The Income Tax Appellate Tribunal (ITAT) in Mumbai has ruled that professional and executive education courses provided by Cornell University to Indian participants do not constitute "Fees for Included Services" (FIS) under the India-USA Double Taxation Avoidance Agreement (DTAA) . By setting aside the tax demand on receipts totaling ₹17.23 crore, the tribunal has clarified that the treaty’s exemption for " teaching in or by educational institutions " remains applicable to professional programs, regardless of whether they are customized for corporate clients or result in university credits.

This decision serves as a significant precedent for foreign academic institutions operating digital educational services in India. The dispute arose for the Assessment Year 2022-23 after the Assessing Officer (AO) categorized these receipts as taxable technical services. The AO, later supported by the Dispute Resolution Panel (DRP), argued that because the courses were tailored to meet the professional requirements of corporate employees and imparted specialized skills, they functioned more as technical "training" than academic "teaching." The tax authorities further contended that the "make available" condition under Article 12(4) of the DTAA—whereby technical knowledge or skill is transferred to the recipient—was satisfied, thereby justifying the imposition of tax.

However, the ITAT bench comprising Judicial Member Smt. Beena Pillai and Accountant Member Shri Makarand Vasant Mahadeokar rejected this distinction, noting that the treaty language does not impose rigid academic boundaries. The tribunal emphasized that the character of the income is determined by the status of the entity and the underlying nature of the services rather than the professional status of the student or the degree-granting status of the specific program.

“The Treaty does not state that the teaching must be part of a degree programme, credit-bearing, undertaken only for students formally admitted to a university, conducted on a university campus or of any prescribed minimum duration. The expression used is simply ‘teaching in or by educational institutions’,” the tribunal observed in its order.

The bench relied heavily on the Technical Explanation accompanying the India-USA DTAA, particularly examples dealing with technical education provided to employees of industrial enterprises. The tribunal pointed out that when an educational institution provides specialized courses, the fact that the students are corporate employees acquiring job-related skills does not disqualify the arrangement from the educational exclusion. The ruling noted, “It would therefore not be appropriate to introduce into the Treaty conditions which the Contracting States have themselves not incorporated.”

Defining the Boundaries of Educational Services

A central point of contention in the proceedings was the definition of "teaching" versus "training." The revenue authorities had argued that teaching is confined to a traditional scholastic environment, while training is focused on practical application and skill development. The ITAT dismissed this premise, observing that professional and executive education is a legitimate function of modern universities. The court noted that Cornell University, a non-profit research institution established in 1865, clearly qualifies as an educational institution, a status that the Revenue had not contested.

The tribunal also addressed the DRP’s concern regarding the lack of comprehensive course agreements for all clients. It determined that since the Revenue had already accepted the broad educational nature of the activities, the absence of individual contracts for every participant did not fundamentally alter the character of the services or turn them into taxable consultancy assignments. The tribunal’s analysis underscored that the "make available" test is secondary to the explicit exclusion provided in Article 12(5)(c), which takes precedence over the general definition of FIS under Article 12(4).

The bench specifically highlighted that, “Once the payment falls within Article 12(5)(c), this determination is not decisive. Article 12(5) expressly begins with ‘Notwithstanding paragraph 4’. Thus, even assuming for the sake of argument that knowledge or skill becomes available to a participant as a consequence of completing a course, the specific exclusion for teaching in or by educational institutions continues to operate.”

Impact of Equalisation Levy and Prior Assessments

The Revenue had also argued that the assessee's decision to deposit a 2% Equalisation Levy—a measure typically associated with e-commerce services—contradicted its claim for treaty benefits. The ITAT, however, found no merit in this argument. It ruled that the taxability of a receipt under the DTAA must be determined by the specific language of the treaty and the nature of the activities performed. Payments made under a different fiscal regime, whether out of caution or otherwise, cannot create a tax liability under Article 12 if the income is otherwise covered by a specific treaty exclusion.

Furthermore, the tribunal took note of the historical context, acknowledging that the assessee had consistently maintained this position in previous assessment years, with the tax authorities previously accepting the non-taxability of such receipts. While the ITAT noted that the principle of res judicata does not strictly apply to income-tax proceedings, the consistency of the university's past filings provided supplemental support for its current stance in the absence of any change in the essential character of the services.

The ITAT concluded by deleting the addition of ₹17,23,12,909, effectively ruling that the funds were not subject to tax in India under the DTAA. With this substantive relief granted, several other legal grounds raised by the university—such as the contention that the assessment order was barred by limitation and claims regarding TDS credits and interest levies—were dismissed as academic or infructuous. This landmark order provides clarity for foreign educational entities, affirming that the provision of professional digital education into India remains protected from taxation under the specific educational exclusion of the India-USA tax treaty. The matter stands resolved with the direction to the Assessing Officer to delete the disputed additions.