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Facts
The assessee, a Czech Republic-based company, provides IT support and software services to its Indian group entity. The Assessing Officer (AO) proposed to add certain reimbursements received by the assessee for maintenance and license fees to its taxable income, treating them as equipment royalty. The Dispute Resolution Panel (DRP) upheld the AO's view, but the AO's subsequent assessment order was found to be non-compliant with the DRP's directions.
Held
The Tribunal held that the AO failed to implement the DRP's directions and therefore the assessment order was invalid and liable to be quashed. The Tribunal also noted that the issues in this assessment year were identical to those decided in AY 2020-21, where the coordinate bench ruled in favor of the assessee.
Key Issues
Whether the assessment order is invalid due to non-compliance with DRP directions, and if the payments received by the assessee are taxable as equipment royalty or FTS.
Sections Cited
143(3), 144C(13), 144C, 153, 282, 127A, 144C(8), 144C(5), 144C(10), 270A, 270A(9), 9(1)(vi), 234A, 234B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘D’, NEW DELHI
Before: SHRI VIKAS AWASTHY, HON’BLE & SMT. RENU JAUHRI, HON’BLE
PER RENU JAUHRI : The assessee by filing the present appeal sought to set aside the impugned assessment order dated 27.10.2023 passed by the Assessing Officer [for short, AO] u/s 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 [hereinafter referred to as, “Act”] for A.Y. 2021-22 in consonance with the order dated 18.09.2023 passed by the Dispute Resolution Panel (DRP)- u/s 144C of the Act.
2. The assessee has raised following grounds of appeal: “1. That the Assessing Officer ('AO') erred on facts and in law in computing the income of the Appellant for the relevant 1 | P a g e
1. 1. 1. 1. 1. 1. 3846_DEL_2023_Home Credit International Europe Assessment Year ("AY") 2021-22 at Rs. 1,27,37,70,864/- as against income of Rs. 85,41,58,381/- returned by the Appellant.
That on the facts and circumstances of the case, the Final Assessment Order dated 27.10.2023 ("Impugned Order") passed under Section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 ('Act') is barred by limitation having been passed beyond the time period specified under Section 153 of the Act.
Without prejudice, the directions, dated 18.09.2023 issued by the Dispute Resolution Panel ("DRP") are void-ab-initio and bad in law for the reason that the said directions do not mention the Document Identification Number ("DIN") on the body of the order, therefore, the directions are contrary to Circular No. 19 of 2019 dated 14.08.2019 issued by the Central Board of Direct Taxes ("CBDT").
That on the facts and circumstances of the case, the Intimation Letter served along with DRP Directions which mentions the DIN for the DRP Directions is non-est in the eyes of law as it does not meet the requirements of Section 282 of the Act read with Rule 127A of the Income Tax Rules, 1962 as the name and office of the authority issuing the said letter is not mentioned on the letter.
5. That on the facts and circumstances of the case, the DIN mentioned on the Intimation Letter i.e., ITBA/DRP/M/144C(5)/2023-24/1056206360(1) is also not being authenticated on the income tax website and hence, therefore the DRP directions are invalid.
6. That the final assessment order dated 27.10.2023 passed by the AO is illegal and void-ab-initio having not been passed in conformity with the directions issued by the DRP in para 4.1.3 of its order.
7. That the order issued by the DRP is illegal and void-ab- initio to the extent it directs the AO to pass a speaking and reasoned order without appreciating that in terms of Section 144C(8) of the Income tax Act, 1961 (the "Act"), the DRP could not have set-aside the issue to AO for fresh consideration.
8. That the order issued by the DRP and AO is illegal and perverse to the extent it disregards the binding decision of the Hon'ble Supreme Court of India in Engineering Analysis Centre of Excellence Private Ltd. v. Commissioner of Income tax on the ground that review petition filed by the Revenue has been admitted by the Hon'ble Supreme Court of India.
9. That the order issued by the DRP is non-speaking, perverse and ambiguous to the extent on one hand it relies on the pendency of the review petition in the case of Engineering Analysis which dealt with software royalty whereas at the same time, it upholds the order of the AO which held payments received by the Appellant to be in the nature of equipment royalty.
2 | P a g e 3846_DEL_2023_Home Credit International Europe 10. That the AO and the DRP erred on facts and in law in holding that payment of Rs. 1,58,83,156/- received by the Appellant from Home Credit India Finance Private Ltd. ("HCIFPL") constitutes income in the nature of equipment royalty, both under the Act and the India-Czech Republic DTAA.
