- 1 - HC-KAR NC: 2025:KHC:29050-DB ITA No. 129 of 2025 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 28TH DAY OF JULY, 2025 PRESENT THE HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE AND THE HON'BLE MR. JUSTICE C M JOSHI INCOME TAX APPEAL NO. 129 OF 2025 BETWEEN: 1. THE PR. COMMISSIONER OF INCOME TAX 5TH FLOOR, BMTC BUILDING 80 FEET ROAD KORMANGALA BENGALURU - 560 095 2. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-6(1)(1) PRESENT ADDRESS THE INCOME TAX OFFICER WARD-6(3)(1), 2ND FLOOR BMTC BUILDING 80 FEET ROAD KORMANGALA BENGALURU - 560 095 …APPELLANTS (BY SRI. Y V RAVIRAJ, ADVOCATE) AND: 1. M/S. SONY INDIA SOFTWARE CENTRE PVT. LTD. 2ND FLOOR, SOUTH WING TOWER 2, HIBISCUS Digitally signed by AMBIKA H B Location: High Court of Karnataka - 2 - HC-KAR NC: 2025:KHC:29050-DB ITA No. 129 of 2025 EMBASSY TECH VILLAGE SEZ, OUTER RING ROAD DEVARA BEESANAHALLI BELLANDUR S.O. BENGALURU - 560 103 PAN- AAQCS 7006K REP. BY ITS MANAGING DIRECTOR …RESPONDENT THE INCOME TAX APPEAL UNDER IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961, PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO.1550/BANG/2024 DATED 13.12.2024 FOR ASSESSMENT YEAR 2017-18 ANNEXURE-A CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX CIRCLE-6(1)(1), BENGALURU. THIS APPEAL, COMING ON FOR ORDERS, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER: CORAM: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE and HON'BLE MR. JUSTICE C M JOSHI ORAL JUDGMENT (PER: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE) 1. The Revenue has filed the present appeal under Section 260A of the Income Tax Act, 1961 [the Act] impugning an order dated 13.12.2024 [impugned order] passed by the learned - 3 - HC-KAR NC: 2025:KHC:29050-DB ITA No. 129 of 2025 Income Tax Appellate Tribunal [ITAT] in ITA No.1550/Bang/2024 in respect of Assessment Year [AY] 2017-18. 2. The Revenue had preferred the aforementioned appeal [ITA No.1550/Bang/2024] impugning the order dated 12.06.2024 passed by the learned Commissioner of Income Tax (Appeals), Bengaluru [CIT(A)], whereby the Assessee's appeal against the Assessment Order dated 19.05.2021 for AY 2017-18 was partly allowed. 3. The controversy in the present case relates to (i) addition of `1,44,73,422/- made by the National E-Assessment Centre, Delhi [AO] under Section 28(iv) of the Act in respect of assets received by the respondent [Assessee] from its Associated Enterprise [AE] located overseas; and (ii) disallowance of `9,59,334/- under Section 40(a)(i) of the Act being the amount paid by the Assessee to an individual tax resident of Singapore for conducting workshops for its employees without deduction of tax at source. 4. The Revenue has projected the following questions for consideration of this Court: - 4 - HC-KAR NC: 2025:KHC:29050-DB ITA No. 129 of 2025 “1. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the treatment of free of cost of assets under section 28(iv) as benefits derived from the business and considering depreciation costs on these free of cost of assets as operating expenses while computing operating profit. margin under TP, amounts to double taxation? 2. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that professional consultation charges paid to foreign entity by the assessee were not liable for deduction of TDS and accordingly the disallowance under section 40(a)(ia) should not be made though the training impart the knowledge of know-how? 3. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that assessee is not liable to deduct TDS on payment of professional consultancy charges without examining the nature of transaction?" Prefatory facts 5. The Assessee is a company engaged in providing software development services and had filed its return of income for AY 2017-18 declaring its income of `40,11,80,350/- under the head profits and gains from business and income from other sources. The Assessee's return was picked up for scrutiny and the proceedings culminated in the AO passing an Assessment Order dated 19.05.2021 under Section 143(3) of the Act. The AO - 5 - HC-KAR NC: 2025:KHC:29050-DB ITA No. 129 of 2025 determined the Assessee's income at `44,81,52,116/- by making the following additions: (a) Addition of `1,44,73,422/- on account of certain assets that were provided free of cost by AEs located overseas; and (b) Addition of `9,59,334/- made on account of disallowance under Section 40(a)(i) of the Act, in respect of training charges paid to a Non-Resident without deduction of TDS. 6. The Assessee’s AE’s had provided certain equipment – largely computer and data processing equipment – valued at `1,44,73,422/- to the Assessee. The Assessee was also rendering services to the said AEs and the said equipment was provided free of cost for the purposes of rendering the aforesaid services. The AO was of the view that the equipment