Introduction
The Income Tax Appellate Tribunal (ITAT), Mumbai ‘I’ Bench, in ATOS Information Technology (Singapore) Pte Ltd v. DCIT, ITA No. 6745/Mum/2025, has delivered a significant ruling on the taxation of cross-border support service payments received by a Singapore tax resident from its Indian group entity. The decision turns on the distinction between “royalty” or “Fees for Technical Services” (FTS) on one hand, and ordinary business profits not taxable in the absence of a Permanent Establishment (PE) on the other. The Tribunal ultimately held that the impugned receipt of Rs.4,42,73,329/- was not taxable in India as royalty or FTS because the services did not involve transfer of technical knowledge, skill, or know-how, and the “make available” condition under the India-Singapore Double Taxation Avoidance Agreement (DTAA) was not satisfied.
Facts
The assessee, a non-resident corporate entity incorporated in Singapore, was engaged in providing support services to group companies across countries, including India. For Assessment Year 2018-19, it filed its return of income declaring income of Rs.1,97,630/-. During scrutiny assessment, the Assessing Officer observed that the assessee had received two categories of payments from Atos India Private Limited:
1. Rs.6,33,96,361/- towards project support services; and
2. Rs.4,42,73,329/- towards regional support services.
The Assessing Officer treated both receipts as royalty/FTS and made additions in the draft assessment order. The Dispute Resolution Panel (DRP) affirmed the additions, and a final assessment order was passed.
In the earlier round, ITAT, in ITA No.671/Mum/2022, deleted the addition in respect of project support services following a coordinate bench decision in the assessee’s own case. However, the Tribunal restored the issue relating to Rs.4,42,73,329/- to the Assessing Officer for de novo adjudication, since the factual aspects concerning the Regional Services Agreement (RSA) had not been properly examined.
On remand, the Assessing Officer again treated the regional support service receipts as royalty/FTS under Section 9(1)(vi)/(vii) of the Income Tax Act, 1961, and also under the India-Singapore DTAA. The DRP affirmed this position, leading to the final assessment order dated 21-08-2025. The assessee then appealed to the ITAT.
Reasoning
The core question before the Tribunal was whether the amount of Rs.4,42,73,329/- received under the Regional Services Agreement could be characterised as royalty or FTS. The assessee asserted that the payments were business profits and, absent a PE in India, were not taxable.
Nature of Services under the Regional Services Agreement
The Tribunal carefully examined the services catalogued in the RSA. The Agreement covered strategic operations, sales/markets/service line support, finance, legal, human resources, and marketing and communication support. The Tribunal found that the services were standard support services intended to assist the Indian group entity in improving operational efficiency and aligning with regional strategy.
According to the assessee, none of these services involved the imparting of information concerning technical, industrial, commercial, or scientific knowledge, experience, or skill. The assessee applied its own expertise and skill during the rendition of services; it did not transfer or make available that expertise to the service recipient. The Tribunal accepted this crucial distinction: payment for the mere application of knowledge is not royalty; payment for the transfer of knowledge may be.
Industrial Analysis of “Royalty”
The Tribunal considered the definition of royalty under Article 12(3) of the India-Singapore DTAA as well as Explanation 2(iv) to Section 9(1)(vi) of the Act. In particular, it examined whether the services rendered by the assessee involved the transfer of information concerning technical, industrial, commercial, or scientific knowledge, experience, or skill. The Tribunal noted that the recipient of the services was not enabled to exploit any such information independently. Clause 5 of the RSA contained confidentiality obligations preventing the recipient from commercially exploiting the information supplied. Thus, the payment could not be treated as royalty.
The Tribunal also relied upon the OECD Commentary to reiterate a settled principle: when a service provider merely applies its existing knowledge, skill, and experience for the benefit of the client, without transferring that knowledge to the client, the consideration does not fall within the meaning of royalty. This is different from a transaction where the provider parts with information or know-how so that the recipient can use it independently. Since the assessee retained the knowledge and applied it for the benefit of the Indian entity, no royalty arose.
FTS and the “Make Available” Condition
The Tribunal then examined whether the receipts could be treated as Fees for Technical Services under Article 12(4)(b) of the India-Singapore DTAA. The “make available” condition requires that the technical knowledge, skill, know-how, or process should be made available to the service recipient in a manner that enables the recipient to apply the technology or knowledge independently without further recourse to the service provider.
The Tribunal found that this condition was not satisfied. The assessee rendered strategic, financial, legal, human resource, and marketing support services, but the Indian recipient remained dependent on the assessee. In fact, the admitted fact that the assessee continued rendering similar services in subsequent years confirmed that the recipient had not acquired any independent capability to deploy the underlying knowledge or technology. Therefore, even assuming that some services were managerial, technical, or consultancy in nature, the consideration could not be taxed as FTS under the DTAA. Importantly, the Tribunal observed that the Assessing Officer had sought to treat the same receipt simultaneously as royalty and FTS. This approach was contradictory. A receipt cannot bear two inherently different legal characters at the same time.
Business Profits and Absence of PE
Having ruled out royalty and FTS, the Tribunal held that the receipt of Rs.4,42,73,329/- fell within the category of business profits. Under the India-Singapore DTAA, business profits of a Singapore resident are taxable in India only if the assessee has a Permanent Establishment in India. The Revenue had not established the existence of a PE in India. Consequently, the receipt was not taxable in India.
The Tribunal also addressed ancillary grounds. Ground No.1 was dismissed as not pressed. Ground No.8, which concerned an issue found to be premature, was dismissed. The Tribunal directed the Assessing Officer to verify the TDS credit available to the assessee and to treat interest under Section 234B as consequential to the final outcome.
Conclusion
The ITAT’s decision in ATOS Information Technology is a strong reaffirmation of the settled distinction between “royalty/FTS” and “business profits” in international taxation. The Tribunal refused to expand the scope of royalty merely because the service provider used specialised knowledge while rendering support services. It also correctly emphasised the statutory “make available” condition under the India-Singapore DTAA, holding that dependency of the recipient is antithetical to a finding of FTS.
The observation that the same consideration cannot be simultaneously treated as royalty and FTS is particularly useful. The judgment also clarifies that confidentiality clauses in service agreements can militate against a finding of transfer of knowledge, since the recipient is not free to commercially exploit the information.
From a tax policy perspective, this ruling provides welcome guidance for multinational group entities providing intra-group support services to Indian subsidiaries. It reinforces that standard support services relating to strategy, sales, finance, legal, HR, and marketing cannot be imputed as technical services merely because they are provided by an offshore entity. The assessment order under Section 143(3) r.w.s. 254, to the extent of the disputed addition, was therefore unsustainable.