Delhi HC on FTS: The India-UK DTAA Ruling in the IMG Case

International tax is not a simple field. Groups that work across borders have to fix their position under more than one set of rules. The Delhi High Court's ruling in International Management Group (UK) Ltd. (IMG) v. the Revenue Department adds some clarity on the India-UK Double Taxation Avoidance Agreement (DTAA). The point was whether the services IMG gave the Board of Control for Cricket in India (BCCI) for the IPL were Fees for Technical Services (FTS) under Article 13, or business profits under Article 7.

The Background

IMG is a UK company. BCCI hired it to help organise and run the IPL. The Revenue Department said the fees should be taxed in India as FTS under Article 13 of the India-UK DTAA. IMG argued that the fees were business profits, and that a Permanent Establishment (PE) in India under Article 7 was the right basis, so the tax should be worked out under Article 7.

Key Legal Questions

1. Classification of Services: Should IMG's services be treated as FTS under Article 13, or as business profits under Article 7?

2. Existence of a PE: Did IMG have a PE in India under Article 5 of the DTAA?

3. Make Available Clause: Did IMG's services transfer technical knowledge or skills to BCCI, which would make them FTS?

The Court's Decision

The Delhi HC did not agree with the Income Tax Appellate Tribunal (ITAT), which had held the services to be FTS. The HC's main points were:

• No “Make Available”: IMG's services did not meet the make available test in Article 13.

• Technical Knowledge Transfer: The services did not give BCCI the know-how to run these services on its own.

• Service PE: The income from the Service PE was taxed under Article 7, and the court accepted that a PE existed.

Implications of the Ruling

In practice, the ruling means three things:

• Clearer FTS Definition: A service is FTS under the DTAA only if it does transfer technical knowledge or skills.

• Reinforcing PE Criteria: Giving services in a country does not by itself create a PE. Other conditions must also be met.

• Proper Revenue Attribution: Income must sit under the right article of the DTAA. Misplacing it leads to tax that is not due.

For a group that supplies services into India, two things matter: the service agreement, and what the work really is. IMG succeeded because its services did not make technical knowledge or skills available to BCCI. A taxpayer that can show the same has a basis to resist an FTS classification.

Conclusion

The Delhi HC's ruling in IMG v. Revenue sets out how the India-UK DTAA applies to service income. It draws the line between FTS under Article 13 and business profits under Article 7, and it does so by testing whether the services made technical knowledge or skills available. For a group that takes a position on service income from India, that test is the one to apply first.