Receipts towards testing services taxable as ‘royalty’, being consideration for sharing information concerning commercial and scientific experience – Delhi bench of the Tribunal

In brief

The Delhi bench of the Income-tax Appellate Tribunal (Tribunal) ruled¹ that payments towards testing services qualify as royalty under Article 12(4) of the India–Netherlands Double Taxation Avoidance Agreement (DTAA). The Tribunal found that these services involve sharing scientific experience and knowledge, which enables the Indian entity to improve plant varieties and breeding programmes. Therefore, the Tribunal concluded the same to be information concerning industrial, commercial or scientific experience.

Additionally, the Tribunal concluded that reimbursements received for information technology (IT) support services are not taxable as fees for technical services (FTS) under the DTAA; this is because the payments are mere cost-to-cost reimbursements and do not satisfy the ‘make available’ test.