From The Judiciary

Whether payments received by a UK-based law firm for legal services rendered in India can be characterized as Fees for Technical Services? Further, if the firm is tax-transparent, should treaty benefits be examined at the partnership level or at the partner level?

Herbert Smith Freehills LLP [TS-920-ITAT-2026(DEL)]

Facts

The assessee, a UK-based partnership law firm, rendered legal services in relation to Indian engagements. The firm had partners resident in the UK, Australia, France, Belgium, China, Japan, and Germany. Since a UK partnership is tax transparent, each partner is taxed in their country of residence. The assesse earned revenue from the provision of legal services in relation to Indian engagements. In its return of income, the assessee claimed that the income attributable to the UK resident partners (82.121%) was exempt from tax in India under the India–UK DTAA. In respect of the profit attributable to the non-UK resident partners, the assessee claimed that such income was not taxable in India under the applicable DTAAs of those partners’ countries of residence . However, the assessee offered to tax the 3.627% profit share attributable to the German partners in accordance with the India-Germany DTAA.

During the assessment proceedings, the Assessing Officer (AO) accepted the claim relating to the UK resident partners but held that the 14.253% share of profits attributable to partners resident in Australia, France, Belgium, China and Japan was taxable in India as Fees for Technical Services (FTS) under Section 9(1)(vii) of the Income-tax Act, 1961 (the Act) and made an addition accordingly. The CIT(A) upheld AO’s order and confirmed the addition. Aggrieved by the CIT(A)’s order, the assessee preferred an appeal before the Delhi ITAT.

Assessee’s Arguments

• A UK partnership is tax transparent; therefore, taxability should be determined in the hands of each partner based on the DTAA applicable to the partner's country of residence.
• Legal services constitute professional services and not FTS under Section 9(1)(vii).
• The India-UK DTAA and other relevant DTAAs specifically distinguish professional services from FTS.
• The partnership did not have a Permanent Establishment (PE) or fixed base in India, nor did its personnel exceed the prescribed stay threshold under the Independent Personal Services (IPS) Articles of the relevant DTAAs.
• The legal services did not satisfy the "make available" test, as applicable, under the relevant DTAAs.

Revenue’s Arguments

• The benefit of the India–UK DTAA is available only to income taxable in the UK in the hands of UK-resident partners.
• Since the partners from Australia, France, Belgium, China, and Japan were not UK residents, they could not claim benefits under the India–UK DTAA.
• The assessee itself had offered the German partners' share to tax; therefore, the share attributable to other non-UK partners should also be taxable.
• The receipts attributable to non-UK partners were taxable in India as FTS under Section 9(1) (vii).

Held

The Delhi ITAT (ITAT) ruled in favor of the assessee and held that consideration received by the assessee for rendering legal services could not be treated as FTS under Section 9(1)(vii) of the Act. While arriving at this conclusion, the ITAT relied on the coordinate bench rulings in the case of Chander Mohan Lall vs. ACIT reported in 134 taxmann.com 292 (Delhi-Trib.) and ACIT vs. Subramanium Hariharan in ITA No. 600/Del/2020, wherein it was held that payments for legal/professional services rendered by non-resident attorneys are distinct from FTS. Accordingly, the AO’s addition was deleted. The ITAT further held that since the assessee is a tax-transparent UK partnership, the taxability of the profit attribution to each non-UK resident partner must be determined separately under the DTAA applicable to the partner's country of residence. Accordingly, the matter was restored to the AO examination of the treaty eligibility of each non-UK resident partner. The grounds of the judgment are as follows:

• A UK partnership is a tax-transparent entity;therefore, taxability must be determined at the partner level based on each partner's country of residence.
• The AO himself accepted that taxability depends on the partner's state of residence, granting DTAA benefits to UK partners and accepting taxation of German partners under the India-Germany DTAA.
• The Act recognizes professional services and technical services as two distinct categories; legal services fall within professional services.
• Section 194J of the Act separately defines professional services and fees for technical services, indicating legislative intent to treat them differently.
• Article 13 of the India–UK DTAA specifically excludes payments for professional services rendered by lawyers and other specified professionals from the scope of FTS.
• Similar exclusions for professional services exist in India's DTAs with countries such as Australia, Belgium, and Japan.
• Since the receipts represented consideration for legal/professional services, they could not be taxed as FTS under Section 9(1)(vii) of the Act.
• The AO must determine the taxability of each non-UK partner independently by applying the DTAA between India and the partner's country of residence.

Our Comments

The decision reinforces two significant international tax principles: (i) professional legal services are distinct from FTS under the Act and relevant DTAAs; and (ii) in the case of a fiscally transparent partnership, treaty eligibility and taxability must be examined at the level of each partner based on the applicable DTAA.

