DY COMMISSIONER OF INCOME TAX (INT. TAX)- 3(2)(1), MUMBAI, MUMBAI V. MERRILL LYNCH INTERNATIONAL , MUMBAI

ITA 9302/MUM/2025

AI Insights

The case involves Merrill Lynch International, a non-resident company, which received underwriting fees from Indian companies for services related to the issuance of American Depository Receipts (ADRs) and Global Depository Receipts (GDRs). The primary legal issue was whether these fees should be taxed as 'Fees for Technical Services' under the Indian Income Tax Act and the India-UK Double Taxation Avoidance Agreement (DTAA). The Assessing Officer (AO) initially treated these fees as taxable under FTS, but the CIT(A) reversed this decision, leading to the revenue's appeal to the Tribunal. The Tribunal's decision was influenced by precedents and the specific terms of the DTAA, which require that technical services must 'make available' technical knowledge to be considered as FTS.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 846150 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2026
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Mumbai
• Assessment Year: 2017-2018
• Appeal Filed On: 29-12-2025
• Other Referred Cases: GVK Industries Ltd. vs. 371 ITR 453, Raymond Ltd. vs DCIT (2003) 80 TTJ 120, Mahindra & Mahindra Ltd. vs DCIT (2009) 30 SOT 374
• Laws Referred To: Income Tax Act, India-UK DTAA
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KRISHNA KUMAR
• Assessee Lawyers: NITESH JOSHI; AR
• Keywords: Rule of consistency; Source of fund; Double taxation relief; Permanent establishment
• Section: 143(3); 142(1); 201(1)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SMT. BEENA PILLAI (JUDICIAL MEMBER) & SHRI BIJAYANANDA PRUSETH (ACCOUNTANT MEMBER) I.T.A. No. 9302/Mum/2025 Assessment Year: 2017-18 DCIT(IT)-3(2)(1), Mumbai Vs. Merrill Lynch International G M Kapadia and Co. 1007, Raheja Chambers 213 Nariman Point Mumbai - 400021 [PAN: AABCM1026G] (Appellant) (Respondent) Assessee by Shri Nitesh Joshi, A/R Revenue by Shri Krishna Kumar, Sr. DR Date of Hearing 16.03.2026 Date of Pronouncement 26.03.2026 ORDER Per Smt. Beena Pillai, JM: The present appeal filed by the revenue arises out of the order dated 17/10/2025 passed by the Ld. CIT(A)-57 for A.Y. 2017–18 on the following grounds of appeal: “i. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred holding that the underwriting fees received by the assessee would not amount to fees for technical services within the meaning of the India-UK DIAA?\" ii. \"On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in not appreciating that fact that the A0 has rightly held that the assessee is a non resident and hence as per provisions of Sec 90(2) has an option to be governed by the either the Income Tax Act or the DTAA whichever is more beneficial to the assessee. The assessee has chosen to be governed by the provisions of Indian Income-tax Act has to be consistent with respect of all sources of Income and hence the receipts of account of rendering of services will also have to be governed by the provisions of Indian Income-tax Act alone?\" iii. \"On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in not appreciating that fact that the receipts on account of investment banking are taxable as Fees for included Services within the meaning of Article 13 of the India-UK DTAA?\" Printed from counselvise.com 2 I.T.A. No. 9302/Mum/2025 iv. \"The Appellant craves leave of the CIT(A) to add, amend, alter or delete any of the aforesaid grounds herein if required?\" 2. Brief facts of the case are as under: The assessee is a company incorporated under the laws of the United Kingdom and is registered as a Foreign Institutional Investor (FII) with the Securities and Exchange Board of India (SEBI). The assessee has obtained necessary permissions to carry out investment activities in securities of Indian companies. It is submitted that the assessee also acts as a lead manager and underwriter to the issue of ADRs/GDRs issued by Indian companies outside India. For such activities, the assessee receives commission/fees from the Indian companies outside India. 2.1. During the year under consideration, the assessee had undertaken investment banking transactions overseas in respect of which it received commission of USD 12,77,729, i.e., ₹8,24,13,521/- from Indian companies pursuant to agreements entered into with them in respect of their issue of securities abroad. 2.2. The assessee accordingly filed its return of income on 15/11/2017 declaring total income of ₹55,63,19,366/-. The case was selected for scrutiny and notice u/s 143(2) was issued along with notice u/s 142(1) of the Act. In response to the statutory notices, the authorised representative of the assessee appeared before the Ld. AO and filed the information as called for. 2.3. The Ld.AO observed that the assessee received commission/fees from following companies outside India during the year:- Printed from counselvise.com 3 I.T.A. No. 9302/Mum/2025 Client Name Fee Type Amount in US$ ICICI Bank Limited Underwriting Fee 7,500 ICICI Bank Limited Underwriting Fee 41,264 Axis Bank Limited Underwriting Fee 1,80,880 Export-Import Bank of India Underwriting Fee 6,99,832 Indiabulls Housing Finance Limited Underwriting Fee 1,14,540 State Bank of India Underwriting Fee 82,143 State Bank of India Underwriting Fee 1,51,571 TOTAL 12,77,729 2.4. The Ld. AO issued notice dated 25/09/2018 calling upon the assessee to explain as to why the service fees received from Indian companies should not be taxed as Fee for Technical Services (FTS) in accordance with the assessments made in earlier years. In response, the assessee submitted that the services were rendered outside India and were also utilised by Indian companies outside India for their ADR/GDR issues. It was submitted that the assessee, being a non- resident, carried out its activities outside India and therefore the income cannot be treated as deemed to accrue or arise in India. It was further submitted that, no income accrued or arose in India in respect of the transaction and therefore the same does not fall within the scope of total income u/s 5 of the Act and is not liable to tax in India. 