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DTAA Deliberations: ITAT Decodes the Taxability of FTS in India


The recent ruling in Solvay Asia Pacific Pte. Ltd. v. Deputy Commissioner of Income-tax. (IT), Circle-3(1)(2), International Taxation, New Delhi[i], involved an appeal before the Income Tax Appellate Tribunal, Delhi (‘Tribunal’) filed by a Thailand company against an order passed by the Assessing Officer (‘AO’), taxing receipts as fees for technical services (‘FTS’) in India. The core issue was whether FTS is taxable in India as per the India-Thailand double taxation avoidance agreement (‘DTAA’). The dispute centred on the absence of an FTS clause in the DTAA and the assessee’s claim that, consequently, the income should not be subject to taxation in India. The Dispute Resolution Panel (‘DRP’) rejected these contentions, labelling the FTS payments as a tax avoidance scheme. However, the Tribunal, relying on legal precedents, concluded that as the DTAA does not contain an FTS clause and the appellant lacks a permanent establishment (‘PE’) in India, the income should be treated as business income, not subject to Indian taxation.


  • The assessee, a company incorporated and tax resident of Thailand, filed an appeal before the Tribunal against the order dated 16.12.2022 passed by the AO under s. 147/144C of the Income-tax Act, 1961 (‘Act’). The appeal was preferred on several grounds inter alia that the AO erroneously taxed the receipts of the assessee, amounting to Rs. 11,99,47,943/-, as FTS at the rate of 10% plus applicable surcharge and cess under s. 115A of the Act.

  • The assessee, operating from Thailand, had provided services to its Indian group entities during the relevant year, for which it received the aforementioned amount. The assessee argued that the income should be treated as business support services and, therefore, its taxability should be governed under a. 5 read with a. 7 of the India-Thailand DTAA, not as FTS.

  • The assessee contended that even if the AO has treated the receipts as FTS under s. 9(1)(vii) of the Act, the same could not have been taxed in India in the absence of an FTS clause in the India-Thailand DTAA and as per s. 90(2) of the Act. However, the DRP rejected this argument, stating that tax treaties allocate taxing rights between countries, and the non-inclusion of a specific FTS clause in the DTAA does not automatically exempt income from taxation in India.

  • The DRP considered the structure of FTS payments through group entities as a tax avoidance scheme, invoking the limitation of benefit (‘LOB’) clause under a. 27 of the India-Thailand DTAA. The DRP concluded that the matter was not settled judicially and upheld the AO’s order, treating the receipts as FTS and thereby applying a 10% tax rate. Aggrieved by this decision, the assessee moved to the Tribunal.


  • The Tribunal allowed the appeal of the assessee and concluded that the income of the assessee cannot be taxed in India in the absence of a PE. It was observed that the assessee, being a non-resident, received amounts falling under the category of FTS and since the India-Thailand DTAA lacks a provision for taxing FTS, such income cannot be treated as miscellaneous under any residual clause. Thus, the Tribunal referenced the judgement of the Hon’ble Madras High Court in the case of Bangkok Glass Industry Co. Ltd. v. ACIT[ii], affirming that the assessee cannot be held liable for tax in India.

  • Further, the Tribunal placed reliance on the decision of its Co-ordinate Bench in the case of Assistant Commissioner of Income-tax, Circle 1, Dehradun v. Paradigm Geophysical Pvt. Ltd.[iii] wherein it was held that where specific provisions have not been made for any items of income under the treaty, such items of income should be considered under a. 7 of DTAA. The Tribunal also referred to the decision of its Co-ordinate Bench in the case of Bharti Airtel Ltd. v. Income-tax Officer (TDS), Ward 1 (1), New Delhi[iv] wherein it was held that in the absence of an FTS clause in the treaty, income is assessable as business income and can only be taxed in India if there is a PE and the income is attributable to the activities of such PE.

  • Finally, the Tribunal noted the past treatment of similar receipts and observed that these expositions are fully applicable as the assessee does not have a PE in India. Therefore, it held that the income earned, in the absence of an FTS clause in the India-Thailand DTAA, should be treated as business income.


This judgment highlights the critical role of specific clauses within DTAAs in determining the taxability of cross-border income, particularly emphasizing the impact of absent clauses on tax obligations. The Tribunal’s decision, anchored in a detailed examination of the India-Thailand DTAA and relevant sections of the Act, illustrates the precedence of treaty specifics over domestic laws in avoiding double taxation. This decision reinforces the principle that in the absence of specific treaty provisions, income should be taxed based on general tax principles and the presence of a PE.

The case sets a precedent for interpreting treaty articles, especially regarding FTS, and reinforces the principle that international tax agreements govern the tax treatment of cross-border transactions. This ruling provides clarity for future cases involving DTAAs and guides the application of tax laws to international services, ensuring consistent legal standards and fostering clearer international trade relations.

End Notes

[i] [2024] 159 90 (Delhi - Trib.) [22-01-2024]

[ii] [2013] 34 77 (Madras) [12.06.2012]

[iii] [2010] 1 ITR(T) 178 (Delhi) [27.06.2008]

[iv] [2016] 67 223 (Delhi - Trib.) [17.03.2016]

Authored by Prashant Singh, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.


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