FTS Receipts Of Thai Company Not Taxable Under India-Thailand DTAA's Residuary Clause: ITAT Delhi

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that Fee for Technical Services (FTS) received by Thailand-based Denso International Asia Co. Ltd. from its Indian group companies cannot be taxed in India under the residuary clause of the India-Thailand Double Taxation Avoidance Agreement (DTAA).

A bench comprising Judicial Member Vikas Awasthy and Accountant Member Renu Jauhri allowed the assessee's appeal for AY 2021-22 and deleted an addition of ₹17.28 crore made by the Assessing Officer.

The assessee, a tax resident of Thailand, is a regional service center of the Denso Group for Asia and Oceania and undertakes business administration, material engineering, design and development, testing and technical services for the group.

During the relevant year, it received management service fees and related payments from its Indian group companies.

The assessing officer held that, in the absence of a specific FTS article in the India-Thailand DTAA, the receipts fell within Article 22 dealing with “Other Income” and were therefore taxable as FTS under Section 9(1)(vii) of the Income Tax Act.

Before the Tribunal, the taxpayer contended that the issue was already covered in its favour by Tribunal decisions for AYs 2020-21 and 2022-23.

It further argued that, since it did not have a Permanent Establishment (PE) in India, the receipts could only be treated as business income under Article 7 and therefore could not be taxed in India.

The Tribunal agreed, relying on its own decisions in the assessee's cases for earlier and subsequent assessment years, as well as the Madras High Court's ruling in Bangkok Glass Industry Company Ltd. v. ACIT.

Referring to the High Court's decision, the Tribunal noted that Article 22, a residuary provision, cannot be invoked where the income falls for consideration under another article of the DTAA.

The bench said Article 22 is meant to cover items of income that are not dealt with elsewhere in the treaty and cannot be pressed into service merely because the India–Thailand DTAA does not contain a separate provision dealing with FTS.

It therefore held that the receipts could not be taxed under Article 22 and deleted the addition.

Separately, the Tribunal sent back the issue of interest under Section 234A to the Assessing Officer to verify whether the return of income had been filed within the prescribed or extended deadline. It clarified that no interest under Section 234A would be leviable if the return had been filed within time.

For Assessee: Shri Vishal Kalra and Shri Ankit Sahni, Advocates; Ms. Taranjeet Kaur, Chartered Accountant

For Revenue: Shri M.S. Nethrapal, CIT-DR