That the AO and the DRP erred on facts and in law holding that payment of Rs. 16,59,34,803/-received by the Appellant from HCIFPL constitutes income in the nature of equipment royalty, both under the Act and the India-Czech Republic DTAA.
That the AO and the DRP erred on facts and in law holding that payment of Rs.23,77,94,524/- made by HCIFPL to the Appellant constitutes income in the nature of equipment royalty, both under the Act and the India-Czech Republic DTАAА.
13. That the AO and the DRP erred on facts and in law in holding as aforesaid on the factually erroneous and perverse basis that HCIFPL had paid the aforesaid consideration for use/right to use of IT equipment/infrastructure.
14. That the AO and the DRP erred on facts and in law in holding as aforesaid without appreciating that payment of Rs. 1,58,83,156/- represented software license fee and not consideration for use/right to use of any equipment.
15. That the AO and the DRP erred on facts and in law in holding as aforesaid without appreciating that payment of Rs. 16,59,34,803/- rеpresented actual reimbursement of software license fee and not consideration for use/right to use of any equipment.
16. That the AO and the DRP erred on facts and in law in holding as aforesaid without appreciating that payment of Rs. 23,77,94,524/- represented actual reimbursement of maintenance fee and not consideration for use/right to use of any equipment. Further, no services in the nature of managerial, technical or consultancy are rendered by the Appellant to HCIFPL, therefore, the reimbursement of maintenance fee cannot be taxable as FTS as well.
17. That the DRP has failed to adjudicate whether reimbursement of maintenance fees is taxable-as FTS as the DRP has merely followed its directions for previous AY 2020-21, without appreciating that the AO in AY 2020-21 had not alleged that reimbursement of maintenance fees is taxable as FTS as well.
That the AO erred in levying interest under Section 234A of the Act.
19. That the AO erred in levying interest under Section 234B of the Act.
That the AO erred in holding that refund of Rs.12,21,832/- has already been granted to the Appellant, without appreciating that no such refund has been received by the Appellant till date. 3 | P a g e 3846_DEL_2023_Home Credit International Europe 21. That the AO erred on the facts and in law in initiating penalty under Section 270A of the Act for the alleged misreporting of income without demonstrating how any of the limbs of Section 270A(9) of the Act is attracted.”
At the outset, vide letter dated 20.11.2025, the assessee has sought to 4. withdraw ground Nos. 2, 3, 4 & 5. Further, Ld. AR has submitted that the assessee’s present appeal is squarely covered by the decision of the Hon’ble co- ordinate Bench for A.Y. 2020-21 wherein identical issues have been decided in favour of the assessee.
Brief facts are that the assessee filed its return for A.Y. 2021-22 on 12.03.2022 declaring total income of Rs. 85,41,58,381/-. The assessee is a private limited company and is a tax resident of the Czech Republic. It is engaged in the business of data processing, databank services, administration of networks, provision of software and consulting in the area of hardware and software. It provides business support services for Information Systems (IS)/Information Technology (IT) system infrastructure as a part of its IT related support services. It also acts as a central procurer of certain 'off the shelf’ software licenses and related maintenance services on behalf of its group companies. During the year under consideration, the assessee has received royalty, license fee, reimbursement of software license fee and maintenance fee etc. from its Indian AE, M/s Home Credit India Finance Private Limited (HCIFPL). Besides, the assessee has received royalty against trademark and also received software development charges, fee for IT support services and management charges which have been offered to tax. However, the assessee did not offer to tax, the sum of Rs. 4 | P a g e 3846_DEL_2023_Home Credit International Europe 23,77,94,524/- received as reimbursement of maintenance fee, Rs. 16,59,34,803/- received as reimbursement of software license fee and Rs. 1,58,83,156/- as software license fee from its AE.
5.1 The case was selected for scrutiny. After considering the assessee’s submissions, Ld. AO proposed to add receipts of Rs. 41,96,12,483/- [Rs. 23,77,94,524/- + Rs. 1,58,83,156/- + Rs. 16,59,34,803/-] from its Indian AE, M/s Home Credit India Finance Private Limited [for short, HCIFPL] to the taxable income.
5.2 Aggrieved, the assessee filed its objections against the draft assessment order dated 23.12.2022 before the Ld. Dispute Resolution Panel [for short, DRP]. Vide order dated 18.09.2023, Ld. DRP reiterated its decisions on the lines of A.Y. 2020-21 after noting that the issues involved as well as the facts and circumstances are identical.
