ITA No. 822/DEL/2022: Inteva Products Netherlands BV vs. ACIT – A Case of FTS Classification and Taxability

In a significant ruling by the Income Tax Appellate Tribunal Delhi Bench, the case of Inteva Products Netherlands BV against the Assistant Commissioner of Income-tax, Circle International Taxation-2(1)(1), New Delhi, was brought into consideration. This case revolved around the contentious classification and taxability of business support services fees received by the appellant, Inteva Products Netherlands BV, from its Indian entity.

The appellant company, incorporated in the Netherlands and a tax resident of the Netherlands, found itself embroiled in a dispute over the treatment of its income received from business support services. For the assessment year 2018-19, the company filed its return, showing income primarily from interest on External Commercial Borrowings (ECB) and income tax refunds. However, it received substantial revenue of Rs. 11,85,39,571 for business support services provided to its Indian affiliate, Inteva India. The bone of contention was whether this income qualified as Fees for Technical Services (FTS) under the India-Netherlands tax treaty.

The assessing officer (AO), directed by the Dispute Resolution Panel (DRP), initially classified this income as FTS, attracting taxation—a decision that the appellant contested. The appellant argued that the services were managerial in nature and thus did not fall within the definition of FTS under the applicable tax treaty.

The case saw detailed arguments from both parties, with the appellant pressing the key issue of service classification. It contended that the services provided, encompassing areas such as engineering, financial administration, HR, IT amongst others, were managerial and not technical or consultancy services, thus not qualifying as FTS under the tax treaty.

The Tribunal’s final judgment leaned towards the appellant’s interpretation for the assessment year in question. Drawing parallels with a previous case for AY 2014-15, the Tribunal noted that similar services had been rendered and the income was not classified as FTS. It was concluded that the payment received for business support services did not qualify as FTS under the specific provisions of the India-Netherlands DTAA.

This ruling has significant implications, potentially setting a precedent for how business support services provided by entities in treaty-partner countries are classified and taxed under Indian law. It underscores the importance of correctly interpreting treaty provisions and the nature of services rendered when determining tax liabilities.

The part allowance of Inteva Products Netherlands BV’s appeal marks a notable decision in the landscape of international taxation and treaty interpretation, highlighting the nuanced and complex nature of cross-border tax disputes.

ITA No. 822/DEL/2022: Inteva Products Netherlands BV vs. ACIT – A Case of FTS Classification and Taxability