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Facts
The assessee, a foreign company, received Rs. 1,45,86,303/- as GIT Infrastructure charges from its Indian group companies for the use of software. The Assessing Officer (AO) treated this income as Fees for Included Services (FIS) taxable under the Income Tax Act and the India-Canada DTAA. The assessee contended that the payments were for software usage and not taxable.
Held
The Tribunal held that the amounts received as GIT charges were for the use of third-party software and did not qualify as Fees for Included Services (FIS) or royalty under the India-Canada DTAA. This decision was based on a similar ruling in the assessee's own case for the preceding assessment year.
Key Issues
Whether GIT infrastructure charges received by a foreign company for use of software by its group entities are taxable as FIS or royalty under the Income Tax Act and the India-Canada DTAA.
Sections Cited
143(3), 144C(13), 9(1)(vii), 270A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH, D: NEW DELHI
Before: SHRI VIKAS AWASTHY & SHRI BRAJESH KUMAR SINGH
This appeal has been preferred by the assessee against the Final Assessment Order dated 23.01.2025 passed by the Learned Assessing Officer (AO) under Section 143(3) read with Sections 144C(13) of the Income-tax Act, 1961 (“the Act”),
ITA No.- 1760/Del/2025 SNC Lavalin Inc. pursuant to the directions of the Hon'ble Dispute Resolution Panel (DRP) order dated 31.12.2024 for the Assessment Year 2022-23.
At the outset, the Ld. AR submitted that the present case is squarely covered by the order dated 25.06.2024 of the Co-ordinate Bench of the Tribunal for A.Y. 2021-22 in ITA No.- 3691/Del/2023, in assessee’s own case, SNC Lavalin Inc. vs. ACIT (International Taxation), Circle 3(1)(2), New Delhi.
Brief facts of the case: The Company is a foreign company incorporated under the laws of Canada and during the year was engaged in the business of rendering consultancy, design and engineering services to various clients. The company submitted its TRC (Tax Residency Certificate) issued by the authority of Canada. During the course of assessment proceedings, the assessee submitted that it has project offices in India for execution of its contracts, however, during AY 2022-23, the work in respect of its contracts in India had been completed and there was no income or expenses during AY 2022-23 in relation to said project. Further, the AO noted that the assessee had received income of Rs. 1,45,86,303 with respect to GIT Infrastructure expenses from, Shawinigan Engineering India Private Limited, Linxon India-Engineering Pvt. Ltd., Linxon India Pvt. Ltd. and Kent Engineering India Pvt. Ltd. (formerly known as SNC Lavalin Engineering India Pvt. Ltd.) and the said GIT charges pertained to use of various software (Auto CAD software, Civil 3D, 3ds Max. etc.) which were procured by the assessee from the Autodesk and other 2
ITA No.- 1760/Del/2025 SNC Lavalin Inc. third-party vendors and were given for use to its aforesaid Indian entities. Further, the AO noted that the assessee had rendered Monthly IT services in accordance with the instruction of the customer users from time to time and these services were required to operationalize the softwares. The AO also noted that the assessee company, as a reseller was able to provide solutions to drive software consumption, provide access to a dispersed audience, provide local product support and services in remote geographies, and it offered the flexibility to support a range of business models and the ability to drive digital readiness and transformation. In view of these facts, the AO noted that the services rendered by the assessee were in the nature of Fees for Included Services (‘FIS’) as per the provisions of Income Tax Act, 1961 as well as India-Canada DTAA.
3.1 Accordingly, the AO show caused the assessee vide notice dated 13.02.2024 which read as: "Assessee is hereby show caused as to why the receipts from India on account of GIT Infrastructure charge should not be taxed as FTS/FIS as per the provisions of Income Tax Act, 1961 & relevant provisions of India-Canada DTAA based on the findings for A.Y 2021-22 as the factual matrix of the case for A.Y 2022- 23 is similar as that of A.Y 2021-22". The AO noted that the assessee submitted its response on 16.02.2024 stating that "since no technical knowledge, skill etc. are made available by the assessee to its group companies, the same ought not to be liable to tax under the provisions of the India-Canada DTAA. 3
ITA No.- 1760/Del/2025 SNC Lavalin Inc. 3.2. However, the AO did not accept the above explanation filed by the assessee and held that income of Rs. 1,45,86,303/- was in the nature of consultancy in the hands of the assessee and was taxable as FIS under the provisions of the Income Tax Act, 1961 and also under the relevant provisions of India-Canada DTAA and proposed it accordingly in the draft assessment order u/s 144C(1) of the Act, dated 19.03.2024.
