INCOME TAX OFFICER, DELHI vs. VARUN BEVERAGES LIMITED, DELHI

ITITA 6/DEL/2025Status: DisposedITAT Delhi23 September 2026AY 2020-214 pages
AI SummaryDismissed

What were the facts?

The Revenue is in appeal against the order of the CIT(A) for Assessment Year 2020-21. The assessee, M/s Varun Beverages Limited, made payments totaling ₹74,73,919 to two UAE-based entities, M/s Squire Patton Boggs (MEA) LLP for legal services and M/s Quality and Food Safety Services FZE for validation services, without deducting tax at source. The Assessing Officer initiated proceedings under Section 201/201(1A) of the Income-tax Act, 1961, holding the assessee in default for non-deduction. The CIT(A) directed the deletion of the demand raised under Section 201/201(1A). The Revenue's appeal challenges this deletion.

What did the Tribunal hold?

The Tribunal held that the assessee was not liable to deduct tax at source on the payments made to the overseas entities. It was an undisputed fact that the services were rendered by the overseas entities from outside India, and the Revenue did not dispute that these entities had a Permanent Establishment (PE) in India. Furthermore, it was not in dispute that the India-UAE DTAA contains no specific clause to tax FTS. In the absence of such a provision in the DTAA, the receipts, even if they were in the nature of FTS, would be treated as Business Income of the recipient. The Tribunal relied on the Madras High Court's decision in *Bangkok Glass Industry Co. Ltd.*, which held that in the absence of an FTS clause, such receipts are to be treated as Business Profits under Article 7 of the DTAA, not taxable in India if the recipient has no PE. The Tribunal also referred to its own decision in *Denso International Asia Co. Ltd.*, which followed the *Bangkok Glass Industry Co. Ltd.* ratio. Consequently, the impugned order of the CIT(A) was upheld. The appeal of the Revenue was dismissed.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the CIT(A) erred in law by holding that the receipts are not taxable in India, ignoring that such receipts are taxable as Fees for Technical Services (FTS) under Section 9(1)(vii) of the Income-tax Act, 1961, and that no contrary provision exists under the India-UAE DTAA? Assessee's contentions: The payments were for professional services, constituting 'Business Income' and not FTS. The India-UAE DTAA does not have a specific clause to tax FTS, thus such receipts should be treated as business receipts. The overseas entities do not have a Permanent Establishment (PE) in India, as per Article 7 read with Article 5 of the India-UAE DTAA, meaning their business profits are not taxable in India. Reliance was placed on *Bangkok Glass Industry Co. Ltd. Vs. ACIT* and *Denso International Asia Co. Ltd. vs. ACIT*. Revenue's contentions: The payments are in the nature of Fees for Technical Services (FTS). As there is no specific clause to tax FTS in the India-UAE DTAA, the payments are taxable under Section 9(1)(vii) of the Act. The Revenue prayed for reversal of the CIT(A)'s findings.

Which sections of the Income-tax Act were involved?

Section 9(1)(vii),Section 201,Section 201(1A)

AI-generated summary — verify with the full judgment below

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

Before: SHRI VIKAS AWASTHY & SHRI NAVEEN CHANDRA

For Appellant: Shri M.V. Ramesh, Senior DR
For Respondent: Shri Rajat Jain, Shri Akshat Jain, CAs
Hearing: 25.06.2026Pronounced: 23.09.2026

PER VIKAS AWASTHY, JM:

This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-24, New Delhi dated 18" November, 2024 for assessment year 2020-21. 2. The Revenue in appeal has assailed the order of CIT(A) on following solitary ground:-

“Whether on the facts and in the circumstances of the case, the CIT(A) has erred in law in holding that the receipts are not taxable in India, ignoring that such receipts are taxable as Fees for Technical Services (FTS) under section 9(i)(vii) of the Income Tax Act, 1961, and that no contrary provision exists under the India-UAE DTAA?”

3

The order continues below.

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