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HC-KAR NC: 2025:KHC:29880-DB ITA No. 99 of 2025
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 1ST DAY OF AUGUST, 2025
PRESENT
THE HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
AND
THE HON'BLE MR. JUSTICE C M JOSHI
INCOME TAX APPEAL NO. 99 OF 2025
BETWEEN: 1. PR. COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) KORMANGALA BANGALORE
THE JOINT COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION, CIRCLE 1(2) KORMANGALA BANGALORE …APPELLANTS (BY SRI SANMATHI INDRAKUMAR, ADVOCATE)
AND: 1. M/S. IBM CORPORATION C/O. IBM INDIA PVT. LTD. BANGALORE - 560 029 …RESPONDENT
THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT, 1961 PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED 20.05.2024 PASSED BY THE
Digitally signed by AMBIKA H B Location: High Court of Karnataka
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HC-KAR NC: 2025:KHC:29880-DB ITA No. 99 of 2025
INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH, BANGALORE, AS SOUGHT FOR, IN THE RESPONDENT - ASSESSEE'S CASE, IN APPEAL PROCEEDINGS IN IT(IT)A NO.544/Bang/2024 FOR A.Y.2017-18 (ANNEXURE-A) AND GRANT SUCH OTHER RELIEF AS DEEMED FIT.
THIS APPEAL, COMING ON FOR ORDERS, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:
CORAM: HON'BLE MR. VIBHU BAKHRU ,CHIEF JUSTICE and HON'BLE MR. JUSTICE C M JOSHI
ORAL JUDGMENT
(PER: HON'BLE MR. VIBHU BAKHRU,CHIEF JUSTICE) 1. For the reasons stated in the application - I.A No.2/2025, the same is allowed. The delay in filing the appeal is condoned.
The Revenue has filed the present appeal under Section 260-A of the Income Tax Act, 1961 [the Act] impugning an order dated 20.05.2024 [impugned order] passed by the learned Income Tax Appellate Tribunal [ITAT], in a batch of appeals.
The present appeal is confined to the impugned order insofar as it relates to IT(IT)A.No.544/Bang/2024 in respect of the Assessment Year [AY] 2017-18. The Assessee – a company which is a tax resident had filed its return of income tax u/s 139(1) of the Act on 28.11.2017 for AY 2017-18, declared income of
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HC-KAR NC: 2025:KHC:29880-DB ITA No. 99 of 2025
`4804,31,53,330/- and in its return filed u/s 148, declared additional income of `45,40,37,040/- as taxable income.
The Assessee's case was selected for scrutiny and during the course of the assessment, it was found that the Assessee had received a sum of `44,72,13,977/- from M/s. IBM India Limited [IBM India], a company incorporated in India], towards IT support services, including recovery of salary expenses of the employees that were seconded to IBM India. The dispute essentially relates to whether the said receipts are chargeable to tax as 'fee for technical services' [FTS] under Section 9 (1)(vii) of the Act or ‘fees for included services’ [FIS], under Article 12 of the India - US Double Taxation Avoidance Agreement [the DTAA].
It is the Assessee's case that the said payments do not fall within the meaning of the definition of ‘fees for included services’ [FIS], as defined under Article 12 of the DTAA. The Assessee contended that the reimbursement of salary expenses and payment towards IT support services do not come under the FTS. Admittedly, the contentions advanced by the Assessee are not insubstantial. The definition of FIS in terms of paragraph 4 of Article
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HC-KAR NC: 2025:KHC:29880-DB ITA No. 99 of 2025
12 of India US - DTAA, is considerably narrower than the definition of the said FTS under Explanation 2 to Section 9(1)(vii) of the Act. It is also well settled that the expressions defined in the DTAA, would not be controlled by the definitions of the said expressions under the Act.
