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Facts
The assessee-company paid Rs. 11,16,25,424/- to its AE, BB PLC, London, for communication and connectivity charges, claiming it as reimbursement on a cost-to-cost basis. The Assessing Officer treated this as payment for technical services and disallowed the expenses for non-deduction of TDS. The CIT(A) deleted the disallowance.
Held
The Tribunal held that the payment was in the nature of reimbursement of cost allocated and not taxable in India, especially in the absence of the 'make available' element required under the India-UK DTAA for services to be classified as Fee for Technical Services (FTS).
Key Issues
Whether the payment for communication and connectivity charges to an AE, treated as reimbursement, constitutes Fee for Technical Services (FTS) requiring TDS deduction, considering the India-UK DTAA and the 'make available' clause.
Sections Cited
143(3), 92CA, 195(2), 40(a)(i), 195, 90(2)
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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
आदेश / O R D E R
PER JAGADISH, A.M :
Aforesaid appeal filed by the assessee for Assessment Year (AY) 2009-10 arises out of the order of Learned Commissioner of Income Tax (Appeals)-13, Pune [hereinafter “CIT(A)”] dated 27.09.2023 in the matter of assessment framed by the Assessing Officer [AO] u/s. 143(3) r.w.s 92CA of the Income-tax Act,1961 the Revenue are as under:
“1. The order of the Ld. circumstances of the case. CIT(A) is contrary to law and circumstances of the case.
2. The Ld CIT(A) has erred in holding that expenses of Rs. 11,16,25,424/ is reimbursement cCost, whereas in 3CEB report the assessee its own has mentioned that the said expense payment to BBPLC London towards communication and connectivity charges.
3. The Ld CIT(A) has erred in not considering the facts that the assessee has availed new software tools such as multi-protocol label switching (MPLS), Telephony, pocket e-mnail, Information Technology Service Desk, Back-end Infrastructure support services, Firewall Support etc which will be used for operational activities of assessee and therefore, the assessee has availed software tools along with technical know how to apply the technology and hence the assessee is using a specialized software which falls in the definition of fees for technical services.
4. The appellant craves to add, amend, alter or delete any of the above grounds of appeal during the course of appellate proceedings before the Hon'ble Tribunal.”
The brief facts of the case are that Barclays Global Service Centre Pvt. Ltd. (BGSC) formerly known as Barclays Technology Centre India Pvt. Ltd. (BTCI) is a successor of Barclays Shared Services Pvt. Ltd. (BSS), which was merged with BTCI vide order dated 02.11.2017 issued by the Hon’ble National Company Law Tribunal with an appointed date of 01.04.2017. During the year under consideration, the company was engaged in rendering Information Technology Enabled Services (ITES) like data and payment Bank PLC (BB PLC) , an entity incorporated in United Kingdom. The assessee-company during the year has made payment of Rs.11,16,25,424/- to M/s. BB PLC, London in respect of Information Technology support such as multi-protocol label switching (MPLS), Telephony, pocket e-mail, information technology service Desk, Back- end infrastructure support services, firewall support etc. It has been stated that the above payment is in the nature of reimbursement on cost to cost basis towards communication and connectivity charges and the same was not taxable in India and therefore, the assessee- company has not deducted TDS on the such reimbursement.
However, the A.O on the basis of narration in Form-3CEB, where the transactions have been shown as payment to BB PLC, London towards communication and connectivity charges has held that the assessee was required to deduct TDS as per Section 195(2) of the Act. The A.O , therefore made the disallowance u/s. 40(a)(i) of the Act of Rs 11,16,25,424 for failure to comply provisions of chapter XVII-B in not deducting the tax. Being aggrieved, the assessee filed an appeal before the Ld. CIT(A), Chennai, which was transferred to Ld. CIT(A), Pune post merger of BSS with BGSC. The Ld. CIT(A), Pune deleted the disallowance u/s. 40(a)(i) of the Ac made by the A.O.
