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Significance of 'Fees for Included Services' in Indo-USA DTAA


In the case of Laserwords US Inc. v. Deputy Commissioner of Income-tax[i],  Income Tax Appellate Tribunal, Chennai Bench (‘ITAT’), while adjudicating upon the issue of taxation of the sales commission received by a non-resident company from its Indian subsidiary, held that such commissions could not be taxed in India. The ITAT passed the decision after duly considering the provisions of the Indo-USA Double Taxation Avoidance Agreement (‘DTAA’). 

Brief Facts

  • Laserwords US Inc., a US-based non-resident company (‘Assessee’), was engaged in e-publishing services categorized as information technology-enabled services (‘ITES’).

  • The Assessee had entered into a marketing agreement (‘Agreement’) with its Indian subsidiary, SPI Technologies India Pvt. Ltd (‘Holding Company’), to provide e-publishing services, inter alia, and certain other services to earn sales commission.

  • The assessing officer (‘AO’), upon scrutiny, noted certain discrepancies in the Assessee’s income tax return and initiated assessment through the issuance of a notice under s. 143(2) of the Income-tax Act, 1961 (‘Act’). After a detailed examination, the AO concluded that the Assessee's sales commission was considered a ‘fee for included services’ under a. 12(4) of the DTAA. Hence, the same was taxable in India.


Upon thoroughly examining the agreement and the nature of activities undertaken by the Assessee, the ITAT observed that the aforementioned activities constituted purely marketing services and did not meet the definition of 'fees for included services' under s. 9(1) of the Act and a. 12(4) of the DTAA. Thus, upon having made the above observation, the ITAT ruled that the sales commission should not be taxable in India.

Our Analysis

It is a settled principle that for purposes of DTAA, ‘fees for included services’ “means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design”[ii]

In distinguishing the nature of the Assessee's activities as marketing rather than technical or consultancy, the ITAT ensures that income classifications adhere strictly to the defined categories of the DTAA. This decision underscores the importance of clear service definitions in international agreements and their pivotal role in tax classification. Such meticulous adherence to the DTAA provisions is essential for ensuring that tax liabilities are accurately determined in cross-border transactions.

This case sets a crucial precedent for how services are classified and how related payments are interpreted under the DTAA, reinforcing the need for tax authorities to follow the DTAA's strict definitions when assessing tax obligations.

End Notes

[i] [2024] 162 543 (Chennai - Trib.)

[ii] Income Tax Department, Publication on ‘Royalty and Fees for Technical Services-Taxpayer Information Series-44’, available at 579_ Set Royalty and fees For Technical Services-IOP.pmd (

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


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