ITAT Mumbai Rules Cost Recoveries by Goldman Sachs Are Not Taxable as Royalty or FTS Under India-US DTAA - 2026-06-06

ITAT Clears Goldman Sachs in Landmark Ruling on Cost Allocations and Cross-Border Taxation

In a significant reprieve for multinational corporations operating across Indian jurisdictions, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has delivered a decisive judgment in the case of Goldman Sachs And Co. LLC vs. ACIT . The tribunal held that cost recoveries related to market data charges and seconded employee expenses do not qualify as "Royalty" or "Fees for Technical Services" (FTS) under the India-USA Double Taxation Avoidance Agreement (DTAA).

The Dispute: A Question of Categorization

Goldman Sachs And Co. LLC (the assessee), a tax resident of the United States and a Foreign Portfolio Investor registered with SEBI, faced a challenge regarding the taxability of payments received from its Indian associated enterprises. The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) sought to classify Rs. 53.09 crore in market data recharge receipts as "Royalty" and an additional Rs. 41.76 crore linked to seconded employees as FTS/FIS (Fees for Included Services).

The core of the dispute was simple yet legally complex: Did the redistribution of common costs for databases and personnel signify the transfer of intellectual property or the provision of technical services, or were they merely cost-reimbursements?

Tribunal’s Legal Analysis: Upholding Precedent

The bench, comprising Vice President Saktijit Dey and Accountant Member Prabhash Shankar, found that the issue was squarely covered by their previous consolidated order for the assessee in earlier assessment years (2013–14 to 2017–18).

The tribunal emphasized that these receipts were not taxable for the following reasons: * Cost Reimbursement: The payments for market data were essentially recoveries of costs paid to third-party vendors (such as Bloomberg or Reuters). The assessee did not grant any right to use copyrighted material, nor did it transfer any industrial or commercial experience. * Lack of Technical Expertise: Regarding the seconded employees, the tribunal noted that similar arrangements between group entities had been adjudicated in other cases. It relied on consistent jurisprudence—including the Karnataka High Court's dismissal of revenue appeals on similar matters—affirming that such recoveries do not meet the legal threshold for FTS/FIS under the existing tax treaty.

Key Observations

The tribunal was firm in its rejection of the Revenue's argument that pending litigation in the High Court justified a departure from established tribunal rulings. In its order, the Bench stated:

> "The short issue arising for consideration is whether the receipt from market data charges are taxable in India as royalty income. We find, while deciding identical issue in assessee’s own case... the coordinate bench... has held that these amounts were cost allocations done to Indian parties... [and] do not answer the description of 'royalties'."

Furthermore, regarding the employee seconded expenses:

> "The amount in dispute cannot be treated as FIS/FTS under the India-US DTAA and the Assessing Officer is directed to delete the addition."

Implications for Future Assessments

By affirming that cost-sharing arrangements, when properly structured as reimbursements, fall outside the scope of "Royalty" or "FTS" under the DTAA, the ITAT has provided much-needed clarity for global financial groups. The decision reinforces the principle that mere reimbursements of expenses—where there is no underlying profit element or specific transfer of technical expertise—are not subject to withholding tax at source or domestic tax triggers.

For the Revenue, the judgment serves as a reminder that the pendency of a tax appeal before a High Court does not grant the Assessing Officer the authority to ignore binding precedent set by the ITAT in the assessee's own prior years. This ruling stands as a major victory for tax certainty in cross-border operations.