2.4.1.Without prejudice, the assessee also submitted that the said income is not taxable under the DTAA between India and the United Kingdom as FTS since the condition of “make available” of technical knowledge, experience, skill, know-how, or process is not satisfied. Printed from counselvise.com 4 I.T.A. No. 9302/Mum/2025 2.5. The Ld.AO, however, placing reliance on the decision of the Hon’ble Supreme Court in the case of GVK Industries Ltd. (2015) 371 ITR 453, held that financial advisory services involving expertise in structuring project finance, assisting with loan negotiations, and documentation constitute consultancy services and are taxable as FTS u/s 9(1)(vii) of the Act. Accordingly, the Ld. AO held as under: “6.1.11 The contention of the assessee that the said income is exempt under the provisions of DTAA is also not acceptable for the following reasons: 6.1.12 The concept of \"make available\" is not defined within the DAA and hence a general interpretation would mean that the person providing the services merely enable the acquirer to use the knowledge and the provider does not participate in the act of doing the job himself. 6.1.13 With regard to the same, the relevant paragraph in agreement dated 6.9.2016,signed by the assessee with Indiabulls Housing Finance limited, is as follows: \"The Company acknowledges pat it is not relying on the advice of the Joint Lead Managers for tax, legal or accounting matters, it is seeking and will rely on the advice of its own professionals and advisors for such matters and it will make an independent analysis and decision regarding the Offering based upon such advice. Further, the Company will remain solely responsible for the commercial assumptions on which any financial advice provided by the Joint Lead Managers is based and for the decision to proceed with the Offering. Thus, the consultancy services received by Indian companies from the assessee are used by the Indian companies independently for their decision making with their own professionals and advisors. Therefore the income received is taxable as Fees for included Services within the meaning of Article 13 of the India-UK DTAA also. 7. The assessee has further taken stand that its case from A.Y.2005- 2006to AY 2014-15, this fee had been taxed as Fees for technical services, and Income Tax Appellate Tribunal, Mumbai (ITAT) upheld the order of the Commissioner of Income Tax (Appeals), Mumbai and held that the said sum is not liable to tax in India in accordance with Article 13 of the. In this regard, it is stated that the argument that the stand of the assessee has upheld by the ITAT, Mumbai, is not acceptable since the Department has not accepted the said decision and appeal is preferred before the Bombay High Court.” Printed from counselvise.com 5 I.T.A. No. 9302/Mum/2025 Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A). 3. The Ld. CIT(A), after considering the submissions, observed and held as under: “8.12 On comparison of the language and content of the assessment order passed for the year under consideration i.e. AY 2017-18 and that passed for AY 2013-14, which is reproduced by the Hon’ble ITAT in para 3.1 of its consolidated order dated 11/10/2019, passed for AY 2013-14 and 2014-15, it is observed that the orders are verbatim except for following discussions incorporated in the assessment order for AY 2017-18: (a) the relevant extract of the agreement between the appellant and India Bulls Housing Finance Limited which is reproduced in para 6.1.6 of the assessment order and (b) relevant extract of the judgement of the Supreme Court in the case of the GVK industries Ltd. relied upon by the AO. 8.13 Therefore, it becomes imperative to comment on the relevance of the Supreme Court decision rendered in the case of GVK Industries Limited. The central issue in the case was whether a \"success fee\" paid to a Swiss-based company for financial advisory services constituted FTS. The Supreme Court broadened the scope of the FTS beyond purely technical or managerial services and delved deeper in the meaning of consultancy services, which are not defined anywhere in the Income Tax Act. The Supreme Court's decision in GVK Industries Ltd. [2015] 371 ITR 453 is highly relevant to the taxation of fees paid to non-residents (NRIs), including underwriting fees, but its applicability depends on the specific nature of the services provided. The case provides crucial guidance on when services rendered by a non-resident are deemed \"fees for technical services\" (FTS), and therefore taxable in India under Section 9(1)(vii) of the Income Tax Act, 1961. 