was received as an incidence of business and, therefore, the value of the said equipment was required to be considered as income under Section 28(iv) of the Act. 7. The Assessee claimed that the said equipment were prototypes developed by the AEs and were provided to the Assessee to ensure that the software developed by it for the said projects meets the parameters of the equipment and is compatible - 6 - HC-KAR NC: 2025:KHC:29050-DB ITA No. 129 of 2025 with it. The Assessee also claimed that it was not permitted to retain the equipment and it was required to be re-exported to the AEs or discarded. Additionally, the Assessee claimed that the assets received were capital in nature and could not be considered as income under Section 28(iv) of the Act. However, the AO did not accept the said contention. 8. The second addition made by the AO concerned disallowance of professional fees paid to M/s. J L Services and Consultancy, which was a proprietary concern of one Mr.Toh Tiong Yau, a resident of Singapore. The Assessee had engaged him for conducting workshops for its employees on performance management and career management. The Assessee claimed that no TDS was required to be deducted from the payments made to M/s.J L Services and Consultancy as by virtue of Article 14 of the India Singapore DTAA, payments for Independent Personal Services are not chargeable to tax in India. The service provider did not have any fixed place of business in India and his stay, during the previous year relevant to AY 2017-18, did not exceed the period of ninety days. - 7 - HC-KAR NC: 2025:KHC:29050-DB ITA No. 129 of 2025 9. However, the AO held that the payment of `9,59,334/- made to the foreign resident was chargeable to tax under the Act as “fees for technical services” [FTS]. 10. The Assessee appealed the Assessment Order before the learned CIT (A). 11. The learned CIT(A) following the decision of the learned ITAT in the case of Tesco Bengaluru Pvt. Ltd., ITA No.2387/Bang/20I9, deleted the addition made on account of fixed assets provided free of cost by AEs located overseas. The Assessee furnished Advance Pricing Agreement [APA] which included depreciation of all assets used by the Assessee. Thus, operating profit margin covered the subject matter. 12. Insofar as the addition made by the AO on account of `9,59,334/- paid to M/s. JL Services and Consultancy is concerned, the learned CIT(A) referred to the decision of Llyods Register Industrial Services (India) P. Ltd. vs. ACIT, [2010] 36 SOT 293 (Mum), and held that fees for such training could not be considered as fees for technical services under Section 9(1)(vii) of the Act. - 8 - HC-KAR NC: 2025:KHC:29050-DB ITA No. 129 of 2025 13. The Revenue challenged the order passed by the learned CITA, inter alia, on the ground that the CIT(A) had erred in deleting the disallowance made under Section 40(a)(i) of the Act in regard to reimbursement made by the Assesse to “seconded employees”. The revenue also urged that the CIT(A) had failed to appreciate that the amount reimbursed by the Assessee to overseas companies and employees in terms of settlement agreement amounted to fees for technical services. Thus, the Assessee was required to deduct tax at source under Section 195 of the Act. 14. The Assessee also filed cross objections assailing the order passed by the learned CIT(A), inter alia, on the ground that the CIT(A) had failed to consider that the fixed assets received by various sister concerns located outside India, was for testing purposes. Additionally, the Assessee contended that CIT(A) had erred in not appreciating that the payments made to M/s. J L Services & Consultancy (Proprietor Mr. Toh Tiong Yau) were in the nature of payments for independent personal services. Thus, the same were not be chargable to tax in India in terms of Article 14 of the India – Singapore DTAA. - 9 - HC-KAR NC: 2025:KHC:29050-DB ITA No. 129 of 2025 15. The learned ITAT concurred with the decision of the learned CIT(A) in respect to deletion of Rs.1,44,73,422/- on account of value of assets received free of cost. Insofar as the disallowance of workshop expenses amount to Rs.9,59,334/- is concerned, the learned ITAT held that grounds as raised by the revenue did not arise in the assessment order. Reasons and Conclusion 16. We find no infirmity with the decision of the CIT(A) and the learned ITAT in deleting the addition of Rs.1,44,73,422/- made on account of value of assets received by the Assessee free of cost. There is no dispute that the Assessee was required to return the assets received free of costs to AEs. The Assessee’s explanation that the assets were prototypes provided by the service recipients for insuring that the software developed conforms to the requisite parameters, is not controverted. The Arms Length Price [ALP] is factored under the APA and, therefore, no further additions are warranted. 