4. Aggrieved by the above draft assessment order, the assessee filed its objections before the DRP, which after considering the facts and after considering the directions in the case of the assessee for A.Y. 2021-22, held that facts being similar, the directions of the DRP for Assessment Year 2021-22 will be applicable in the case of the assessee for the present year also. The relevant directions of the DRP in para no. 5.3 on page no. 12 of its order dated 31.12.2024 (on page no. 39 of the Paper Book) are reproduced as under:
“ 5.3 The facts and arguments being similar, the Panel rejects these objections for AY 2022-23 as well. With regard to the orders of the DRP for previous year's, assessee has submitted that the addition covered in these objections has been considered by the Hon'ble ITAT for earlier year's and similar addition has been deleted. The assessee has further submitted that no further appeal has been filed by the Department. Being a factual issue, the AO is hereby directed to verify the contention of the assessee. If no further appeal has been preferred by the Department on merits of the case against order of the Hon'ble Tribunal, then, addition proposed in these grounds of objection shall not be made. If not, then, the addition shall stand confirmed. The Panel directs accordingly.”
ITA No.- 1760/Del/2025 SNC Lavalin Inc. 4.1 Upon receipt of the above directions of the DRP, the AO passed the final assessment order u/s 143(3) r.w.s. 144C(13) of the Act on 23.01.2025 at the total income of Rs. 1,20,59,58,843/- out of which income of Rs. 1,45,86,303/- was taxed as FIS under the provisions of Income Tax Act, 1961 and also under the relevant provisions of India Canada DTAA.
Aggrieved with the said final assessment order and the directions of the DRP, the assessee has filed an appeal before us, on the following grounds of appeal:
1. On the facts and in the circumstances of the case and in law, the Hon'ble Dispute Resolution Panel ('Hon'ble DRP') and the Learned Assistant Commissioner of Income Tax, Circle International Tax 3(1)(2), New Delhi ('Ld. AO') (collectively referred as the Revenue") erred in proposing the addition of Rs. 1,45,86,303.
2. The Revenue erred in proposing the addition in relation to GIT infrastructure charges ("GIT charges) without appreciating that the receipts of GIT charges ('GIT Charges') by the Appellant from its group companies for use of various software shall not be taxable as Fee for Included Services ('FIS')/Fee for Technical Services ('FTS') under section 9(1)(vii) of the Act read with the Article 12 of India-Canada DTAA. 2.1. Based on the facts and circumstances of the case and in law, the Ld. AO failed to appreciate that similar addition has been deleted by the Hon'ble Income Tax Appellate Tribunal (Delhi) in Appellant's own case in immediately preceding AY 2021-22 vide order dated June 25, 2024, which was not appealed further by the Revenue, before the Hon'ble High Court. 2.2. Based on the facts and circumstances of the case and in law, the receipts of the Appellant from GIT charges to its group companies for use of various software shall not be taxable as FTS/FIS as per beneficial provisions of Article 12(4) of the India- Canada DTAA, as the Appellant does not make available any technical knowledge, experience, skill, know. how, or processes or consist of the development and transfer of a technical plan or technical design under Article 12(4) of India-Canada DTAA 2.3. Based on the facts and circumstances of the case and in law, the receipts of the Appellant from Indian group entities in relation to non-exclusive, non-transferrable licensed software (owner by third party vendors) shall not be taxable as decided by ITA No.- 1760/Del/2025 SNC Lavalin Inc. the Hon'ble Supreme Court in the case of Engineering Centre of Excellence Private Limited v CIT (2021) 125 taxmann.com 42 (SC). 2.4. The Appellant prays that the conclusion that the income in nature of consultancy in the hands of appellant is taxable as FIS under the provisions of Income-tax Act and also under the relevant provision of India-Canada DTAA is erroneous, unwarranted and should be deleted. General 3. On the facts and in the circumstances of the case and in law, the Ld. AO erred in proposing to initiate penalty proceedings u/s 270A of the Act for under reporting of income. The appellant prays for leave to add, alter, rescind from, or withdraw any of the above grounds of appeal at or before the time of hearing of the appeal.”
The Ld. Sr. DR fairly admitted that the case is covered in favour of the assessee by the order of the Co-ordinate Bench of the Tribunal for A.Y. 2021-22 in ITA No.- 3691/Del/2023, in assessee’s own case, SNC Lavalin Inc. vs. ACIT (International Taxation), Circle 3(1)(2), New Delhi.
We have heard both the parties and perused the material available on record. The Co-ordinate Bench of the Tribunal, in the assessee’s own case for A.Y. 2021- 22, as referred above in para no. 2 of this order, held that the amounts received as GIT charges is only for providing use of third-party software and is not in the nature of FIS as envisaged under Article 12(4)(b) of India-Canada DTAA. It further held that the payment in consideration made by Indian group entities to the assessee was in consideration for use of software provided by third party vendor and was towards the 'copyrighted article', without any copyrights being granted for its commercial 6
ITA No.- 1760/Del/2025 SNC Lavalin Inc. exploitation, hence, the same shall not qualify as 'Royalty' as per Article 12(3) of the India-Canada DTAA and thus allowed the appeal of the assessee. The relevant extracts of the order of the tribunal in assessee’s own case are reproduced as under:
“3. The assessee company is incorporated in Canada and is a tax resident therein. It is engaged in the business of rendering consultancy, design, and engineering services to various clients. The assessee filed its return of income u/s 139(1)/139(9) of the Income Tax Act, 1961 for A.Y. 2021-22 declaring total income of Rs. 41,36,27,860/- out of which Rs.34,05,55,800/- was declared to be taxed at the rate of 15% and receipts of Rs.7,41,83,452/- being amount cross charged from group companies in India for use of third-party standard software were claimed as non- taxable under India-Canada DTAA.
