ARCADIS N V ,BANGALORE vs. DCIT, INTL. TAXATION, CIRCLE-1(1), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE – PRESIDENT AND SHRI KESHAV DUBEY, JUDICIAL MEMBER IT(IT)A No. 667/Bang/2025 Assessment Year : 2022-23

Arcadis N V, The Deputy Commissioner of Gustav Mahlerplein 97-103, Income Tax, 1082 MS Amsterdam, International Taxation, Vs. Netherland – 7895 Circle – 1(1), PAN: AAMCA9868M Bengaluru. APPELLANT RESPONDENT

: Sri Ketan Ved, CA Assessee by : Smt. Divya K.J, CIT – DR Revenue by

Date of Hearing : 07-05-2026 Date of Pronouncement : 03-08-2026

ORDER PER PRASHANT MAHARISHI, VICE – PRESIDENT 1. This appeal has been filed by Arcadis N.V., a limited liability company incorporated under the laws of the Netherlands, with its corporate seat in Amsterdam, Netherlands, { the Assessee/ Appellant] for assessment year 2022- 23. It is directed against the assessment order dated 15 January 2025 passed by the Deputy Commissioner of Income Tax, International Taxation, Circle 1(1), Bengaluru [the ld. AO], under sections 143(3) read with 144C(13) of the Income Tax Act, 1961 (“the Act”). By that order, the assessee’s total income was assessed at ₹29,71,66,214, as against the returned income of ₹23,75,616 declared on 14 November 2022. In the return of income, SSC has stated that income from information technology recharges amounting to ₹28,64,39,056 and income from managerial fees amounting to ₹81,25,385 is not chargeable to income tax as per the double taxation avoidance agreement. 2. The return of income was selected for scrutiny. During assessment, it was noted that the assessee had claimed ₹28,64,39,056, representing income from IT

IT(IT)A No. 667/Bang/2025 Page 2 of 9 recharge and ₹81,25,385 as income from managerial fees., as not chargeable to tax under the Double Taxation Avoidance Agreement,

IT(IT)A No. 667/Bang/2025 Page 3 of 9 final assessment order was passed on 15 January 2025, which is challenged in the present appeal. 9. The assessee has raised 27 grounds of appeal. Grounds 2 to 12 relate to the treatment of support services amounting to ₹81,25,385 as fees for technical services. Grounds 13 to 20 concern the taxability of IT recharge costs of ₹28,64,39,055 as royalty. Grounds 21 and 22 challenge the addition of ₹2,26,158 towards interest on income-tax refund, which the assessee claims was not received. Grounds 23 and 24 dispute the computation of interest under sections 234D and 234B of the Act, while grounds 25 to 27 relate to the initiation of penalty proceedings under section 270A of the Act. 10. Ground 1 is general in nature; grounds 23 and 24 are consequential; and grounds 25 to 27 are premature. These grounds are accordingly dismissed. 11. The learned authorised representative, Shri Ketan Ved, Chartered Accountant, filed a 227-page paper book that had also been submitted before the learned Assessing Officer and the learned Dispute Resolution Panel. On the taxability of ₹81,25,385 for headquarters support services, treated by the learned Assessing Officer as fees for technical services, he submitted that the income did not satisfy the “make available” test under Article 12(5)(b) of the India–Netherlands tax treaty and, therefore, the addition could not be sustained. He referred to page 11 of the assessment order, where the learned Assessing Officer reproduced the details of the managerial fees agreement dated 1 January 2019 between the assessee and the Indian entity. He also referred to Article 2.1 of the agreement, which sets out the nature of services, and to the remuneration provisions. It was submitted that the assessee was entitled to charge the Indian entity compensation for headquarters support services on an arm’s length basis under the applicable transfer pricing laws of the Netherlands and India, subject to the India–Netherlands tax treaty. The compensation comprised direct and indirect costs incurred in providing the services, computed under the transfer pricing policy, together with an arm’s length mark-up subject to annual review and revision by the parties. Referring to Schedule A to the services, reproduced at page 16 of the assessment order, he submitted that the services consisted of oversight, guidance, formulation of overall corporate policy, and accounting assistance limited to implementation support. He therefore contended that these services did not make available any technical knowledge, experience, skill, know- how, or processes. He further submitted that, under the India–Netherlands Double Taxation Avoidance Agreement, technical services are not taxable in India unless they satisfy the “make available” condition. 12. He also referred to the assessee’s reply dated 23 February 2024, placed at page 103 of the paper book, which stated that the support services included executive management, accounting, tax, treasury, legal, risk management, human resources, fringe benefits, leadership and management training, quality assurance, safety, sales, information technology, insurance, marketing and communication, housing, facility management, office supplies, assistance in mergers and acquisitions of global clients, and other administrative support

