E-Invoicing Service Fees Not Taxable as FTS Under India-UK DTAA if 'Make Available' Test Not Met: Delhi High Court - 2025-09-26

Delhi High Court: E-Invoicing Service Fees Not Taxable in India Without Transfer of Technology

New Delhi — In a significant ruling on international taxation, the Delhi High Court has held that payments received by a UK-based company for providing electronic invoicing services to an Indian entity are not taxable in India as 'Fees for Technical Services' (FTS) under the India-UK Double Taxation Avoidance Agreement (DTAA).

A division bench of Justice Vibhu Bakhru and Justice Tejas Karia set aside the orders of the Income Tax Appellate Tribunal (ITAT), ruling that the services provided by Tungsten Automation England Limited did not satisfy the crucial 'make available' clause under Article 13(4)(c) of the treaty. The court emphasized that for a service to be taxable as FTS, it must result in the recipient acquiring and being able to independently use the underlying technical knowledge or skill.

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Background of the Case

The case involved Tungsten Automation England Limited (the 'Assessee'), a UK-based company that provided a cloud-hosted e-invoicing platform. It had received payments from Genpact India Pvt. Ltd. (GIPL) for Assessment Years 2016-17 and 2017-18. The Income Tax Department (the 'Revenue') contended that these payments, amounting to ₹2.93 crores and ₹3.31 crores respectively, constituted FTS under the Income Tax Act, 1961, and the India-UK DTAA, and were thus taxable in India.

The Assessee argued that it merely granted a non-exclusive license to GIPL to use its platform for generating e-invoices for an overseas client (GSK). It maintained that this was its business income and, since it had no Permanent Establishment (PE) in India, the income was not taxable in the country. The Assessing Officer, Dispute Resolution Panel, and the ITAT all sided with the Revenue, classifying the income as FTS.

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Arguments of the Parties

For the Appellant (Tungsten Automation): - The services provided were the use of a sophisticated e-invoicing platform, not a transfer of the technology behind it. - GIPL was merely granted a license to use the 'OB10 Services' and did not acquire any right, title, or interest in the platform's source code or proprietary technology. - The service did not 'make available' any technical knowledge, experience, or skill to GIPL that would enable it to perform the same service independently in the future. - Any training provided to GIPL's employees was for using the platform, not for understanding or replicating its underlying technology.

For the Respondent (Income Tax Department): - The services were technical in nature and enabled GIPL to streamline complex invoicing processes. - The agreement included provisions for training GIPL's employees, which amounted to making technical skills and know-how available. - The payments were consideration for rendering technical services that satisfied the definition of FTS under both the Act and the DTAA.

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The Court's Analysis: The 'Make Available' Test

The High Court's decision hinged on the interpretation of Article 13(4)(c) of the India-UK DTAA, which defines FTS as services that:

“...make available technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical design.”

The bench noted that the definition of FTS in the DTAA is narrower than that in the Income Tax Act. For a service to fall under this clause, it must not only be technical but must also transfer the underlying technology or expertise to the service recipient.

Citing a series of precedents, including the Karnataka High Court's decision in De Beers India Minerals , the court reiterated the established test for the 'make available' clause.

"Technology will be considered “made available” when the person acquiring the service is enabled to apply the technology... The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider."

Applying this principle, the Court made the following key observations: - No Transfer of Technology: GIPL was granted a limited, non-exclusive license to use the platform. It did not acquire any rights to the source code or the technology that would allow it to operate a similar service independently. - Purpose of Training: The training provided to GIPL's staff was to enable them to use the e-platform effectively, not to transfer the core technology behind it. The Court distinguished this from training that imparts the know-how to build or maintain such a system. - Enduring Benefit vs. Service Utilisation: Merely using a sophisticated, technology-driven service does not mean that the technology itself has been 'made available'. The court stressed that the service recipient must be able to deploy the knowledge or skill on its own after the contract ends.

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Final Decision and Implications

The High Court concluded that the services rendered by Tungsten did not meet the 'make available' threshold.

"In the facts of the present case, the training imparted to GIPL’s employees for using the software or e-platform, does not transmit the technical knowhow or the process for rendering the services of generating electronic invoicing... The training to use the said platform does not transfer the knowledge or transfer the technology, which would enable GIPL to absorb the technology to generate e-invoices and render the subject services on its own."

Answering the substantial question of law in the negative, the Court held that the payments were not FTS under the India-UK DTAA and therefore not taxable in India. The appeals were allowed, and the assessment orders were set aside.

This judgment reinforces the strict interpretation of the 'make available' clause in tax treaties, providing clarity for foreign companies offering technology-based or SaaS (Software-as-a-Service) products in India. It confirms that unless there is a clear and demonstrable transfer of underlying technical knowledge and skills, the income will not be classified as FTS, protecting such business income from taxation in India in the absence of a Permanent Establishment.