Karnataka High Court
Pr. Commissioner Of Income Tax vs M/S Ibm Australia Limited on 1 August, 2025
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NC: 2025:KHC:29877-DB
ITA No. 10 of 2025
HC-KAR
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 1ST DAY OF AUGUST, 2025
PRESENT
THE HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
AND
THE HON'BLE MR. JUSTICE C M JOSHI
INCOME TAX APPEAL NO. 10 OF 2025
BETWEEN:
1. PR. COMMISSIONER OF INCOME TAX
(INTERNATIONAL TAXATION)
KORMANGALA, BANGALORE.
2. THE DEPUTY COMMISSIONER OF INCOME TAX
INTERNATIONAL TAXATION
CIRCLE 1(1)
KORMANGALA, BANGALORE
...APPELLANTS
(BY SRI SANMATHI INDRAKUMAR, ADVOCATE)
AND:
Digitally
signed by 1. M/S. IBM AUSTRALIA LIMITED
AMBIKA H B C/O. IBM INDIA PRIVATE LIMITED
Location:
High Court BANGALORE - 560 029
of Karnataka PAN: AABC14837K
REPRESENTED BY ITS DIRECTOR
...RESPONDENT
THIS INCOME TAX APPEAL IS FILED UNDER SECTION
260-A OF INCOME ACT 1961, PRAYING TO DECIDE THE
FOREGOING QUESTION OF LAW AND OR SUCH OTHER
QUESTIONS OF LAW AS MAY BE FORMULATED BY THE
HON'BLE COURT AS DEEMED FIT AND SET ASIDE THE
APPELLATE ORDER DATED 20.05.2024 PASSED BY THE
INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH,
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NC: 2025:KHC:29877-DB
ITA No. 10 of 2025
HC-KAR
BANGALORE, AS SOUGHT FOR, IN THE RESPONDENT-
ASSESSEE'S CASE, IN APPEAL PROCEEDINGS IN IT(IT)A
NO.541/BANG/2024 FIR A.Y.2019-20 (ANNEXURE - A) AND
GRANT SUCH OTHER RELIEF AS DEEMED FIT.
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. For the reasons stated in the application - I.A.1/2025, the same is allowed. The delay in filing the appeal is condoned.
2. The Revenue has filed the present appeal under Section 260-A of the Income Tax Act, 1961 [the Act] impugning an order dated 20.05.2024 [impugned order] passed by the learned Income Tax Appellate Tribunal [ITAT], in a batch of appeals.
3. The present appeal is confined to the impugned order insofar as it relates to IT(IT)A.No.541/Bang/2024 in respect of the Assessment Year [AY] 2019-20. The Assessee - a company which is a tax resident in Australia - had filed its return of income -3- NC: 2025:KHC:29877-DB ITA No. 10 of 2025 HC-KAR tax on 29.11.2018 for AY 2019-20, declaring `35,00,630/- as taxable income.
4. The Assessee's case was selected for scrutiny and during the course of the assessment, it was found that the Assessee had received a sum of `59,41,56,568/- from M/s. IBM India Limited [IBM India], a company incorporated in India, towards IT support services, including recovery of salary expenses of the employees that were seconded to IBM India. The dispute essentially relates to whether the said receipts are chargeable to tax as 'fee for technical services' [FTS] under Section 9 (1)(vii) of the Act or Business profits under India - Australia Double Taxation Avoidance Agreement [the DTAA].
5. It is the Assessee's case that the reimbursement of salary expenses and payment towards IT support services do not come under the FTS. Admittedly, the contentions advanced by the Assessee are not insubstantial.
6. The question whether such receipts would fall within the scope of FTS, has been the subject matter of various decisions. Largely, the weight of judicial precedents is that such proceeds -4- NC: 2025:KHC:29877-DB ITA No. 10 of 2025 HC-KAR would not fall within the scope of FTS. The learned Tribunal has set out a tabular statement as referred to by the Assessee, which indicates the various decisions where such issues have been considered and the outcome of the said decisions. The said tabular statement is reproduced below.