The ITAT, Pune vide order dated 02.07.2021 remanded back the case to the Ld. CIT(A), Pune for fresh adjudication. The Ld. CIT(A), Pune passed detailed order dated 27.09.2023 relying on findings in his past orders for A.Y 2014-15 to A.Y 2016-17 , and further noting as under:
“ …2.4 It is seen that services rendered by the AE, BBPLC for "communication and connectivity charges" are as per the IT support agreement between the appellant and BBPLC did 10.02.2010 w.e.f. 01.01.2009. There is no change in the agreement over the years and facts for various assessment years. These services are availed year on year by the appellant from its AE, BBPLC. This corroborates the argument that BBPLC does not impart any knowledge to the Appellant, services arc provided only on resolution basis and there is no recourse to the service provider. In view of the above discussion, without prejudice to the fact that the subject payment is not taxable being in the nature of reimbursement of cost allocated, in my view, the same is also not liable to be taxed pursuant to beneficial provisions of India-UK DTAA, in absence of 'make available' element. Accordingly, appeal is allowed on this ground."
At the outset, the Ld. Departmental Representative (DR) has argued that the assessee on its own has stated in Form-3CEB that the expenses of Rs.11,16,25,424/- has been made to BB PLC, London towards communication and connectivity charges and therefore, the assesseee was liable to deduct TDS u/s. 195(2) of the Act. The Ld. DR also argued that the assessee has availed new software tool such as MPLS, Telephony, pocket e-mail etc., which will be used for operational activity of the assessee and therefore, the payment falls in TDS.
The Ld. Senior Counsel, on the other hand, has argued that the payment of BSS to BB PLC is in the nature of reimbursement of expenses on cost-to-cost basis hence, it is not income in the hands of BB PLC and therefore, the assessee was not required to deduct TDS.
The Ld. Senior Counsel further argued that the nomenclature used in Form-3CEB and TP study form for these expenses was communication and connectivity charges paid to BB PLC, but it was also stated that the same was charged to BSS on cost-to-cost basis.
The Ld. Senior Counsel stated that the same was verified by the Ld. TPO and was accepted to be international transaction on an arm’s length basis. He, therefore argued that the Ld. CIT(A) on verification of all the documents has concluded that the payment made by the assessee is on account for reimbursement of expenses and therefore, it cannot be regarded as of income in the hands of BB PLC. The Ld. Senior Counsel relied on the order of Hon’ble Supreme Court in the case of A.P. Moller Maersk 392 ITR 186 (SC) and other case laws in its support.
BB PLC are not chargeable to tax in India even as a fee for technical services. He argued that as per Section 195 r.w.s 90(2) of the Act, the taxability for a non-resident taxpayer is determined based on provision of the Act or the relevant Double Taxation Avoidance Agreement (DTAA), whichever is more beneficial to the taxpayer and as the BB PLC qualifies as a tax resident of UK within the meaning of Article 4 of the India-UK DTAA and as per Article 13(4) of the India-UK DTAA, for any service to quality as FTS, it should be either technical or consultancy in nature and such services also need to make available technical knowledge, experience, skill, now how or processes, or consist of development and transfer of a technical plan or technical design. The Ld. Senior Counsel has argued that mere rendering technical input access to technology does not suffice to meet the make available test. In support of its contentions, the Ld. Senior Counsel relied upon various case laws and argued that expenses incurred towards communication and connectivity charges by BSS are charged by BB PLC are not taxable as fee for technical services under Article 13(4) of India-UK DTAA and therefore, prayed to uphold the order of Ld. CIT(A). available on record. The A.O has made the disallowance of communication and connectivity charges of Rs.11,16,25,424/- reported in Form-3CEB under section 40(a)(i) as assessee has not deducted tax . The Ld. CIT(A) has held that the subject payment is not taxable being in the nature of reimbursement of cost allocated and the same is also not taxable pursuant to beneficial provisions of India –U K DTAA in absence of make available element. The Ld CIT(A) after examining the IT supporting agreement between the assessee and BB PLC has observed that these services are availed year on year by the assessee from its AE, BB PLC, which corroborates the argument that BB PLC does not impart any knowledge to the assessee and services are provided only on resolution basis and there is no recourse to the service provider. It is evident that the assessee has paid communication and connectivity charges, which is in the form of reimbursement. The TPO also in the transfer pricing order has not made any adjustment on such reimbursement, as the payment is on the cost-to-cost basis. We do not find any infirmity in the order of Ld. CIT(A) and therefore, the appeal of Revenue is dismissed.
Order pronounced on 26th day of September, 2025 at Chennai.