5.3 Thereafter, final assessment order dated 27.10.2022 was passed by the Ld. AO completing the assessment at an income of Rs. 1,27,37,70,864/-. Aggrieved, the assessee is in appeal before the Tribunal.
Ld. AR has submitted that the issues involved are the same as in A.Y. 2020- 21 and the Ld. DRP has also noted this fact while giving identical directions, which are as under:
5.1 Since the legal and factual matrix remains same for the subject assessment year 2021-22, the DRP reiterates its stand as was spelt out in the 5 | P a g e 3846_DEL_2023_Home Credit International Europe directions dated 20.04.2023 for A.Y. 2020-21. The assessee’s objection on the above ground is disposed off as above.
Ld. AR has taken us through the order for A.Y. 2020-21 wherein the Hon’ble Co-ordinate bench has discussed and decided the appeal. The relevant portions are reproduced below:
“4. However, certain other income received from India were not offered to tax, either claiming benefit under India-Czech Double Taxation Avoidance Agreement (DTAA) or claiming that they are in the nature of reimbursement without any markup. The details of such income are, as under: 1 Software Licence Fee Rs. 13,15,313 2 Reimbursement of Software Rs. 8,59,39,213 License Fee 3 Reimbursement of Maintenance Rs. 20,07,22,157 4 Travel Reimbursement Rs. 2,09,08,022 . . .
We have considered rival submissions and perused the materials on record. We have also applied our mind to the judicial us. precedents cited before. The short issue arising for consideration is, whether the Assessing Officer, while passing the final assessment order, was justified in holding the receipts in dispute as equipment royalty under section 9(1)(vi) of the Act read with Article 12 of India Czech DTAA. Materials on record 6 | P a g e 3846_DEL_2023_Home Credit International Europe reveal that in course of assessment proceedings, the Assessing Officer issued a show-cause notice to the assessee to explain, as to why the receipts in dispute should not be treated as royalty/FTS, as, such receipts are ancillary to enjoyment of such services, for which, royalty income has been received. In response to the show-cause notice, assessee had furnished a detailed reply submitting that the amount received towards licence fee cannot be treated as royalty, as, it was for a non- exclusive right given to the Indian entity to use copyrighted software.” Finally, after detailed examination of the issues involved, the Hon’ble Co- ordinate Bench had held as under:
“12. Thus, from the aforesaid observations of learned DRP, it is very much clear that learned Panel had concluded that the Assessing Officer has failed to establish his case of equipment royalty by bringing material facts on record. Since, learned DRP was not convinced with the theory of equipment royalty put up by the Assessing Officer, a specific direction was issued to the Assessing Officer to consider assessee's argument and complete the assessment by a speaking and reasoned order. However, a careful reading of final assessment order would make it clear that the Assessing Officer has done precious little to implement the directions of learned DRP in letter and spirit, other than repeating his observations made in the draft assessment order. Though, learned DRP had specifically directed the Assessing Officer to demonstrate, how the IT infrastructure is maintained; how it is beneficial to AEs in terms of acquiring the right to use; what are the various hardware devices and matching software applications,
7 | P a g e 3846_DEL_2023_Home Credit International Europe which can constitute scientific or commercial equipment etc., the Assessing Officer has failed to demonstrate such fact in the assessment order. On a specific query from the Bench, as to what constitutes IT infrastructure and what are the hardware devices commercial etc., which can be construed as scientific or equipment, learned Departmental Representative fairly submitted that such facts are not forthcoming from the assessment order. The contention of the learned Departmental Representative that the Indian entity has been given right to use the server while accessing the software, is too specious an argument to be accepted. It would be preposterous to even assume that right of ownership over the server has been transferred by the assessee while selling software licences. More so, when the Revenue has failed to bring any material on record to even remotely establish such fact. Thus, in our view, it is a clear case of non-implementation of directions of learned DRP by the Assessing Officer.
Section 144C, which provides the mechanism for making assessment in case of an eligible assessee is a self contained code by itself. As per the provisions contained under section 144C of the Act, after framing of a draft assessment order, if eligible assessee chooses to avail the DRP route, then such assessee has to raise objections before the DRP within the period of 30 days of the receipt of draft assessment order. Sub-section (5) of section 144C provides that after receiving the objections, the DRP shall issue such directions as it thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment. Sub-section (10) of section 144C makes it clear that every direction issued by the DRP shall be binding on the Assessing Officer. Whereas, sub-section (13) of section 144C postulates that the Assessing Officer shall pass the 8 | P a g e 3846_DEL_2023_Home Credit International Europe final assessment order in conformity with the directions issued by learned DRP without providing any further opportunity of being heard to the assessee. The purpose for not providing any opportunity of being heard to the assessee at the final assessment stage is only because as per the mandate of section 144C(13), the Assessing Officer has to only implement the directions given by learned DRP and nothing else.
