The taxpayer, an IT/support services provider, received ...

Cost reimbursements for IT support services not taxable as fees for included services under India-USA tax treaty.

Case Laws     Income Tax

August 31, 2024

The taxpayer, an IT/support services provider, received reimbursements from its associated enterprises (AEs) for the cost of providing such services. The tax authorities treated these reimbursements as fees for included services (FIS) under Article 12 of the India-USA tax treaty, considering the "make available" condition was satisfied as the taxpayer provided training to the AEs' personnel. However, the Tribunal held that the "make available" condition was not met as the services did not enable the AEs to apply the technology independently after the yearly contract concluded. The training was limited to common office software like Microsoft Word, Excel, and PowerPoint. The tax authorities failed to examine the Master Inter-Company Services Agreement or rebut the taxpayer's claim that the reimbursements were on a cost-to-cost basis without any profit element. The Tribunal ruled that the tax authorities erred in not appreciating the cost reimbursement nature and allowed the taxpayer's appeal.

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