IT(IT)A No. 667/Bang/2025 Page 4 of 9 services. It was submitted that, under section 90(2) of the Act, the provisions of the Act or the Double Taxation Avoidance Agreement, whichever are more beneficial to the assessee, must be applied. Referring to Article 12 of the India– Netherlands Double Taxation Avoidance Agreement, particularly clause 4 defining royalty, he submitted that headquarters support services were routine day-to-day support and management services. They did not impart, or make available, any knowledge, skill, experience, or information concerning industrial, commercial, or scientific experience to the recipient. Accordingly, the impugned services could not be treated as royalty taxable in India. The assessee further relied on the decisions reported in 153 taxmann.com 494 and 146 taxmann.com 145 to contend that services rendered by the assessee, being a Netherlands resident, were not taxable as royalty under Article 12 of the India–Netherlands Double Taxation Avoidance Agreement and, therefore, could not be added to its total income. 13. Regarding IT recharge costs, it was submitted that the IT recharge agreement was entered into to enable group companies to obtain economies of scale and maintain a globally uniform information technology platform. Under the agreement, the Assessee directly or indirectly procures global contracts with third-party providers for information technology products and services. Where software or other licences are obtained under such contracts, the related usage rights are made available to group companies through the Assessee. The agreement also permits the company to recharge, without any mark-up, all costs and expenses relating to, or arising from, the use of the information technology platform. Since the IT recharge costs represent only a cost-to-cost allocation for services provided by the company, without any mark-up, it was submitted that they cannot be treated as its taxable income. Reliance was placed on the decision of the Hon’ble Supreme Court reported in 105 ITR 133, where “reimbursement” was understood as repayment or restoration of an equivalent amount paid, expended, or lost, or as indemnification of the person who incurred the cost. The company also relied on several judicial precedents, including 78 taxmann.com 287, 91 taxmann.com 359, and 40 taxmann.com 38. It was further submitted that, under Article 12 of the India–Netherlands Double Taxation Avoidance Agreement, fees for technical services cover payments for technical or consultancy services only where such services make available technical knowledge, experience, skill, know-how, or processes to the recipient, or involve the development and transfer of a technical plan or design. The company contended that no such technical knowledge, experience, skill, know-how, process, technical plan, or technical design was made available, and that the amount was merely a reimbursement. Therefore, the IT recharge cost of ₹28,64,39,055 could not be characterized as royalty. The company also referred to invoices raised by the Assessee stating that ₹65,48,868 represented IT infrastructure costs relating to software or license costs procured under global contracts with third parties such as Microsoft and Oracle, and recharged to Indian entities on a cost-to-cost basis without any mark-up.

IT(IT)A No. 667/Bang/2025 Page 5 of 9 14. His principal contention is that the sum of ₹81,25,385 received for headquarters support services does not constitute fees for technical services and is therefore not chargeable to tax in India, as the services do not satisfy the “make available” condition under the Double Taxation Avoidance Agreement. As regards the royalty addition of ₹28,64,39,055 towards IT recharge costs, he submitted that the amount represents a cost-to-cost reimbursement and a mere allocation of expenses, and therefore cannot be treated as taxable income. 15. The learned Departmental Representative strongly relied on the order of the learned Assessing Officer. She submitted that the managerial fees were described as headquarters support services, and that the services rendered by the shared service centre, as set out in Schedule A to the agreement, comprised fifteen categories, each satisfying the “make available” test. Accordingly, she contended that there was no infirmity in the order of the learned Assessing Officer. She further referred to paragraph 13 of the assessment order, where the learned Assessing Officer had given detailed reasons for holding that the impugned services were chargeable to tax as fees for technical services under section 9(1)(vii) of the Income Tax Act and Article 12 of the India–Netherlands Double Taxation Avoidance Agreement. 16. She further referred to paragraph 14 of the assessment order and submitted that the IT recharge amount comprised two components, namely ₹65,48,869 and ₹27,98,90,186, paid by two Indian entities, Arcadis India Private Limited and Arcadis Consulting India Private Limited, respectively. Thus, according to her, the amount was not paid by a single entity but by two separate Indian entities. She also referred to paragraph 1 of the IT recharge agreement. Relying on the findings recorded by the learned Assessing Officer in paragraph 14, she submitted that the learned Assessing Officer had categorically held that ₹28,64,39,055 was paid for the use, or right to use, a process and highly customizable software, and therefore constituted royalty under Article 12(1) of the India–Netherlands Double Taxation Avoidance Agreement. She further submitted that the amount was chargeable to tax under Article 12(2) and was taxable in India under both the Income Tax Act and the treaty. 17. Regarding the addition of ₹2,26,158 as interest income, she submitted that the amount was reflected in the tax deduction at source statement and that tax had also been deducted by the payer in the account of the Assessee Therefore, in her submission, the Assessee’s mere denial of receipt could not be accepted where its permanent account number was mentioned in the statement. She accordingly relied on the order of the learned Assessing Officer. 18. We have carefully considered the rival submissions and perused the orders of the lower authorities. The IT recharge charges were paid by the Indian entity to the Assessee’s shared service centre. The agreement, reproduced at page 29 of 46 of the assessment order, states that, to secure economies of scale and maintain a global and uniform information technology platform, the Assessee directly or indirectly procured global contracts with third-party providers of IT products and services, including Accenture, Autodesk, Bentley, ESRI, Microsoft, Oracle and

