Hyderabad ITAT rules that payments to parent company for technical services and software procured from a third party is not reimbursement

This tax alert summarizes a recent ruling of the Hyderabad Income Tax Appellate Authority (Hyderabad ITAT) in case of AMD Research & Development Center India Pvt. Ltd.  (Taxpayer) on the issue of taxability of payments made by the Taxpayer to its parent company in Canada (ATI Canada) for software and engineering services rendered by an independent service provider (ISP) in India.



The ITAT observed that services were rendered by ISP pursuant to a contract with ATI Canada and that benefit of the services of ISP was not availed by the Taxpayer directly and exclusively. In fact, all proprietary rights in innovations and work products of ISP belonged to ATI Canada. Accordingly, the Taxpayer received services from ATI Canada which can be regarded as having rendered services through ISP in India. As a result, in the given arrangement, payments made by the Taxpayer to ATI Canada were not in the nature of pure reimbursement of expenses but were payments for services availed. Engineering services were in nature of “Fees for Included services” (FIS) which were made available by ATI Canada to the Taxpayer through the ISP and the same were taxable in India as per Income tax laws (ITL) as well as India-Canada tax treaty (Tax Treaty).