The question whether such receipts would fall within the scope of FTS/FIS, has been the subject matter of various decisions. Largely, the weight of judicial precedents is that such proceeds would not fall within the scope of FTS. The learned Tribunal has set out a tabular statement as referred to by the Assessee, which indicates the various decisions where such issues have been considered and the outcome of the said decisions. The said tabular statement is reproduced below. "3.12 They drew our attention to the table capturing various Courts/ Tribunal decisions on said issue in a chronological order, which is as follows:
Sl No. Case law with Citation Favourable /unfavourable Forum Date of pronouncement 1. DET vs HCL Infosystems Limited [2005] 144 Taxman 492 - followed by Karnataka HC in Abbey case
Favourable Delhi HC 6 January 2004
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HC-KAR NC: 2025:KHC:29880-DB ITA No. 99 of 2025
Karl Storz Endoscopy India
(P) Limited (ITA No 13 of 2008)(Delhi HC) (refer page 199- 201 of PB)
Favourable Delhi HC 13 September 2010 3. Abbey Business Services India Pvt Ltd (23 Taxmann.com 346) - later on confirmed by Karnataka High Court
Favourable Bangalore ITAT 18 July 2012 4. Marks & Spencer Reliance India Private Limited [2013] 38 taxmann.com 190 (Mumbai - Trib) (refer page 202- 213 of PB)
Favourable Mumbai ITAT 4 September 2013 5. Centrica India Offshore (P) Ltd [2014] 44 taxmann.com 300 (Delhi)
Unfavourable Delhi HC 25 April 2014 6. Marks & Spencer Reliance India Private Limited [2017] ITA No 893 of 2014 (Bom HC) (refer page 214-216 of PB)
Favourable Bombay HC 3 May 2017 7. Morgan Stanley Asia (Singapore) Pte Ltd vs DDIT Favourable Mumbai ITAT 6 July 2018
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HC-KAR NC: 2025:KHC:29880-DB ITA No. 99 of 2025
[2018] 95 taxmann.com 165 (Mumbai ITAT);
M/s Faurecia Automotive Holding vs DCIT (ITA No 784/PUN/2015) (Pune ITAT)
Favourable Pune ITAT 8 July 2019 9. DIT vs Abbey Business Services India Pvt Ltd [2020] [22 taxmann.com 174 (Karnataka)
Favourable Karnataka HC 1 December 2020 10. Toyota Boshoku vs DCIT [2022] 138 taxmann.com 166 (Bangalore - Trib)
Favourable Bangalore ITAT 13 April 2022 11. Goldman Sachs vs DCIT [2022] 138 taxmann.com 162
Favourable Bangalore ITAT 29 April 2022 12. Northern Operating system Pvt Ltd CIVIL APPEAL NO. 2289- 2293 OF 2021
Under service tax law, not in the context of income-tax Supreme Court 19 May 2022 13. Flipkart Internet (P.) Ltd (2022) 139 taxmann.com 595 Favourable Karnataka HC 24 June 2022 14. Delhi HC in Boeing India Pvt Ltd [2023] 146 Favourable Delhi HC 11 October 2022
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HC-KAR NC: 2025:KHC:29880-DB ITA No. 99 of 2025
taxmann.com 131(Delhi) ( refer page 193- 198 of PB)
Google LLC vs JCIT(OSDYDCIT
(I) [(IT)Appeal Nos 167/Bang/2021 & 688/Bang/2022]
Favourable Bangalore ITAT 20 February 2023 16 Ernst & Young US LLP [2023] 153 laxmann.com 95 (Delhi-Trib) (refer page 183 - 192 of PB
Favourable Delhi ITAT 20 June 2023 17. Central Circle vs M/s Caterpillar India Pvt. Ltd [ITA No. 1031/Chny/2022] (refer page 217- 222 of PB) Favourable Distinguishing Northern Operating System (Supra) Chennai ITAT 9 October 2023
Whilst various courts and tribunals had accepted the contentions as are advanced by the Assessee, the Delhi High Court in the case of M/s. Centrica India Offshore Private Limited v. CIT : [2014] 44 taxmann.com 300, had taken a view that in the given facts secondment the employees would result in absorption of knowledge by the entity to whom such employees had been seconded.
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HC-KAR NC: 2025:KHC:29880-DB ITA No. 99 of 2025
Given the possible view, the Assessee had to avoid further litigation, opted for the Vivad Se Vishwas Scheme and had settled the issue regarding the levy of tax.
The present appeal relates to the imposition of penalty by the Assessing Officer. The Tribunal and the learned ITAT had examined the nature of the disputes and had further noted that the decision of this Court (Jurisdictional High Court) in Flipkart Internet (P). Limited v. DCIT International Taxation : [2022] 139 taxmann.com 595], had favoured the Assessee. Further, in proceedings relating to withholding of tax at source in case of IBM India, the stand that the payments were not chargeable to tax had been accepted.
In the aforesaid circumstances, the learned ITAT had held that given the nature of the disputes, clearly, two views are possible. Thus, the penalty under Section 270-A of the Act could not be levied, as the question involved was a vexed one. The Assessee had laboured under the legitimate bona fide belief that the payments received were not taxable under the Act.
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HC-KAR NC: 2025:KHC:29880-DB ITA No. 99 of 2025
We find no infirmity in the said order and no substantial question of law exists for consideration by this court.
The appeal is, accordingly, dismissed.
Sd/- (VIBHU BAKHRU) CHIEF JUSTICE
Sd/- (C M JOSHI) JUDGE
AHB List No.: 1 Sl No.: 55