Cornell University's Fees For Executive Courses Offered To Indians Not Taxable Under India-US Treaty: ITAT Mumbai

The Income Tax Appellate Tribunal (ITAT), Mumbai, has held that receipts earned by New York-based Ivy league college, Cornell University, from professional and executive education courses offered to Indian students and corporate employees cannot be taxed as Fees for Included Services (FIS) under the India-USA Double Taxation Avoidance Agreement (DTAA).

This applies even when the courses are customised for corporate participants and impart technical knowledge.

A bench of Judicial Member Beena Pillai and Accountant Member Makarand Vasant Mahadeokar ruled that the treaty's exclusion for teaching by educational institutions covers professional and executive programmes. This applies even if the courses are not part of a degree or do not carry university credit.

The tribunal directed the Assessing Officer to delete the addition of ₹17.23 crore to Cornell University's income. It also held that the university's payment of the Equalization Levy did not change the tax treatment of the receipts under the treaty.

The tribunal observed, “The Treaty does not state that the teaching must be part of a degree programme, credit-bearing, undertaken only for students formally admitted to a university, conducted on a university campus or of any prescribed minimum duration. The expression used is simply 'teaching in or by educational institutions'. It would therefore not be appropriate to introduce into the Treaty conditions which the Contracting States have themselves not incorporated.”

The dispute relates to Assessment Year 2022-23. Cornell University, a not-for-profit research university incorporated in New York in 1865, earned ₹17.23 crore from educational courses offered through its digital platform to Indian students and employees of Indian corporate entities.

The courses covered subjects such as data science and analytics, law, engineering, leadership, finance, marketing, healthcare and project management. Their duration ranged from a few weeks to several months.

The Assessing Officer treated the receipts as Fees for Technical Services (FTS) or FIS. The officer reasoned that courses offered to corporate clients were customised to improve participants' specific skills.

The Dispute Resolution Panel (DRP) upheld the assessment. It observed that the courses imparted specialised knowledge and technical skills that remained with participants after completion.

According to the DRP, this satisfied the treaty's requirement that services make technical knowledge or skills available to the recipient.

The DRP also distinguished teaching from training. It viewed the programmes as focused on professional development and skill enhancement rather than formal academic education.

The tribunal rejected this distinction. It held that Article 12(5)(c) of the DTAA expressly excludes amounts paid for “teaching in or by educational institutions." This exclusion applies even where the services might otherwise fall within the broader definition of FIS under Article 12(4).

Cornell University's status as an educational institution was not disputed by the Revenue. The tribunal also noted that the Revenue had not identified any receipts attributable to a standalone technical consultancy assignment separate from the educational courses.

The tribunal relied on the Technical Explanation to the India-USA DTAA, which includes an example involving the Massachusetts Institute of Technology (MIT).

In that example, an Indian automobile manufacturer planning to enter helicopter manufacturing sends its engineers to MIT to study aeronautical engineering.

The course imparts technical knowledge useful to the employer. Yet the example treats the tuition fees as excluded from FIS because the payment is for teaching by an educational institution.

The tribunal observed that neither the technical nature of a subject nor the fact that participants are working professionals takes the receipts outside the treaty's educational exclusion.

It also rejected the argument that courses must carry university credit or form part of a degree programme to qualify as teaching. Corporate enrolments, private course cohorts and customised programmes for particular groups of learners do not, by themselves, turn educational courses into consultancy services.

The tribunal clarified that its ruling does not mean every form of corporate training qualifies as teaching under the treaty. Its decision was based on the nature of Cornell University's structured courses in recognised academic and professional disciplines.

Cornell University's payment of Equalisation Levy did not determine whether its receipts qualified as FIS under the DTAA, the tribunal ruled. That question had to be decided by examining the nature of the activities and the treaty's wording.

A payment under another tax regime, whether made out of caution or otherwise, could not create a tax liability under Article 12 where the receipts fell within a specific treaty exclusion.

The tribunal held that the receipts of ₹17.23 crore were covered by Article 12(5)(c) and could not be taxed in India as FIS. It directed the Assessing Officer to delete the addition and allowed the relevant ground of appeal.

The appeal was partly allowed.

For Appellant: Hardik Nirmal and Nidhi Agarwal, Advocates; Dhanesh Bafna, Authorised Representative

For Respondent: Sridhar G. Menon, Senior Departmental Representative