Cross-border IT support services not taxable in India where performed abroad and no make available condition is met.
Services for cloud infrastructure, colocation, mainframe and data recovery performed from facilities in the USA were held not taxable in India as fees for technical services, because the income-generating activity and source of services were outside India and the exclusion in clause (b) to section 9(1)(vii) applied. Treaty protection under Article 12(4)(b) of the India-USA DTAA was also available because the services were only facility and infrastructure support and did not make available technical knowledge, skill, knowhow or processes to the recipient. The Revenue's challenge to the deletion of the addition therefore failed.
Issues: (i) Whether the amount received by the assessee for cloud infrastructure, colocation, mainframe and data recovery services was taxable in India as fees for technical services under section 9(1)(vii) of the Income-tax Act, 1961. (ii) Whether the assessee was entitled to treaty protection under Article 12(4)(b) of the India-USA DTAA on the ground that the services did not make available technical knowledge, experience, skill, knowhow or processes to the recipient.
Issue (i): Whether the amount received by the assessee for cloud infrastructure, colocation, mainframe and data recovery services was taxable in India as fees for technical services under section 9(1)(vii) of the Income-tax Act, 1961.
Analysis: The services were rendered from facilities located in the USA for an Indian intermediary, which in turn served a US customer. The income-generating activity and the source of the services were located outside India. On these facts, the exclusion in clause (b) to section 9(1)(vii) applied, and the income could not be deemed to accrue or arise in India.
Conclusion: The issue was decided in favour of the assessee.
Issue (ii): Whether the assessee was entitled to treaty protection under Article 12(4)(b) of the India-USA DTAA on the ground that the services did not make available technical knowledge, experience, skill, knowhow or processes to the recipient.
Analysis: The services were held to be a provision of facilities and infrastructure support, not a transfer of technology or knowhow enabling the recipient to independently apply the technical input in future. The record did not show satisfaction of the make available condition required for taxation as fees for included services under the treaty.
Conclusion: The issue was decided in favour of the assessee.
Final Conclusion: The Revenue's challenge to deletion of the addition failed, and the taxable status of the receipt in India was not sustained.
Ratio Decidendi: Where services are performed outside India and the treaty make available requirement is not satisfied, the receipt cannot be taxed in India as fees for technical services or fees for included services.
TaxTMI 
AI Drafter ✕
TaxTMI 