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Whether interest earned by an Indian branch of a foreign bank from its head office/overseas branches and foreign banks is taxable in India?

Barclays Bank PLC [TS-937-ITAT-2026(Mum)]

Facts

The assessee, Barclays Bank PLC, a non-resident banking company incorporated in the UK, operated in India through branch offices in Mumbai and New Delhi, constituting its Permanent Establishment (PE) in India. For Assessment Year 1997–98, the assessee earned interest income from (i) Nostro accounts maintained with its head office and overseas branches, (ii) placements of funds with such head office and overseas branches, and (iii) placements with other overseas banks. The assessee did not offer such interest income to tax in India on the ground that it was not taxable.

However, the Assessing Officer (AO) held that such interest income was taxable under Section 9(1)(v)(c) of the Income-tax Act, 1961 (the Act) and made an addition. The assessee also claimed deductions towards broken period interest and other expenses, some of which were disallowed by the tax authorities.

Revenue’s Arguments

• The Revenue contended that the interest income earned by the Indian branches on funds deployed in Nostro accounts and overseas placements constituted income accruing or arising in India and was taxable under Section 9(1)(v)(c) of the Act.
• It was argued that the funds used for such placements originated in India, and that the interest income, therefore, had sufficient nexus with India.
• With respect to interest earned from other overseas banks, the Revenue maintained that such income was also taxable either under the specific provisions of Section 9(1)(v)(c) or the general provisions of Section 9(1)(i).
• The Revenue further supported the disallowance of certain deductions and also argued that interest under Section 234B was rightly charged.

Assessee’s Arguments

• The assessee submitted that the Indian branch, head office, and overseas branches constituted a single entity under domestic tax law, and therefore, any transactions between them were in the nature of dealings with itself.
• It was argued that no real income could arise from such internal transactions, invoking the principle of mutuality.
• Accordingly, interest earned from Nostro accounts and placements with head office and overseas branches was not taxable in India.
• In respect of interest from other overseas banks, the assessee contended that the conditions of Section 9(1)(v)(c) were not satisfied since the Revenue could not establish that the borrowed funds were used by such banks in any business carried out in India.
• The assessee also relied on judicial precedents to support the deduction of broken period interest and other expenses.

Held

• The Mumbai ITAT (ITAT) held that interest earned by the Indian branches from Nostro accounts and from placements with the head office and overseas branches was not taxable in India.
• ITAT observed that the Indian branch and its head office are not distinct entities under domestic law and, therefore, transactions between them are governed by the principle of mutuality—meaning that one cannot earn income from oneself.
• The ITAT further clarified that although a PE may be treated as a separate entity under tax treaties, such a distinction is to profit attribution and does not override the mutuality principle under domestic law.
• With regard to interest earned from other overseas banks, the ITAT held that such income did not fall within the ambit of Section 9(1)(v)(c) as the Revenue failed to demonstrate that the funds borrowed by such banks were used for business purposes in India.
• The ITAT also rejected the application of general provisions under Section 9(1)(i) where a specific provision governing interest income exists.
• Additionally, the ITAT confirmed the deletion of the disallowance of deduction claimed for broken period interest, relying on the Supreme Court’s ruling in Bank of Rajasthan, wherein such interest was held to be allowable as revenue expenditure

Our Comments

The ruling reaffirms that inter-branch transactions of a foreign bank are governed by mutuality and not taxable, and clarifies that interest can be taxed u/s 9(1)(v)(c) only where a clear nexus with business in India is established.

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Global minimum tax: Release of a common understanding of implementing jurisdictions and further administrative guidance to support compliance

Excerpts from oecd.org – dated 18 May, 2026

To support the implementation of the Global Minimum Tax (GMT) and mitigate the impact of any potential delays in the availability of fully operational filing portals or exchange relationships, jurisdictions implementing the GMT from 2024 (“2024 Implementing Jurisdictions”) have agreed on a common understanding to preserve the administrative and compliance benefits of the central filing mechanism for the GloBE Information Return (GIR).

Pursuant to this common understanding, 2024 Implementing Jurisdictions have agreed to:

• Publish a list of jurisdictions expected to have a fully operational GIR filing portal in place by 31 May 2026, and
• Use mechanisms available under their respective domestic laws to waive penalties or suspend enforcement of local GIR filing obligations before the relevant GIR exchange deadline where the GIR has been centrally filed in any one of the jurisdictions identified in the published list.

