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Facts
The assessee, Satyam Venture Engineering Service, made payments of Rs.52,41,327/- to Adecco Banga Recruitment Ltd, Thailand, without deducting TDS. The Assessing Officer disallowed this amount under Section 40(a)(i) of the Income Tax Act. The assessee argued that the payment was not taxable in India as the India-Thailand DTAA lacks an FTS clause and the recipient had no Permanent Establishment (PE) in India.
Held
The Tribunal upheld the CIT(A)'s decision, confirming that in the absence of an FTS clause in the DTAA, such payments for technical services to a non-resident are considered business income and not taxable in India without a PE. Consequently, the disallowance under Section 40(a)(i) of the Act was not justified.
Key Issues
Whether TDS is required on payments for technical services to a non-resident when the DTAA lacks a specific FTS clause, and if such payments should be treated as business income not liable for disallowance under Section 40(a)(i) in the absence of a PE.
Sections Cited
40(a)(i), 40(a)(ia)
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Income Tax Appellate Tribunal, Hyderabad ‘ DB-A ‘ Bench, Hyderabad
Before: Shri Vijay Pal Rao, Vice-Shri Manjunatha, G.
(िनधा�रण वष�/Assessment Year: 2022-23) Dy. CIT Vs. Satyam Venture Central Circle 3(2) Engineering Service Hyderabad Private Limited Hyderabad PAN: AAFCS3287D (Appellant) (Respondent) िनधा��रती �ारा/Assessee by: CA EV Sri Krishna राज� व �ारा/Revenue by:: Shri T.V. Vamsidhar, Sr. AR सुनवाई की तारीख/Date of hearing: 24/09/2025 घोषणा की तारीख/Pronouncement: 26/09/2025 आदेश/ORDER
Per Vijay Pal Rao, Vice President
This appeal by the Revenue is directed against the order dated 14/06/2025 of the learned CIT (A), Hyderabad -11 for the A.Y.2022-23.
The Revenue has raised the following grounds of appeal:
Page 1 of 5 “1. The ld CIT(A) erred on the facts and in the circumstances of the case and in law.
2. Whether on the facts and circumstances of the case and in the law, the CIT(A) is correct in holding that fee for technical services should be treated as business income in the absence of any specific clause DTAA between India and Thailand holding that the payments to the Thailand entity are not liable for deduction tax at source in India? 3. The appellant craves leave to amend, modify or alter any ground or grounds of appeal wherever necessary”.
3. The assessee company is engaged in the business of I.T. enabled services and BPO service providers. During the scrutiny assessment, the Assessing Officer noted that the assessee has made payments to Adecco Banga Recruitment Ltd (ABRL), Thailand to the tune of Rs.52,41,327/- without deducting the TDS. Accordingly, the Assessing Officer disallowed the said amount for want of TDS u/s 40(a)(i) of the I.T Act. The assessee challenged the action of the Assessing Officer before the learned CIT (A) and contended that no TDS is required to be deducted on this payment as the said amount is not taxable in the hand of the recipient as per the provisions of DTAA between India and Thailand. It was also submitted that the DTAA between India and Thailand does not contain any article on fee for technical services and further the recipient also did not have a permanent establishment (PE) in India, therefore, the said income is not chargeable to tax in India. The learned CIT (A) has allowed the claim of the assessee and deleted the disallowance made by the Assessing Officer by following the order of the Tribunal in assessee’s own case for the A.Y 2016-17.
We have heard the learned DR as well as the learned AR and considered the relevant material available on record. At the outset, we note that this Tribunal in assessee’s own case for the A.Y 2016-17 has considered an identical issue vide order dated 31/05/2025 in ITA (TP) No.192/Hyd/2021 in para 23 to 25 as under: “23. Having regard to the facts and circumstances of the case, we are of the considered opinion that by granting an opportunity to the assessee no prejudice is caused to the case of the Revenue and in the interest of justice, the additional evidence is received and the issue is restored to the file of the learned Assessing Officer to examine them and to take a view after affording an opportunity to the assessee. With this view of the matter, we restore the issue covered by Ground No. 15 in respect of the payments made to Techno Support, Japan for examining the material and to take a view according to law, after affording an opportunity to the assessee. 24. In respect of the payment to Thailand entity, learned DRP recorded that such payments amounted to Fee for Technical Services (FTS), and in the absence of FTS clause in the India - Thailand Double Taxation Avoidance Agreement (DTAA), the same have to be taxed as other income under Article 22 of DTAA, and for non-deduction of tax on such payments, disallowance under section 40(a)(i) of the Act is justified. 25. It is, therefore, clear that there is no dispute that the payments made by the assessee to the Thailand entity are to be classified as FTS, and there is no FTS clause in India- Thailand DTAA. In the circumstances, a ITA-TP No. 192/Hyd/2021 Co-ordinate Bench of the Delhi Tribunal in the case of Solvay Asia Pacific (P.) Ltd., vs. DCIT [2024] 159 taxmann.com 90 (Delhi - Trib.) considered the issue in the light of the decision is of Co-ordinate Benches in the case of Bangkok Glass Industry Co. Ltd., vs. ACIT [2013] 34 taxmann.com 77 and Bharti Airtel Ltd., vs. ITO [2016] 67 taxmann.com 223 (Delhi - Trib) and reached a conclusion that when a non-resident receives certain amounts fall in the category of FTS and there is no FTS clause in India-Thailand DTAA, such receipts have to be treated as business income in the hands of the Thailand entity, but not as miscellaneous
Page 3 of 5 income under any residual clause. Since the decision is applicable to the facts of the case on hand, we hold that in such situation the provisions of section 40(a)(ia) of the Act cannot be invoked. Learned Assessing Officer is directed to delete the addition to the tune of Rs. 44,19,715/- by invoking the provisions under section 40(a)(i) of the Act. Ground No. 16 of the appeal is accordingly allowed.”
By following this decision of the Tribunal, the learned CIT (A) has deleted the addition in para 6.4 of the impugned order as under: “6.4. Hon’ble ITAT held that there is no dispute that the payments made by the appellant to the Thailand entity are to be classified as FTS and there is no FTS clause in India Thailand DTAA. Further, it was held that when a Non Resident receives certain amounts in the category of FTS and as there is no FTS clause in India Thailand DTAA, such receipts have to be treated as Business Income in the hands of the Thailand entity but not as miscellaneous income under any residual clause. Accordingly, it was directed to delete the addition made by the AO by invoking provisions u/s 40(a)(i) of the Act. The decision of Hon’ble Jurisdictional ITAT was delivered in appellant’s own case for A.Y.2016-17. The facts of the impugned A.Y. 2022-23 are similar of that of the A.Y.2016-17. Payments in both the A.Y.s mentioned above were made to ABRL, Thailand. Since on the facts of the case, Hon’ble ITAT has deleted the addition in A.Y.2016-17, the decision is squarely applicable for impugned A.Y.2022-23 also. Accordingly, the addition made to the tune of Rs.52,41,327/- by invoking of provisions of sec. 40(a)(i) are deleted hereby. In view of the above discussion, Grounds of Appeal No. 2& 3 are allowed.”
Accordingly, when the issue is covered by the decision of this Tribunal in assessee’s own case, then we do not find any error or illegality in the impugned order of the learned CIT (A) qua this issue. The same is upheld.
In the result, appeal filed by the Revenue is dismissed.