ITAT Delhi Rules on Non-Resident Taxation: Source-Based Income from Indian Entities Liable to Tax Despite DTAA Protection

Introduction

The Hon’ble Income Tax Appellate Tribunal, Delhi (Tribunal’), in its recent judgment in Tungsten Network Ltd. v. Deputy Commissioner of Income-tax[i], has clarified that the deeming rule under s. 9(2) of the Income-tax Act, 1961(‘Act’) shall only apply when the primary sourcing rule under s. 5(2) of the act is not satisfied. This judgment provides significant clarity on the tax liability of a non-resident assessee when the income source is in India.

Brief Facts?

• M/s. Tungsten Network Ltd. (‘Assessee’), a foreign company taxable in the UK, had received approximately Rs. 1.46 crores and Rs. 1.47 crores from Genpact India Pvt. Ltd during the assessment year (‘A.Y.’) 2016-17 towards services related to converting raw data into e-form.
• The Assessing Officer (AO) passed an assessment order dated 12.03.2024, treating total income of Rs. 2,93,92,810 as a ‘ fee for technical services to be taxed @ 10%’. Aggrieved by the assessment order, the Assessee filed appeals for A.Y. 2016-17 and 2017-18, seeking adjudication on whether a non-resident assessee earning income from an Indian source is liable to tax in India.

Held

• The Tribunal, after examining the Assessee’s arguments, held that the India-UK Double Taxation Avoidance Agreement (‘DTAA’) protection does not apply in this case, as the income qualifies as fees for technical services (FTS) under both the DTAA and the Act. However, the income was chargeable in India as it is derived from a service provided to a business in India. To dismiss both the appeals, the Tribunal relied upon the below-mentioned judgments.
• In GVK Industries Ltd. v. Income Tax officer[ii], the Hon’ble Supreme Court held that terms like managerial, technical and consultancy are not defined in the Act. However, in the absence of such a definition, the common and general meaning of the words should be taken into consideration. ?The court also held that the income of receipt is chargeable where the source of payment is located, i.e., where the payer is located. Under the primary source rule under s. 5(2) of the Act, the income received by the Assessee company accrues or arises in India, as the payer is situated in India. Further, the reference to the deeming rules under s. 9 of the Act shall only be made when the primary sourcing rules fail to establish the chargeability.

Our Analysis

This judgment reinforces India’s approach to source-based taxation, affirming that a non-resident’s income is taxable if the payer is in India and the services rendered qualify as technical services. The Tribunal clarified that DTAA protection is not absolute; if the income falls under FTS, it remains chargeable under Indian tax laws.

End Notes

[i]??[2025] 170 taxmann.com 310 (Delhi - Trib.).

[ii]?[2015] 54 taxmann.com 347 (SC).

Authored by Arjun Singh Tamang , Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.