Separately, the OECD/G20 Inclusive Framework on BEPS is releasing today further administrative guidance on the application of the existing Transitional UTPR Safe Harbor and has updated the Central Record for Purposes of the Global Minimum Tax.

Common understanding of jurisdictions implementing the Global Minimum Tax in 2024

Multinational Enterprise (MNE) Groups in scope of the GMT are relieved from locally filing a GIR in each jurisdiction where they operate, where such GIR is centrally filed in the jurisdiction of the Ultimate Parent Entity or a Designated Filing Entity, appropriate notifications have been filed, and the central filing jurisdiction shares the relevant GIR information with the local jurisdictions under the agreed Exchange of Information framework.

The central record of Qualified Income Inclusion Rules (QIIR) and Qualified Domestic Minimum Top-up Taxes (QDMTT) shows that 37 jurisdictions have implemented a QIIR and/or a QDMTT that applies to in-scope MNE Groups as of their 2024 reporting fiscal year. As the due date for the first GIR filings approaches, almost all jurisdictions are expected to have a fully operational portal in place for MNE Groups to file the GIR on the time. Some may only be able to formally activate exchange relationships after the relevant filing deadline (and still in time for the exchanges to take place before the end of the year).

To address the compliance and co-ordination challenges that could arise in respect of the delays in the activation of exchange relationships, the common understanding reflects an agreement among jurisdictions implementing the GMT from 2024 to apply mechanisms, to the extent available under their respective domestic laws, in order to avoid adverse consequences for taxpayers, and waive penalties or not enforce their local GIR filing obligation when the GIR has been centrally filed in one of the jurisdictions that are operationally ready to support central filing. Thus, in-scope MNE Groups would not be negatively affected merely because an exchange relationship is not fully activated by the filing deadline.

Updates to the Central Record for Purposes of the Global Minimum Tax

The Central Record for Purposes of the Global Minimum Tax sets out those jurisdictions whose minimum tax legislation has completed the process for the transitional qualification mechanism and will be considered as qualified for purposes of the rule order. The central record has been updated to reflect that the Bahamas, Kenya, Kuwait, and Oman have completed the transitional qualification mechanism for their DMTTs. As a result, the central record now shows that 44 jurisdictions have completed the process for their IIR, and 50 jurisdictions have completed the process for their DMTT and QDMTT Safe Harbor.

Administrative guidance on the application of the Transitional UTPR Safe Harbor

The OECD/G20 Inclusive Framework on BEPS has released new administrative guidance that addresses an unintended gap that arose in instances where an MNE Group with a 53-week fiscal year has its UPE located in a jurisdiction that is eligible both for the Transitional UTPR Safe Harbor, and for the Side-by-Side (SbS) Safe Harbor or the UPE Safe Harbor for fiscal years starting on or after 1 January 2026. The guidance clarifies that such an MNE Group will remain eligible for the Transitional UTPR Safe Harbor until the SbS Safe Harbor or UPE Safe Harbor applies.

For more information on the Global Minimum Tax and to access the Common Understanding, Central Record, and Administrative Guidance, visit: https://www.oecd.org/en/topics/global-minimum-tax.html.

Enquiries should be directed to the Communications Office in the OECD Centre for Tax Policy and Administration.

Whether the respondent violated Section 171 by not passing on the benefit of GST rate reduction (from 18% to 12% / 28% to 18%) on cinema tickets to customers and instead retaining ticket prices by increasing the base value of tickets?

DG Anti Profiteering, Director General of Anti-Profiteering, DGAP Versus Vishwanath Cinema Hall 70MM [(2026) 43 Centax 304 (Tri. - GST - Delhi)]

Facts

• A complaint was filed by the Principal Commissioner (“the Applicant”) alleging that M/s Viswanath Cinema Hall 70MM (“the Respondent”) has indulged in profiteering in contravention of Section 171 of Central Goods and Services Tax Act, 2017.
• It was alleged that the Applicant failed to commensurately reduce the prices of the cinema tickets, thereby denying the benefit of a tax reduction from 18% to 12% in line with the GST rate cut introduced through Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018. The respondent instead increased the base price to maintain the same tax-inclusive selling price.
• The matter was first investigated by the Director General of Anti-Profiteering (DGAP), then examined by the erstwhile Competition Commission of India (CCI) in its anti-profiteering jurisdiction, and ultimately adjudicated by the GST Appellate Tribunal (GSTAT) Principal Bench (New Delhi).
• DGAP found that ticket prices (inclusive of GST) remained unchanged while base prices were inflated across multiple ticket slabs; therefore, the benefit of the GST rate was not passed on to customers. The amount of profiteering was ultimately determined to be INR 0.899 million after re-investigation and reconciliation.
• The Respondent contended that the ticket prices were regulated by the State Licensing Authority, were GST-inclusive, and varied depending on the films or shows. He further added that there is no stock-keeping in the theatre; as every show is a new show, there is no question of profiteering in the cinema business.

