This document provides a detailed analysis of the Income Tax Appellate Tribunal (ITAT) Delhi’s ruling concerning HireRight Limited’s tax disputes for the Assessment Years 2019-20 and 2020-21. The case revolves around the classification of income from background screening services as ‘Royalties’ or ‘Fees for Technical Services’ (FTS) under the India-UK Double Taxation Avoidance Agreement (DTAA).
HireRight Limited, a UK-based company, offers background screening services. The dispute centers on whether payments received from Indian clients for these services should be taxed as royalties or FTS. The assessing officer (AO) initially ruled that these were royalties, leading to higher tax liabilities for HireRight, prompting the appeal.
The tribunal examined various aspects of the services provided by HireRight, including the nature of the data processed and the method of delivery to clients. It was determined that the services did not involve the use of any copyright-protected material or database but were merely factual verifications provided to clients, which do not qualify as royalties or FTS under the specified DTAA provisions.
The ITAT ruled in favor of HireRight, concluding that the income derived from its services is not taxable as royalties or FTS. This decision was based on the factual nature of the services and the lack of any copyright or proprietary technology usage.
This ruling has significant implications for foreign companies providing similar services in India, impacting how such services are classified and taxed under international tax treaties. It underscores the importance of understanding treaty provisions and their application to specific business activities.
The ITAT’s decision provides clarity on the taxation of background screening services under the India-UK DTAA, offering relief to businesses engaged in similar activities and contributing to a better understanding of copyright and FTS definitions in tax law.
Order pronounced in the open court on 2023-09-06.
Detailed Review of HireRight Limited’s Royalty and FTS Dispute for AY 2019-20
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