Thus, non-implementation of directions of learned DRP, in terms of section 144C(13), is a gross violation of the statutory provisions, which a statutory authority properly instructed in law, cannot do. When the statute mandates a particular thing to be done in a particular manner, it has to be done in that manner only or not at all.
In the facts of the present appeal, undisputedly, the Assessing Officer has failed to implement the directions of learned DRP, hence, has not acted as per the mandate of section 144C(13). While considering the effect of non-implementation of directions of learned DRP, the Coordinate Bench in case of Bechtel Ltd. Vs. ACIT (supra) has held as under: 15. No contrary decision has been brought to our notice by learned DRP. Thus, respectfully following the ratio laid down by the Coordinate Bench in the above cited decision, we hold that the impugned assessment order is wholly without jurisdiction, hence,
9 | P a g e 3846_DEL_2023_Home Credit International Europe invalid. Accordingly, we quash it. Since, we have decided the appeal on legal issue, the issues on merits are kept open.
In the light of the decision of the Coordinate Bench for A.Y. 2020-21, above, Ld. AR has argued that the issue stands covered by the above order and hence the assessment order is liable to be quashed.
On the other hand, Ld. DR has sought to distinguish the facts from the previous year. He has pointed out that in this year, while deciding the taxability of receipts, the FTS clause has been invoked which was not done in A.Y. 2020- 21. He has taken us through the DTAA and pointed out that under Article 12, clause 3(b) is applicable in the present case which reads as under:
“3(a)…………….. 3(b) The term “fee for technical services” are used in this Article means payments of any kind received as a consideration for the rendering of any managerial, technical or consultancy services including the provision of services by technical or other personnel but does not include payments for services including the provision of services by technical or other personnel but does not include payments of services mentioned in Article 14 and 15 of this Convention”
Ld. DR has placed reliance on the decisions of the Hon’ble Co-ordinate Bench in the case of Volvo Information Technology AB vs. DCIT (International Taxation) [2024] 162 taxmann.com 679 (Delhi Trib.) wherein the same issue
10 | P a g e 3846_DEL_2023_Home Credit International Europe has been decided in favour of the Revenue with reference to the India-Sweden DTAA, in which Article 12(3)(b) is identical to India-Czech Republic DTAA. The relevant portion of the order is as under:
“14. We have considered rival submissions and perused the materials on record. We have also applied our to the decisions relied upon. Undisputedly, the assessee has entered into an agreement with the Indian group entities for providing various services as discussed elsewhere in the order. Under Business Application Related Services, the assessee provides access to the business application softwares, which are used for various purposes, such as, inventory management, sales management, data warehousing applications, product design and modeling, human resource management etc. Under the End User Services and Shared Infrastructure, the assessee provides facilities and various services keeping in view the End User requirement, such as, emails, personal computer environment, voice/telephone. Under the voice support, mobile and fixed voice services are provided to connect people in local and global context. Under the IT support services, the assessee operates service desk for all types of IT related issues from end users. Under the Volvo Corporate Network, assessee provides a secured access to Volvo Network, which is prerequisite for use of any business application other IT services provided by the assessee. The assessee also provides Business Consultancy Services in terms of which it renders consultancy services with respect to IT services provided by it.
Though, the assessee has claimed that these are standard and routine services, however, fact remains that the assessee has provided managerial, consultancy and technical services. Copies of invoices placed in the paper-book do not provide the description/details of services provided. At this stage, we may look into the definition of FTS under Article 12(3)(b) of India -Sweden DTAA, which reads as under: "Article 12(3)(b)- The term 'fees for technical services, means payment of any kind in consideration for rendering of any managerial, technical or consultancy services including the 11 | P a g e 3846_DEL_2023_Home Credit International Europe provisions of services by technical or other personnel but does not include payments for services mentioned in Articles 14 and 15 of this Convention."
