MITSUBISHI ELECTRIC EUROPE B.V.,NETHERLANDS vs. ASSISTANT COMMISSIONER OF INCOME TAX, NEW DELHI

ITA 1948/DEL/2025Status: DisposedITAT Delhi30 September 2026AY 2022-2314 pages
AI SummaryAllowed

What were the facts?

The assessee, Mitsubishi Electric Europe B.V., a Netherlands resident, appealed against an assessment order for AY 2022-23. The order, passed by the ACIT under Section 143(3) r.w.s. 144C(13) following DRP directions, treated referral fees of INR 2,96,41,107 received from Mitsubishi Electric India Private Limited (MEI) as Fees for Technical Services (FTS). The assessee had disclosed this amount as income not chargeable to tax under the India-Netherlands DTAA. The draft assessment order treated the commission as FTS under the Act and the treaty, which the DRP upheld. The final assessment order made an addition of INR 2,96,41,107 as FTS. The assessee's primary contention was that the income was commission for customer referral, not FTS.

What did the Tribunal hold?

The Tribunal held that the commission income received by the assessee for referring potential customers to MEI was not Fees for Technical Services (FTS) under Section 9(1)(vii) of the Act or Article 12(5)(b) of the India-Netherlands Tax Treaty. The assessee's activities involved calculating commission based on a fixed percentage of gross sales, and there was no evidence of providing design, technical, or consultancy services. Crucially, the Tribunal found that the assessee did not 'make available' any technical knowledge, skill, or know-how to MEI, which is a mandatory condition for FTS under the treaty. The Tribunal relied on judicial precedents from the Delhi High Court in DIT vs Guy Carpenter and co Ltd, CIT vs Bio-Rad Laboratories (Singapore) Pte Ltd, and Tungsten Automation England Ltd vs DCIT. Consequently, the commission income was treated as business income, not taxable in India as per Article 7 of the treaty due to the absence of a PE. Ground 1 was not adjudicated as it was not seriously argued. Grounds 2 and 3 were allowed. For Grounds 4 and 5, the AO was directed to give effect to the beneficial provisions of the DTAA and grant TDS credit as per law. The appeal was allowed.

What were the issues?

1. Whether the impugned order is illegal and beyond the DRP's jurisdiction for violating Section 144C(8) by setting aside additional evidence for fresh consideration by the AO after DRP directions? 2. Whether the amount of INR 2,96,41,107 received by the assessee from MEI as referral fees constitutes 'Fees for Technical Services' (FTS) under Section 9(1)(vii) of the Act, or is it commission income? 3. Whether the amount received by the assessee is FTS under Article 12 of the India-Netherlands Tax Treaty, specifically considering Article 12(5)(b) which requires services to be 'made available' to the recipient? Assessee's arguments: The referral fees are in the nature of commission, supported by MOUs, invoices, and sales reports, not technical services. The services do not make technical knowledge available to MEI, thus not qualifying as FTS under Article 12(5)(b) of the treaty. The income is business income taxable only in the Netherlands in the absence of a Permanent Establishment (PE) in India, as per Article 7 of the treaty. The beneficial provisions of the treaty were not given effect to. Revenue's arguments: Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 9(1)(vii),Section 143(3),Section 144C(5),Section 144C(8),Section 144C(13)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘D’, NEW DELHI

For Appellant: Ms. Ananya Kapoor, Adv
For Respondent: Dr. Shalini Verma, CIT-D.R
Hearing: 08.07.2026Pronounced: 30.09.2026

PER NAVEEN CHANDRA, ACCOUNTANT MEMBER :

The above captioned appeal is preferred by the assessee against the assessment order dated 28.01.2025, passed by Income Tax Department, Office of the Assistant Commissioner of Income Tax, Circle International Taxation – 2(2)(1), Delhi (hereinafter referred to as ‘ld. AO), passed u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter ‘the Act’) in pursuance of directions of the ld. Dispute [A.Y 2022-23] Resolution Panel-2, New Delhi (in short ‘ld. DRP') dated 19.12.2024 pertaining to Assessment Year 2022-23. 2. Assessee has raised following grounds of appeal :

1.

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The order continues below.

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