even insofar as the Microsoft licence aspect noticed by the learned DRP is concerned, the mere use of, or access to, copyrighted software in the course of rendering services cannot, without anything further, establish that rights in the copyright itself have been granted. Significantly, this aspect also arose in the assessee’s own case for assessment year 2014–15, wherein the Tribunal, after considering the global Microsoft licence arrangement and the recharge of costs to Atos India based upon its usage, held that the Microsoft licences did not fall within the category of royalty or copyright payment and directed deletion of the addition. This conclusion is also in accord with the principle subsequently and authoritatively enunciated by the Hon’ble Supreme Court in Engineering Analysis Centre of

12 ITA No.670/Mum/2022 Atos IT Solutions and Services INC Excellence Pvt. Ltd. (supra). There is no material before us to show that Atos India has been granted any right to reproduce, commercially exploit, modify, sub-license or otherwise exercise proprietary rights in the underlying software. The software or technological facility, at the highest, constitutes a medium or resource employed in rendering the services and the subject matter of the consideration remains the services rendered. Therefore, in the absence of any identifiable right contemplated by Article 12(3) having been granted to Atos India, the impugned consideration cannot be characterised as royalty.

12.

This brings us to the alternative case of the Revenue under Article 12(4)(b) of the India-USA DTAA. The expression “make available” occurring therein imports a condition materially different from and additional to the mere rendering of a service which may otherwise possess technical or consultancy attributes. The technical knowledge, experience, skill, know-how or processes employed in rendering the service must be transmitted to the recipient in such a manner that the recipient is enabled to apply the same independently. The Memorandum of Understanding accompanying the India- USA DTAA itself elucidates that the mere fact that provision of a service may require technical input by the service provider does not per se mean that technical knowledge, skills or processes have been made available to the person

13 ITA No.670/Mum/2022 Atos IT Solutions and Services INC purchasing the service. This principle has been explained with considerable clarity by the Hon’ble Karnataka High Court in CIT v. De Beers India Minerals (P.) Ltd. (2012) 346 ITR 467 (Kar.), wherein it was held, in substance, that the recipient must be enabled to apply the technical knowledge, experience, skill, know-how or process on its own; the mere fact that the recipient derives the benefit or obtains the product of technical expertise is not sufficient. The distinction is between obtaining the fruit of the expertise and acquiring the expertise itself. Unless the latter is transmitted and absorbed by the recipient so as to enable its independent deployment in future, the requirement of “make available” remains unsatisfied.

13.

A similar principle was applied in Sandvik Australia Pty. Ltd., where the services involved IT support and resolution of IT-related problems. The Tribunal held that even though such services could possess technical attributes, the treaty requirement was not met in the absence of technical knowledge or expertise being made available to the Indian recipient so that it could thereafter deploy the technology independently without recourse to the service provider. Applying these principles to the facts before us, bid- management support, invoicing and invoice resolution, CCR creation, contract management, reporting of KPIs and SLAs, communication support, deal-solutions support, GOSS

14 ITA No.670/Mum/2022 Atos IT Solutions and Services INC management and storage-support functions may undoubtedly require experience, specialised systems and, in some instances, technical competence on the part of the assessee’s personnel; however, that only demonstrates the expertise with which the assessee performs its contractual functions and does not establish transmission of that expertise to Atos India. No technical manual, methodology, process, design, know-how or enduring technical capability has been identified by the Revenue as having passed from the assessee to Atos India. Nor is there any material to demonstrate that, upon receiving these services, Atos India became technically equipped to reproduce or perform the same services independently thereafter. What Atos India obtains is the benefit and result of the services rendered by the assessee; what Article 12(4)(b) requires is something qualitatively more, namely, transmission of the underlying technical knowledge, experience, skill, know-how or process itself. The reasoning of the authorities below, insofar as it proceeds from the specialised nature of the assessee’s personnel and the technical inputs employed by them to an inference that technical knowledge stood made available to Atos India, thus conflates application of technical expertise by the service provider with imparting of that expertise to the service recipient. These two concepts are fundamentally different for purposes of Article 12(4)(b), and the latter condition has not been established in the present case.

15 ITA No.670/Mum/2022 Atos IT Solutions and Services INC

14.

Thus, on an overall consideration of the nature of the arrangements, the services actually rendered and the governing provisions of the India-USA DTAA, we find no basis for bringing the impugned receipts within the ambit of Article 12. The consideration cannot be characterised as royalty under Article 12(3), since no use of, or right to use, any copyright, patent, process, know-how or information concerning industrial, commercial or scientific experience has been shown to have been granted to Atos India. The mere deployment by the assessee of its own software, technical resources, specialised knowledge or intellectual inputs in the course of rendering the services does not amount to parting with the underlying right or property in favour of the service recipient, and the Microsoft licence component, for the reasons discussed hereinabove, does not alter this conclusion. Equally, the receipts cannot be regarded as FIS under Article 12(4)(b), because the rendition of services has not resulted in technical knowledge, experience, skill, know- how or processes being made available to Atos India in the sense contemplated by the treaty and explained in the Memorandum of Understanding. What Atos India has received is the benefit of the services rendered by the assessee and not the technical knowledge or capability underlying their rendition. Insofar as the Tower Watson receipts are concerned, our conclusion is further fortified by the decision

16 ITA No.670/Mum/2022 Atos IT Solutions and Services INC of the Tribunal in the assessee’s own case for assessment year 2014–15 on the same service arrangement. Consequently, the entire consideration of Rs.1,19,64,455 received by the assessee retains the character of business profits under Article 7 of the India-USA DTAA and, there being no PE of the assessee in India to which such profits could be attributed, the same cannot be brought to tax in India. We accordingly direct the Assessing Officer to delete the addition of Rs.1,19,64,455. The grounds relating to levy of interest are consequential and shall be given effect accordingly. The ground challenging initiation of penalty proceedings under section 270A is premature and does not call for any separate adjudication at this stage.

15.

In the result, the appeal of the assessee is allowed in terms indicated above.

Order pronounced in the open Court on 10th September, 2026.

Sd/- Sd/- (RAKESH KUMAR LODHA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 10/09/2026 KARUNA, sr.ps

17 ITA No.670/Mum/2022 Atos IT Solutions and Services INC Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy//

BY ORDER,

(Asstt. Registrar) ITAT, Mumbai

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