Ruling

• The Tribunal observed that the Respondent took inconsistent positions on whether ticket prices were regulated or independently determined and failed to produce any supporting orders or approvals for the relevant period.
• Tribunal rebutted the Respondent's contentions by drawing support from the Tribunal’s own earlier decision in DGAP vs. Mallikarjuna Cinema Hall, 70MM Hyderabad (Case No. NAPA/3/PB/2025), to hold that State cinema laws do not override Section 171 (i.e., antiprofiteering obligation).
• The Tribunal accepted the DGAP findings, as the Respondent provided no specific rebuttal to the computation methodology.
• The violation of anti-profiteering obligations under Section 171 was confirmed, and the amount was directed to be deposited with 18% interest, with 50% each to the Central and State Consumer Welfare Funds, since the recipients were not identifiable.
• No penalty was imposed, as the relevant period preceded 1 January 2020, when the penalty provisions came into force.

Our Comments

Section 171 imposes a strict obligation on suppliers to pass on GST rate reductions to customers, and any increase in the base price to neutralize those benefits amounts to profiteering. Any adjustment of base prices to neutralize tax benefits, while keeping final prices unchanged, amounts to profiteering.

The burden lies on the supplier to justify price increases through documentary evidence, and failure to challenge the findings provided by the adjudicating authority may be treated as acceptance of the findings in terms of a decision given by the Hon'ble Apex Court in Thangam v. Navamani Ammal [(2024) 4 SCC 247]

Whether GST already paid under the wrong tax head (IGST instead of CGST/KGST) must be adjusted against the correct tax liability before initiating recovery of tax, interest, and penalty?

GR Tech Services Pvt Ltd vs Assistant Commissioner of Commercial Taxes (Audit) & Ors, (Karnataka High Court) [TS-460-HC(KAR)-2026-GST]

Facts

• The petitioner supplied services to L&T, Chennai, during FY 2019-20 and initially treated the transactions as inter-state supplies, paying IGST. Subsequently it was realized that invoices should have been raised on L&T’s Bengaluru unit, making the supplies intra-state supplies liable to CGST and KGST instead of IGST.
• During the GST audit, the department observed that tax had been paid under the wrong GST head and issued proceedings under Section 73. The department viewed that the taxpayer must first pay CGST and KGST under the correct heads and then separately seek a refund of the IGST already paid.
• An adjudication order was passed; the Petitioner’s appeal was dismissed on grounds and recovery proceedings were initiated. Further, the petitioner's application for a refund of the IGST was rejected.
• To support the petitioner’s contentions, it relied upon Section 77(2) of the CGST Act read with Rule 92 of the CGST Rules and argued that the authorities ought to have adjusted the IGST already paid against the CGST/KGST liability or granted a refund of the wrong-headed payment for the refund application filed by the petitioner. Further, there was no revenue loss as tax had already been paid under the IGST head.

Ruling

• Authorities failed to read Section 77(2) in conjunction with Rule 92, which provides for the adjustment of refundable amounts against outstanding demands. Tax already paid under the wrong head cannot be ignored while determining the taxpayer’s liability.
• The adjustment of IGST against CGST/KGST liability must be examined first, and only the balance shortfall can be recovered.
• Accordingly, the recovery proceedings were set aside, and the matter remitted for reconsideration.
• Authorities are directed to consider an adjustment before recovering tax, interest, or penalty.

Our Comments

• The judgment strengthens the position of taxpayers against demands arising from incorrect head GST payments and supports seeking an adjustment before any coercive recovery action is initiated.
• The Court reiterated that Section 77 and 92 are intended to provide relief in genuine cases and prevent hardship arising from procedural mistakes.
• Procedural mistakes regarding tax heads should not result in double taxation where tax has already reached the Government treasury. The Authorities should adopt a substantive and revenue-neutral approach.
• The ruling is likely to carry greater persuasive value before higher judicial forums, where principles such as revenue neutrality, adjustment, and substantive justice are accorded with greater weight.