"3.12 They drew our attention to the table capturing various Courts/ Tribunal decisions on said issue in a chronological order, which is as follows:
Sl Case law with Favourable Forum Date of No. Citation /unfavourable pronouncement
1. DET vs HCL Favourable Delhi HC 6 January 2004 Infosystems Limited [2005] 144 Taxman 492
- followed by Karnataka HC in Abbey case
2. Karl Storz Favourable Delhi HC 13 September Endoscopy India 2010 (P) Limited (ITA No 13 of 2008)(Delhi HC) (refer page 199-
201 of PB)
3. Abbey Business Favourable Bangalore 18 July 2012 Services India ITAT Pvt Ltd (23 Taxmann.com
346) - later on confirmed by Karnataka High Court
4. Marks & Spencer Favourable Mumbai 4 September Reliance India ITAT 2013 Private Limited -5- NC: 2025:KHC:29877-DB ITA No. 10 of 2025 HC-KAR [2013] 38 taxmann.com 190 (Mumbai - Trib) (refer page 202- 213 of PB)
5. Centrica India Unfavourable Delhi HC 25 April 2014 Offshore (P) Ltd [2014] 44 taxmann.com 300 (Delhi)
6. Marks & Spencer Favourable Bombay HC 3 May 2017 Reliance India Private Limited [2017] ITA No 893 of 2014 (Bom HC) (refer page 214-216 of PB)
7. Morgan Stanley Favourable Mumbai 6 July 2018 Asia (Singapore) ITAT Pte Ltd vs DDIT [2018] 95 taxmann.com 165 (Mumbai ITAT);
8. M/s Faurecia Favourable Pune ITAT 8 July 2019 Automotive Holding vs DCIT (ITA No 784/PUN/2015) (Pune ITAT)
9. DIT vs Abbey Favourable Karnataka 1 December 2020 Business HC Services India Pvt Ltd [2020] [22 taxmann.com 174 (Karnataka)
10. Toyota Boshoku Favourable Bangalore 13 April 2022 vs DCIT [2022] ITAT -6- NC: 2025:KHC:29877-DB ITA No. 10 of 2025 HC-KAR 138 taxmann.com 166 (Bangalore -
Trib)
11. Goldman Sachs Favourable Bangalore 29 April 2022 vs DCIT [2022] ITAT 138 taxmann.com 162
12. Northern Under service Supreme 19 May 2022 Operating system tax law, not in Court Pvt Ltd the context of CIVIL APPEAL income-tax NO. 2289- 2293 OF 2021
13. Flipkart Internet Favourable Karnataka 24 June 2022 (P.) Ltd (2022) HC 139 taxmann.com 595
14. Delhi HC in Favourable Delhi HC 11 October 2022 Boeing India Pvt Ltd [2023] 146 taxmann.com 131(Delhi) ( refer page 193- 198 of PB)
15. Google LLC vs Favourable Bangalore 20 February 2023 JCIT(OSDYDCIT ITAT (I) [(IT)Appeal Nos 167/Bang/2021 & 688/Bang/2022] 16 Ernst & Young Favourable Delhi ITAT 20 June 2023 US LLP [2023] 153 laxmann.com 95 (Delhi-Trib) (refer page 183 -
192 of PB -7- NC: 2025:KHC:29877-DB ITA No. 10 of 2025 HC-KAR
17. Central Circle vs Favourable Chennai 9 October 2023 M/s Caterpillar Distinguishing ITAT India Pvt. Ltd [ITA Northern No. Operating 1031/Chny/2022] System (refer page 217- (Supra) 222 of PB)
7. Whilst various courts and tribunals had accepted the contentions as are advanced by the Assessee, the Delhi High Court in the case of M/s. Centrica India Offshore Private Limited v. CIT : [2014] 44 taxmann.com 300, had taken a view that in the given facts, secondment of the employees would result in absorption of knowledge by the entity to whom such employees had been seconded.
8. Given the possible view, the Assessee had, to avoid further litigation, opted for the Vivad Se Vishwas Scheme and had settled the issue regarding the levy of tax.
9. The present appeal relates to the imposition of penalty by the Assessing Officer. The Tribunal and the learned ITAT had examined the nature of the disputes and had further noted that the decision of this Court in Flipkart Internet (P). Limited v. DCIT International Taxation : [2022] 139 taxmann.com 595, had -8- NC: 2025:KHC:29877-DB ITA No. 10 of 2025 HC-KAR favoured the Assessee. Further, in proceedings relating to withholding of tax at source in case of IBM India, the stand that the payments were not chargeable to tax had been accepted.
10. In the aforesaid circumstances, the learned ITAT had held that given the nature of the disputes, clearly, two views are possible. Thus, the penalty under Section 270-A of the Act could not be levied, as the question involved was a vexed one. The Assessee had laboured under the legitimate bona fide belief that the payments received were not taxable under the Act. We find no infirmity in the said order and no substantial question of law exists for consideration by this court.
11. The appeal is, accordingly, dismissed.
Sd/-
(VIBHU BAKHRU) CHIEF JUSTICE Sd/-
(C M JOSHI) JUDGE AHB List No.: 1 Sl No.: 6