As could be seen, the definition of FTS under the treaty covers any kind of payment for rendering of any managerial, technical or consultancy services including provision of services by technical or other personnel. Thus, the definition of FTS under Article 12(3)(b) is wide enough to cover all kinds of payments made towards managerial, technical or consultancy services. It is fairly well settled that rules of interpretation of statute will not apply while interpreting treaty provisions. The treaty provisions are to be interpreted based on the language used in the treaty. If we go by the language used in Article 12(3)(b) of the treaty, one cannot escape the conclusion that the payments received by the assessee are in the nature of FTS. Though, we respectfully agree with the ratio laid down by Hon'ble Supreme Court in case of Kotak Securities Ltd. (supra), however, any attempt to equate the services rendered by the assessee to the services rendered by the Bombay Stock Exchange (BSE) would amount to over simplifying the issue. The facts on record clearly reveal that the services rendered by the assessee are more complex in nature compared to the services rendered by BSE, as considered in case of Kotak Securities Ltd. (supra).
In any case of the matter, the issue before us is whether the receipts qualify as FTS in terms of Article 12(3)(b) of India -Sweden DTAA. In our view, the definition of FTS under the aforesaid Article is wide enough to cover the amounts received by the assessee towards various services provided to Indian group entities 18. Now, reverting back to the first part of learned Senior Counsel's argument that applying rule of consistency, the Assessing Officer cannot re-characterize the receipts as FTS, as, in the earlier assessment years, he has consistently treated identical receipts as royalty. Though, it may be a fact that in the earlier assessment years, the Assessing Officer might have treated similar receipts as royalty, however, that cannot preclude the Assessing Officer to freshly examine the nature of receipts in a subsequent assessment year, as, each assessment year, being an independent unit, the principle of 12 | P a g e 3846_DEL_2023_Home Credit International Europe res-judicata does not apply to tax proceedings. Furthermore, in case, the Assessing Officer has made a mistake in the earlier assessment years in characterizing the nature of income, that cannot be allowed to be perpetuated forever. In the facts of the present appeal, undoubtedly, the assessee has rendered certain services to the group entities in India and received payments. Therefore, the nature and character of such services, whether managerial, technical or consultancy have to be examined. Obviously, the receipts qua managerial, technical or consultancy services would definitely fall within the ambit of FTS and not royalty.
In the instant case, the Assessing Officer has examined the nature of receipts in respect of certain services rendered by the assessee to the Indian entities and found them to be FTS. The aforesaid factual position is not disputed even by the assessee. Therefore, it is established on record that the receipts are in respect of certain services rendered by the assessee. If that is the case, it needs to be examined, whether the receipts in relation to services rendered fall within the definition of FTS. The Assessing Officer, in our view, has done exactly the same. Therefore, the action of the Assessing Officer in characterizing the receipts as FTS cannot be called into question by advancing the theory of rule of consistency. Thus, in our view, the judicial precedents cited before us by learned Senior Counsel would be of no help to the assessee, as, what is essential to determine is, the nature and character of receipts in the instant assessment year and not, what the Assessing Officer has erroneously held in earlier assessment years. Thus, on overall consideration of facts and materials on record, we hold that the payments received by the assessee for providing certain services to the Indian group entities are in the nature of FTS as defined under Article 12(3)(b) of India - Sweden DTAA, hence, taxable.)”
Ld. DR has further placed reliance on the decisions of the Hon’ble Madras High Court in the following cases in support of his argument that the IT structure is in the nature of equipment and the HCFPL has the right to use the same against
13 | P a g e 3846_DEL_2023_Home Credit International Europe payment and, therefore, the payment received by the assessee were in the nature of ‘royalty’.
(i) Poompuhar Shipping Corporation Ltd. vs. Income Tax Officer, Interanational Taxation-II, Chennai [2013] 38 taxmann.com 150 (Madras) (ii) Verizon Communication Singapore Pte Ltd vs. ITO (International Taxation) [2013] 39 taxmann.com 70 (Madras)
8. In his rejoinder, Ld. AR has submitted that both the above orders are prior to the decision of the Hon’ble Apex Court in Engineering Analysis Centre of Excellence Pvt. Ltd. vs. CIT AIR ONLINE 2021 SC 102 as per which such payments are held to be not taxable as Royalty. Ld. AR has also reiterated his arguments that the directions of Ld. DRP were not followed by the Ld. AO and therefore, on this ground alone the order of the Ld. AO is liable to be quashed.
We have heard the rival submissions and considered the material placed on record including the judicial pronouncements relied upon by both the parties. We note that the issues involved in this year as well as the facts and circumstances are identical to those decided by the Hon’ble Co-ordinate Bench in A.Y. 2020- 21. Respectfully following the decision of the co-ordinate Bench, we hold that the impugned assessment order passed without following the decision of the Ld.
14 | P a g e 3846_DEL_2023_Home Credit International Europe DRP, is invalid. The same, is, therefore, quashed. Since the legal issue is allowed, the issues on merits are kept open.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 18-03-2026.