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September 2025

Penalty u/s. 270A — Debatable issue — Receipts chargeable to tax as ‘Fees for Technical Service’ u/s. 9(1)(vii) or ‘Fees for included services’ under Article 12 of the DTAA between India and USA — Divergent views taken by the High Courts — Two views possible — Penalty u/s. 270A not leviable.

By Keshav Bhujle | Ritu Punjabi, Advocates
Reading Time 3 mins

31. 2025 (8) TMI 768 (Kar):

Pr.CIT(IT) vs. IBM Australia Limited.:

A. Y. 2018-19: Date of order 31/07/2025:

Ss. 9(1)(vii) and 270A of ITA 1961

Penalty u/s. 270A — Debatable issue — Receipts chargeable to tax as ‘Fees for Technical Service’ u/s. 9(1)(vii) or ‘Fees for included services’ under Article 12 of the DTAA between India and USA — Divergent views taken by the High Courts — Two views possible — Penalty u/s. 270A not leviable.

The Assessee Company is a tax resident of Australia filed its return of income and claimed a refund. During the year under consideration, the Assessee had received a sum of about ₹ 65.38 crores from IBM India Limited, a company incorporated in India towards IT Support, including recovery of salary expenses of the employees that were seconded to IBM India. The Assessee’s return was selected for scrutiny and the subject matter of dispute was as to whether the said receipts were chargeable to tax as ‘Fees for Technical Service’ (FTS) u/s. 9(1)(vii) of the Income-tax Act, 1961 or Fees for Included Service under Article 12 of the Double Taxation Avoidance Agreement (DTAA) between India and USA. The Assessing Officer penalty u/s. 27

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