IT(IT)A No. 667/Bang/2025 Page 6 of 9 ping. To the extent software or other licences were obtained under those contracts, usage rights were granted to other Arcadis group companies, including the Indian entity. Since the IT products and services benefited Arcadis group companies, the related costs and expenses were to be recharged to them in proportion to the relative benefit received from the IT package. The Assessee was entitled to recharge the Indian entity for all costs and expenses relating to the IT package provided, without any mark-up, based on the relative benefit received by the Indian entity. The charges were also required to be computed in accordance with the applicable IT recharge policy, which prescribed arm’s length allocation keys for each IT item, including user-based and actual-usage-based allocation, as updated by the parties from time to time. The recharge procedure further provided that the Assessee would issue invoices to the Indian entity on a quarterly, semi-annual, or annual basis for the resulting recharge amount. On these facts, the arrangement is clearly cost-to-cost recharge without any income element in the hands of Assessee. While examining the issue in paragraph 14 of the assessment order, the learned Assessing Officer considered whether the payment constituted royalty and held that the decision of the Hon’ble Supreme Court did not cover the issue. However, despite an elaborate discussion, he did not dispute that the payment was a cost-to-cost reimbursement with no income component in the hands of the Assessee. In paragraph 14.24 of the order, he observed that two conditions must coexist for a payment to be treated as reimbursement: first, there must be a direct one-to-one correlation between the outflow of payment and the inflow of receipt, which exists where an identifiable amount is incurred for another’s benefit and later recovered as such; and secondly, the receipt and payment must be of identical amounts. He further observed that the burden of proving reimbursement lies on the Assessee. Having considered the agreement and the Assessing Officer’s reasoning, we find that clause 1 of the agreement satisfies the first condition, as it establishes a direct correlation between the outflow of costs and the inflow of recharge receipts. Clause 2 sets out the billing mechanism and provides for recharge on a direct cost-to-cost basis without any mark-up, based on number of users or actual usage. Thus, the identification mechanism referred to by the learned Assessing Officer in paragraph 14.24 is satisfied. We therefore hold that the payment made by the Indian entity to the Assessee was a cost-to-cost reimbursement, contained no income element, and is not chargeable to tax in India. 19. With respect to the management fees, Schedule A to the agreement shows that the headquarters support services were performed outside India and covered executive management, accounting, tax, treasury, legal, risk management, human resources, fringe benefits, leadership training, quality assurance, safety, sales, information technology, insurance, marketing and communication services. More than twenty items are listed in the schedule, which is reproduced at page 8 of 46 of the assessment order. The learned Assessing Officer dealt with the assessee’s contention that the services did not satisfy the “make available” test mainly on the basis of inference in paragraph 13.1. He observed that the Indian

IT(IT)A No. 667/Bang/2025 Page 7 of 9 company availed knowledge in relation to managerial and operational support, analytical and accounting support, legal advice, information technology, purchasing, personnel and training, and miscellaneous services, and thereafter executed those functions on its own. He also noted that the expression “advice” was repeatedly used in describing many services and that the services were themselves support services. According to him, this indicated that the assessee’s employees worked closely with the employees of the Indian company, supported and advised them, and thereby inherently transferred knowledge and experience, resulting in the services being made available. He further held that the assessee had a stake in the delivery of services because any lapse at the Indian entity’s end could adversely affect the assessee’s brand value and reputation. Therefore, in his view, the assessee’s larger interest was to ensure complete transfer of its knowledge base, experience, and skill set so that services could be delivered in accordance with global practices and the brand could retain its industry position. He considered the arrangement not merely as provision of services, but as equipping the recipient entity’s resources and building its capacity to manage operations for third-party clients. On that basis, he concluded that the “make available” condition was satisfied. He also held that the services rendered by the assessee were managerial, technical, and consultancy services, and that the assessee had made available such services in a manner that enabled the recipient to use or replicate them. 20. On careful consideration of the facts placed before us, we find that the “make available” test is satisfied only where the services enable the recipient to apply the underlying technology, knowledge, experience, skill, know-how, or process independently, without further assistance from the service provider. The recipient must derive an enduring benefit, and the relevant technical knowledge or skill must remain with the recipient even after the contract ends. General training services, by themselves, do not amount to a transfer of technology so as to make such services available to the recipient. Schedule A refers only to leadership and management training, and not to technical training relating to the actual work of the Assessee. The remaining services—such as accounting, tax, treasury, legal, and other common support services—also do not result in any technical knowledge, skill, know-how, process, technical plan, or technical design being made available to the recipient. Under Article 12(5)(b), technical or consultancy services are taxable in the source country only where they make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. 21. The “make available” clause in a tax treaty determines when technical, managerial, or consultancy services rendered by a resident of one contracting state may be taxed in the source state. It applies where services supplied by a provider in one country transfer knowledge, skills, or expertise to a recipient in the other country in a manner that enables the recipient to apply them independently in the future, without further assistance from the service provider. However, the test cannot be applied solely on the basis that the recipient