In Α.Υ. 2021-22, the assessee cross charged Rs. 7,41,83,452/- from group companies for actual use of various third-party standard software like Auto CAD software, Civil 3D, 3ds Max, etc. which is called GIT Infrastructure ('GIT') charges in the books of accounts. The assessee as a measure of commercial expedience, acquires software licenses from third-party owners for use in its business of providing engineering services to its clients, and also use of such software licenses by the group companies from which it cross charges the cost of software license plus mark-up based on actual use by the group companies. ----- xxxxxxx ------ 12. Heard the arguments of both the parties and perused the material available on record. ------ xxxxxx ------- 17. In this regard, the reliance is being placed on the judgment of the Hon'ble Jurisdictional Delhi High Court in the case of DIT vs. Guy Carpenter & Co. Ltd. (2012) 346 ITR 504 (Delhi) where it has been held as under: "We find that the common thread in all these tax treaties is the requirement of 'make available' clause. As learned counsel rightly puts it, its not simply the rendition of a technical service which is sufficient to invoke the taxability of technical services under the make available clause. Additionally, there has to be a transfer of technology in the sense that the user of service should be enabled to do the same thing next time without recourse to the service provider. The services provided by non residents did not involve any transfer of technology. It is not even the case of the Assessing Officer that the services were such that the recipient of service was enabled to perform these services on its own without any further recourse to the service provider. It is in this context that we have to examine the scope of expression 'make available."
Basis the above, it can be held that the assessee do not "make available" any technical knowledge, experience, skill, know-how or processes to group companies 7 ITA No.- 1760/Del/2025 SNC Lavalin Inc. which may enable them to apply any technology contained therein without recourse to the Appellant. The amounts received as GIT charges is only for providing use of third-party software and is not in the nature of FIS as envisaged under Article 12(4)(b) of India-Canada DTAA.
We have considered as to whether the receipts can be considered as royalty as per Article 12 India-Canada DTAA has also been examined.
We find that the facts of the assessee are covered by the decision of Hon'ble Supreme Court in case of Engineering Analysis Centre of Excellence Private Limited vs. CIT (CA Nos. 8733-8734 of 2018), the Hon'ble Supreme Court, after determining various clauses of EULA/ Distribution agreement held that payments made by the Appellant to non-resident vendors shall not be taxable as Royalty under the relevant DTAA, the relevant extract of decision is as under: "Given the definition of royalties contained in Article 12 of the DTAAS mentioned in paragraph 41 of this judgment, it is clear that there is no obligation on the persons mentioned in section 195 of the Income Tax Act to deduct tax at source, the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright The provisions contained in the Income Tax Act (section 9(1)(vi), along with explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the appellant have no application in the facts of these cases. Our answer to the question posed before us, is that the amounts paid by resident Indian end users/distributors to non-resident computer software manufacturers /suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income Tax Act were not liable to deduct any TDS under section 195 of the Income Tax Act."
In the light of above, we hold that payment made by Indian group entities to the Appellant is in consideration for use of software provided by third party vendor and is towards the 'copyrighted article', without any copyrights being granted for its commercial exploitation, hence, the same shall not qualify as 'Royalty' as per Article 12(3) of the India-Canada DTAA.
In the result, the Appeal of the assessee is allowed, the Stay Application of the assessee is dismissed as infructuous.” (emphasis supplied by us)
The facts of the present case are identical to the facts in the case of the assesee for A.Y. 2021-22 as in the present case also the amount of Rs. 1,45,86,303/- received
ITA No.- 1760/Del/2025 SNC Lavalin Inc. by the assessee as GIT Infrastructure Charges and which was claimed as non-taxable by the assessee was taxed by the AO as FIS / Royalty income. In similarly placed facts, the Tribunal in the aforesaid case held that the amount of Rs. 7,41,83,452/- received by the assessee as GIT Infrastructure Charges was neither taxable as FIS or royalty as held by the AO. Therefore, following the order of the Co-ordinate Bench of the Tribunal in the assessee’s own case, as referred to above, we hold that the amount of Rs. 1,45,86,303/- does not qualify as FIS or as royalty. Accordingly, the addition of Rs. 1,45,86,303/- made by the AO is deleted, and all the ground nos. 1 to 2.4 of assessee’s appeal are allowed.
Ground no. 3 of the appeal is against the initiation of penalty proceedings u/s 270A of the Act. This ground of appeal is premature in nature and hence dismissed.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 30th October, 2025.