Case Analysis: ITA No. 820/DEL/2022 Infobip Limited vs. Assistant Commissioner of Income Tax Circle

The case of Infobip Limited versus the Assistant Commissioner of Income Tax, Circle International Tax. 2(1)(1), Delhi, marked by the case number ITA No. 820/DEL/2022 for the assessment year 2017-18, presents a significant analysis on nuances of international taxation, specifically dealing with fees for technical services (FTS) under India-UK Double Taxation Avoidance Agreement (DTAA).

The Income Tax Appellate Tribunal Delhi Bench ‘D’, comprising Hon’ble President Shri G.S. Pannu and Judicial Member Ms. Astha Chandra, heard this appeal. The core issue revolved around the assessment order dated 28.02.2022 issued under section 143(3) r.w.s. 144C of the Income Tax Act, 1961, concerning Infobip Limited, a company incorporated in the United Kingdom and engaged in providing cloud-based communication and messaging solutions worldwide.

The order challenged by Infobip Limited included an addition of INR 83,04,370 as fees for technical services rendered outside India, deemed taxable under Article 13(4)(c) of the India-UK DTAA. The assessing officer’s view was that these services made available technical knowledge, skill, etc., falling within the purview of FTS. Infobip’s appeal raised several grounds challenging this characterization and the subsequent tax implications.

The tribunal’s detailed analysis began with the understanding of ‘managerial’ nature of services rendered by Infobip Ltd. to its associated enterprise in India, bSmart Tech Pvt. Ltd. (BTPL), under a Business Cooperation Agreement dated 25.03.2014. Infobip argued that the services provided, including financial support, sales support, technical support, and legal support, were managerial and thus excluded from the definition of FTS under Article 13 of the India-UK DTAA.

Deeper examination by the tribunal revealed that the services in question did not satisfy the ‘make available’ clause as discussed under Article 13(4)(c) of the India-UK DTAA, fundamentally because the services did not transfer any enduring technical knowledge or skill to BTPL enabling it to perform these functions independently in the future.

The tribunal meticulously dissected definitions, interpretations, and implications of FTS under the India-UK DTAA, emphasizing the necessity for services to ‘make available’ technical knowledge in order to be classified as FTS. The tribunal referred to numerous case laws supporting the view that mere provision of services without transferring technical knowledge or skill does not qualify as FTS under the specific DTAA provisions.

In conclusion, the tribunal’s ruling favored Infobip Limited, stating that the addition made on account of FTS was unjustified as the services did not fall within the definition of FTS under the India-UK DTAA, essentially allowing the appeal in favor of Infobip Limited. This case sets a significant precedent in understanding the scope of ‘make available’ in the context of fees for technical services within international taxation agreements.

Order pronounced in the open court on 26th May, 2023, marked a win for Infobip Limited and offered clarity on the interpretation of ‘fees for technical services’ under the India-UK DTAA, providing valuable insights for corporates engaged in international transactions.

Case Analysis: ITA No. 820/DEL/2022 Infobip Limited vs. Assistant Commissioner of Income Tax Circle