Dispute Over Treatment of Technical Service Payments: Heidrick and Struggles India vs DCIT

Case Overview

This case, ITA 2387/DEL/2019, revolves around the appeal by DCIT, Circle-11(1), New Delhi against the decision of the CIT(A) regarding payments made by Heidrick and Struggles India Pvt. Ltd. to its overseas affiliates, which were classified by the Assessing Officer (AO) as Fees for Technical Services (FTS) requiring tax deduction at source under Indian tax laws.

Background

The issue began with the AO’s decision during the 2015-16 assessment year, where payments made to several overseas entities were classified as FTS under Section 40(a)(ia) of the Income Tax Act, implying that taxes should have been withheld under Section 195 of the Act. This was challenged by Heidrick and Struggles India and subsequently overruled by CIT(A), prompting the department’s appeal.

Judicial Analysis

The Income Tax Appellate Tribunal examined the provisions under various Double Taxation Avoidance Agreements (DTAA) and found that the services provided did not qualify as ‘make available’ technical services. This key phrase under DTAAs implies that for fees to be considered FTS, the service must enable the recipient to apply the technology or know-how independently. The Tribunal noted that the overseas entities did not transfer such capability to the Indian company.

Conclusion and Implications

The Tribunal’s decision reaffirmed the principle that not all payments for professional services to overseas entities constitute FTS under the relevant DTAAs. It emphasized the necessity to examine the specifics of services rendered and the nature of technology transfer, if any. This case serves as a critical reference for assessing cross-border service transactions under Indian tax law.

Dispute Over Treatment of Technical Service Payments: Heidrick and Struggles India vs DCIT