ITAT: Payments by Deloitte India for Internal Brand, Communication, and Tech Services Not Royalty under Article 13 of the India–UK DTAA

Introduction

The Income Tax Appellate Tribunal, Mumbai in Deputy Commissioner of Income-tax (International Taxation) v. Deloitte Touche Tohmatsu India LLP[i] has held that the payment made by Deloitte Touche Tohmatsu India LLP (‘Assessee’) to the UK-based company for services of global technology/knowledge management, global communication and global brand (‘three services’) were not royalty under s. 9(1)(vi) of the Income-tax Act, 1961 (‘Act’) and a. 13 of the India-UK Double Tax Avoidance Agreement (‘DTAA’).

The ITAT, applying settled principles from Indian jurisprudence and consistent with international tax practice, held that such payments do not constitute royalty and are therefore not taxable in India. The decision reaffirms the position that internal cost-sharing arrangements for administrative support and global integration services, without any transfer of copyright or proprietary use, are outside the ambit of royalty.

Brief Facts

• The Assessee was engaged in rendering professional services to clients, including domestic and international corporates.

• As part of its global alignment and brand integration, the Assessee entered into a shared services agreement with Deloitte Global Services Holdings Ltd. ('DGSHL'), a UK-based entity and part of the broader Deloitte global network.

• The agreement contemplated various services, including support for global branding, communications, and knowledge/technology management.

• The Assessee made an application seeking authorization for payments of USD 1.15 crores to DGSHL without withholding tax under section 195(1).

• The Assessing Officer (AO) held that three services in the agreement held it to be royalty as per s. 9(1)(vi) of the Act and a. 13 of the DTAA, and accordingly directed the Assessee to deduct tax at the rate of 3 per cent.

• The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the appeal following the ITAT’s decision in the Assessee’s own case for different assessment years (‘AYs’).

• In an earlier decision, the ITAT in the Assessee’s own case for the AYs 2018-19 and 2019-20 on the same facts had held that payments for the three services were not in the nature of royalty and therefore the Assessee was not liable to deduct tax at source. This position was not denied by either party.

Held

• The ITAT, relying on its earlier decision, dismissed the appeal of the Income-tax Department (‘Revenue’) and held that payments made to a UK company did not fall within the scope and ambit of royalty under a. 13 of the DTAA. Consequently, the Assessee was not required to deduct TDS while making the payment.  

• In its earlier judgment of the Assessee for AY 2018-19 titled Dy. CIT v. Deloitte Touche Tohmatsu India Ltd.[ii] and Deloitte Haskins & Sells LLP v. Dy. CIT[iii], the ITAT had held that the payments for the three services were not in the nature of royalties; therefore, the Assessee was not liable to deduct tax at source.

• Furthermore, it was held that merely providing common policies or guidance relating to the brand and collaborating with member firms cannot be considered the use of or a right to use any copyright in literary, artistic, or scientific works.

• The ITAT in Deloitte Touche Tohmatsu India Ltd. (supra) observed that the UK-based Holding company was incorporated solely to facilitate the attainment of various objectives, including further international alignment. The Holding company for such purposes incurred expenses for the benefit of all members, which are recovered from the members without any markup.

• The ITAT, while analysing the scope of global brand services in alignment with the definition of royalty under a. 13(3) of the DTAA, held that the holding company only assisted in the implementation of the brand strategy for the use of a network of Deloitte members. It provided guidance and advice, rather than any intellectual property.

• Thus, the ITAT held that the provision of such services cannot be reckoned as the use of or right to use any copyright of literary, artistic or scientific work. The holding company, based in the UK, performed various activities for its members, and its guidance is only for internal use by the member firms; hence, the payment by the Assessee for such services cannot be considered for information concerning industrial, scientific, or commercial experience.

• Furthermore, regarding global communication services, it was held that the holding company only distributed publications, reports, etc., to members for alignment with member firms for internal and external communications. Hence, it did not amount to the use of any copyright work or for any other terms given in a. 13(3). Furthermore, it could not be held for information concerning industrial or scientific experience, as it was purely for the internal use of member firms and not for any third party.

• Lastly, regarding the services mentioned under global technology/knowledge management services, the ITAT noted that a bare perusal would indicate that these services did not in any way amount to the transfer of intellectual property in any form. The above services were rendered only for internal purposes and not for commercial exploitation. Under these heads, certain technology products were acquired by the holding company from vendors and distributed to members.

• The software acquired by the holding company and distributed to the members did not include payment for the use of or the right to use computer software, as it had merely obtained a licensed product from vendors for use by member firms. The Licensees were allowed to use the software only for business purposes and were not permitted to transfer a copy of the software; as such, there was no transfer of any right in respect of copyright by the vendors, and it was held to be a case of mere transfer of a copyrighted article.

• Based on the above, the ITAT in Deloitte Touche Tohmatsu India Ltd. (supra) held that the payment for the above-discussed services was not in the nature of a royalty as per a. 13.3 of the DTAA, and accordingly, the payments made by the Assessee to the holding company cannot be considered royalty.

• Hence, the ITAT in the present case, following the principles in Deloitte Touche Tohmatsu India Ltd. (supra), held that the payment made to the UK-based company did not fall within the ambit of royalty as per a.13 of the DTAA. Consequently, the Assessee was not required to deduct TDS while making the payment. Hence, the appeal of Revenue was dismissed.

Our Analysis

This pronouncement by the ITAT reinforces the position that payment for services does not fall within the ambit and scope of royalty as delineated in DTAAs in the absence of the transfer of any intellectual property. The services being offered in this case were in the nature of use or right to use any copyrighted work by members of the firm and, as such, did not involve the transfer of intellectual property in any form. The UK-based holding company was not making any profit on the same and only recovered the expenses from the member firm to whom such services were provided.

End Notes

[i] [2025] 172 taxmann.com 571 (Mumbai - Trib.).

[ii] IT Appeal o. 4515 (Mum) 2024.

[iii] [2022] 141 taxmann.com 205 (Mumbai-Trib.).

Authored by Huzaifa Salim, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.