IT(IT)A No. 667/Bang/2025 Page 8 of 9 continues to obtain the same services from the same provider in subsequent years. In some cases, even if the recipient has acquired sufficient knowledge or skill, commercial considerations or economies of cost may make it more practical to continue engaging the service provider rather than perform the work internally. Whether the “make available” condition is satisfied therefore depends on the facts of each case and cannot be determined by any single factor. Expression “make available” is not defined in the India–Netherlands Double Taxation Avoidance Agreement, as in India Singapore DTAA as decided by the Hon’ble Karnataka High Court in CIT v. De Beers India Minerals Pvt. Ltd., 21 taxmann.com 214. 22. However, in the present case, the learned Assessing Officer has proceeded mainly on the reasoning that the services were rendered by the assessee to preserve its brand value in the industry and that the transfer of knowledge and experience was inherent in such services. We are unable to accept that such findings, by themselves, establish satisfaction of the “make available” test. For that test to be met, the knowledge or skills of the SSC must be imparted to and absorbed by the recipient in a manner that enables the recipient to apply similar knowledge or skills independently in the future, without depending on the service provider. No material has been placed before us to show that the Indian entity could thereafter perform the functions listed in Schedule A—such as accounting, taxation, treasury, legal, and risk management—without assistance from the assessee. It is also possible that, for economic or commercial reasons, the Indian entity may continue to obtain such technical or advisory services from the assessee rather than undertake them on its own. 23. In view of the above facts, we find that the learned Assessing Officer has failed to establish that the “make available” test was satisfied in respect of the services rendered by the assessee to the Indian entity for ₹81,25,385. Accordingly, the said amount is not chargeable to tax in India under Article 12 of the India– Netherlands Double Taxation Avoidance Agreement. 24. In view of the foregoing, grounds 2 to 12 are allowed, and we hold that ₹81,25,385 received for headquarters support services is not chargeable to tax as fees for technical services. Grounds 13 to 20 are also allowed, as the IT recharge costs of ₹28,64,39,055 represent a cost-to-cost reimbursement by the assessee from the Indian entity and cannot be taxed as royalty. 25. Coming to grounds 21 and 22, we find that the learned Assessing Officer noted from the tax deduction at source statement that the assessee had received interest of ₹2,26,158, on which tax of ₹94,082 had been deducted. The assessee was asked to show cause why the said interest should not be brought to tax. In response, the assessee stated that it had not received the amount. The learned Assessing Officer, however, rejected the explanation and held that the interest income of ₹2,26,158 was chargeable to tax in the hands of the assessee. 26. We find that the information relied upon by the learned Assessing Officer was taken from the tax deduction at source statement. Since the assessee has denied receipt of the interest income, the learned Assessing Officer is directed to verify

IT(IT)A No. 667/Bang/2025 Page 9 of 9 the matter from the payer from whom the assessee is stated to have received the interest, by applying the provisions of the Act and, if necessary, by making inquiry under section 133(6) of the Act. The learned Assessing Officer shall also examine the information appearing in Form 26 AS and, if it is found to be correct, confront the assessee with such material before deciding the issue afresh after giving the assessee a reasonable opportunity of being heard. Accordingly, grounds 21 and 22 are allowed for statistical purposes in the manner indicated above. 27. In the result, the appeal filed by the assessee is allowed in the manner indicated above.

Order pronounced in the open court on 03rd August, 2026.

Sd/- Sd/- (KESHAV DUBEY) (PRASHANT MAHARISHI) JUDICIAL MEMBER VICE-PRESIDENT Bangalore, Dated, the 03rd August, 2026. Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. CIT(A) By order

Assistant Registrar, ITAT, Bangalore