Assessing Officer (AO) cannot issue multiple draft assessment orders u/s 144C

Marvell India Pvt. Ltd. [IT(TP)A No. 115/Bang/2023 (Bangalore ITAT)]

The taxpayer, engaged in the provision of software development services to its AEs, was subject to a transfer pricing adjustment proposed by the TPO for AY 2017-18. Based on the TPO's order, the AO issued a draft assessment order containing only the transfer pricing adjustment. After the taxpayer filed objections before the DRP, the AO issued a second draft assessment order proposing additional corporate tax adjustments. A final assessment order was subsequently passed, incorporating both the transfer pricing and corporate tax adjustments. Following Court’s intervention the Karnataka High , the matter was remanded for consideration under the DRP process. However, while passing the fresh assessment order, the AO again included corporate tax additions despite the DRP having issued directions only on the transfer pricing issues. Aggrieved, the taxpayer appealed before the ITAT.

Taxpayer’s contention

The taxpayer contended that Section 144C permits only one draft assessment order and that all proposed adjustments prejudicial to the taxpayer must be included therein. Accordingly, the AO could not introduce fresh corporate tax additions through a subsequent draft assessment order. It was further argued that, in the absence of any DRP directions on the corporate tax issues, such additions could not be sustained in the final assessment order.

Revenue’s contention

The Revenue contended that the second draft assessment order provided the taxpayer with an opportunity to contest the proposed corporate tax additions and therefore met the procedural requirements of Section 144C. Accordingly, the additions incorporated in the final assessment order were valid.

Held

The ITAT held that Section 144C envisages the issuance of a single draft assessment order for a particular assessment year and that all proposed variations to the taxpayer's income must be incorporated therein. Consequently, the second draft assessment order issued by the AO was held to be invalid. The Tribunal further held that corporate tax additions that were neither included in the original draft assessment order nor covered by the DRP's directions could not be incorporated in the final assessment order. Accordingly, the corporate tax additions were deleted.

Our Comments

The ruling emphasizes the need for strict adherence to the procedure prescribed under Section 144C. It clarifies that the AO is required to set out all proposed adjustments in the draft assessment order itself and cannot subsequently expand the scope of the assessment through a fresh draft order. The decision also reinforces that the final assessment order should be confined to matters forming part of the draft assessment proceedings and addressed through the DRP mechanism. Taxpayers involved in DRP proceedings may find this ruling helpful, as it addresses additional adjustments introduced after the draft assessment stage.

No further profit attribution where transactions with an Indian Dependent agent permanent establishment (DAPE) are at arm's length

FedEx Express International B.V. v. ACIT [TS-431-ITAT-2026(Mum)-TP]

The taxpayer, a tax resident of the Netherlands, was engaged in the business of providing international transportation, delivery, and related logistics services. The taxpayer carried out its India-related operations through arrangements with its Indian group entities, including FedEx Express Transportation and Supply Chain Services India Pvt. Ltd. and TNT India. During the assessment proceedings, the AO held that the Indian entities constituted Dependent Agent Permanent Establishments (DAPEs) of the taxpayer in India and attributed additional profits to such DAPEs in respect of the taxpayer's Indian operations. The DRP upheld the adjustment. Aggrieved, the taxpayer appealed before the ITAT.

Taxpayer’s contention

The taxpayer did not dispute the existence of the DAPEs. However, it contended that no further profits could be attributed to the DAPEs since the transactions between the taxpayer and the Indian group entities had already been examined under the transfer pricing provisions and accepted to be at arm's length. It was argued that once the Indian entities had been appropriately remunerated for the functions performed, assets employed, and risks assumed, no further profit attribution was warranted. The taxpayer also relied on judicial precedents, including the Supreme Court's decisions in Morgan Stanley and E-Funds, as well as earlier decisions of its own.

Revenue’s contention

The Revenue contended that since the Indian entities constituted DAPEs of the taxpayer, a portion of the profits arising from the taxpayer's Indian operations was taxable in India. Accordingly, additional profits were attributable to the DAPEs and liable to tax in India.

Held

The ITAT observed that the taxpayer had accepted the existence of the DAPEs and that the issue for consideration was restricted to the attribution of profits. The Tribunal noted that the transactions between the taxpayer and the Indian group entities had already been accepted as at arm's length pursuant to transfer pricing proceedings. Relying on the decisions of the Supreme Court in Morgan Stanley & Co. and E-Funds IT Solution Inc., as well as its own decisions in the taxpayer's earlier years, the Tribunal held that where the Indian entities have been remunerated at arm's length, no further profits are required to be attributed to the DAPEs. Accordingly, the addition made on account of profit attribution was deleted.

Our Comments

The ruling reiterates the principle that where an Indian DAPE has been adequately compensated on an arm's-length basis, further profit attribution may not be required. The decision underscores the interaction between transfer pricing and PE attribution principles and provides support to taxpayers in cases where the remuneration of Indian group entities has already been benchmarked and accepted under the transfer pricing regulations.