17. The grounds of appeal as urged by the Revenue before the ITAT, in respect of the addition Rs.9,59,334/- did not arise. It is - 10 - HC-KAR NC: 2025:KHC:29050-DB ITA No. 129 of 2025 apposite to refer to the grounds of appeal raised by the Revenue before the learned ITAT and the same are set out below: "1) Whether in the facts and circumstances of the case, the Ld. CIT(A) is right in law in holding that the treatment of free of cost of assets u/s. 28(iv) benefits derived from the business and considering depreciation costs on these free of cost of assets as operating expenses while computing operating profit margin under TP, amounts to double taxation? 2) Whether in the facts and circumstances of the case, the Ld. CIT(A) is right in law to hold that reimbursement made by the assessee to seconded employees is not liable for deduction of TDS under Section 195? 3) Whether in the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance made u/s. 40(a)(i) of the Act in regards to reimbursement payment made by the assessee to seconded employees? 4) Whether in the facts and circumstances of the case, the ld. CIT(A) failed to appreciate that amounts reimbursed by assessee to overseas companies and employees in terms of secondment agreement amounted to fee for technical services liable to tax in India and, thus, assessee was required to deduct tax at source under section 195 of Income Tax Act?" 18. The addition was not made on account of payments made to seconded employees under secondment agreement. The AO had held that the payment made for professional services by M/s. J L Services & Consultancy was in the nature of fees for technical - 11 - HC-KAR NC: 2025:KHC:29050-DB ITA No. 129 of 2025 services, which was covered under Article 12 of India Singapore – DTAA. 19. In this view, we find no infirmity with the impugned order as the grounds of appeal set out by the Revenue before the learned ITAT did not arise from the assessment order. The AO had not found that any employees were seconded to the Assessee by any overseas entity. There was no issue raised regarding payments made to seconded employees. 20. Having stated above, it is also clear that the payments made by the Assessee to JL Services & Consultancy for conducting workshops cannot be considered as fee for technical services under Article 12 of the India – Singapore DTAA. 21. Paragraphs 4 and 5 of the India Singapore DTAA are relevant and are set out below: "4. The term “fees for technical services” as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services : - 12 - HC-KAR NC: 2025:KHC:29050-DB ITA No. 129 of 2025 (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, which enables the person acquiring the services to apply the technology contained therein ; or (c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. For the purposes of (b) and (c) above, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person. 5. Notwithstanding paragraph 4, “fees for technical services” does not include payments : (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in paragraph 3(a) ; (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic ; (c) for teaching in or by educational institutions; (d) for services for the personal use of the individual or individuals making the payment; [2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10 per cent.] - 13 - HC-KAR NC: 2025:KHC:29050-DB ITA No. 129 of 2025 (e) to an employee of the person making the payments or to any individual or firm of individuals (other than a company) for professional services as defined in Article 14 ; (f) for services rendered in connection with an installation or structure used for the exploration or exploitation of natural resources referred to in paragraph 2(j) of Article 5 ; (g) for services referred to in paragraphs 4 and 5 of Article 5". 22. 22. In Engineering Analysis Centre of Excellence Pvt. Ltd., v. Commissioner of Income Tax and another : (2021) 432 ITR 471 the Supreme Court reiterated that the meaning of terms and expressions defined under the double taxation avoidance treaties, were not to be controlled by definitions of those terms under the Act. Thus, the expression ‘fee for technical services’ would necessarily confine to the meaning ascribed under Paragraph 4 of the India - Singapore DTAA. 23. Plainly, training workshop for performance management, and career management for employees are general training programs that cannot be considered as technical services. There is no transfer of technical knowledge, technical knowhow, experience, skill or process. - 14 - HC-KAR NC: 2025:KHC:29050-DB ITA No. 129 of 2025 24. In view of the above, we find no substantial question arises for consideration. The appeal is accordingly dismissed. Sd/- (VIBHU BAKHRU) CHIEF JUSTICE Sd/- (C M JOSHI) JUDGE AHB List No.: 1 Sl No.: 25