8.14 While the GVK Industries case establishes the taxability under domestic law, the specific DTAA between India and the NRI’s country of residence must also be considered. Under section 90(2) of the Act, an NRI can choose to be governed by either the Indian Income Tax Act or the relevant DTAA, whichever is more beneficial. The definition of \"fees for technical services\" in most DTAAs requires a ‘make available’ clause, meaning the service must make technical knowledge, skill, etc., available to the Indian entity. The scope of FTS under a DTAA is often narrower than under the Income Tax Act. Therefore, if the underwriting services do not ‘make available’ any technical knowledge, they may escape taxation under the DTAA, even if they are taxable under the provisions of the Act. It may be noted that the India–Swiss DTAA, which was before the Hon’ble Supreme Court, does not contain a make–available clause and hence cannot be said to be applicable to the appellant’s case when tested against the make available clause. 8.15 Thus, respectfully following the rule of consistency and following the decision of jurisdictional ITAT in favour of the appellant and other judicial reliance placed by the appellant, it is held that the underwriting fees received by the appellant do not make any technical knowledge, experience, skill, etc. available to its Indian clients so as to treat it as FTS under the India-UK DTAA. Printed from counselvise.com 6 I.T.A. No. 9302/Mum/2025 The AO is accordingly directed to treat the underwriting fees received from Indian Companies of US $12,77,729/- (Rs. 8,24,13,521/-) as not liable to tax in India & delete the addition of the equivalent amount of Rs. 8,24,13,521/-. Ground no. 3 and 4 are accordingly treated as Allowed. Ground No. 5: The Assessing Officer erred in considering total income at Rs. 68,74,46,173/- while determining tax liability as against Rs. 63,87,32,890/- determined while passing Assessment Order under section 143(3) read with section 144C(3) of the Act.” Aggrieved by the order of the Ld. CIT(A), the revenue is in appeal before the Tribunal. 4. The Ld. AR submitted that the assessee received commission for acting as lead manager and underwriter for ADR/GDR issues of Indian companies outside India. It is submitted that ADR (American Depository Receipt) is a negotiable instrument representing shares of a foreign company traded on US exchanges. And GDR (Global Depository Receipt) similarly a negotiable instrument traded on international exchanges. The Ld. AR submitted that when an Indian company decides to issue ADRs/GDRs, it engages foreign investment banks as lead managers. He submitted that these lead managers prepare offering documents, conduct road shows, market the issue, and facilitate investor participation. All such activities are carried out outside India. The Ld. AR submitted that these services do not fall within FTS u/s 9(1)(vii) of the Act and no income accrues or arises in India. ADRs/GDRs are convertible into equity shares at prevailing market rates. The funds raised lose their foreign character once received by the issuing company. The Ld.AR relied on the decision of the coordinate bench in Raymond Ltd. vs DCIT (2003) 80 TTJ 120, wherein underwriting fees were held not to be FTS. Printed from counselvise.com 7 I.T.A. No. 9302/Mum/2025 At the outset, the Ld. AR submitted that the issue is covered in favour of the assessee by decisions of the Tribunal in earlier years. The details of the orders passed by this Tribunal for various assessment years are as under:- Sr. No. ITA No(s). A.Y. Appellant vs Respondent Bench Date of Order / Pronouncement 1 ITA No. 2759/Mum/2009 2005- 06 Dy. Director of Income Tax (Intl. Taxation) vs M/s Merrill Lynch International Mumbai “L” Bench 30/08/2011 2 ITA No. 7453/Mum/2010 2007- 08 Merrill Lynch International vs Dy. Director of Income Tax (Intl. Taxation) Mumbai “L” Bench 13/03/2014 3 ITA No. 940/Mum/2012 2008- 09 Assistant Director of Income Tax vs M/s Merrill Lynch International Mumbai “L” Bench 08/08/2013 4 ITA No. 4988/Mum/2012 2009- 10 Assistant Director of Income Tax vs M/s Merrill Lynch International Mumbai “L” Bench 12/02/2014 5 ITA No. 3916/Mum/2015 2010- 11 DCIT (IT) vs Merrill Lynch International Mumbai “L” Bench 13/04/2017 6 ITA No. 1832/Mum/2017 2012- 13 DCIT (IT) vs M/s Merrill Lynch International Mumbai “I” Bench 13/11/2018 7 ITA Nos. 6240 & 6241/Mum/2018 2013- 14 & 2014- 15 ACIT (IT) vs M/s Merrill Lynch International Mumbai “I” Bench 11/10/2019 4.1. The Ld.DR submitted that the decision in Raymond Ltd.(supra) has not been accepted by the revenue and an appeal is pending before the Hon’ble Bombay High Court. Printed from counselvise.com 8 I.T.A. No. 9302/Mum/2025 We have considered the submissions and perused the material on record. 5. The assessee is a non-resident and received underwriting commission. It is entitled to be governed by the more beneficial provisions of the Act or the DTAA u/s 90(2). The Ld. CIT(A) relied on earlier Tribunal decisions and held that the assessee does not “make available” technical knowledge, and hence the income is not taxable as FTS under the India–UK DTAA. Though in GVK Industries (supra), consultancy services were held to be FTS under the Act, the present issue must be examined under the DTAA. The Ld.AR relied on the Special Bench decision in Mahindra & Mahindra Ltd. vs DCIT (2009) 30 SOT 374:- “19.14 We have discussed above that where DTAA has been entered into by India with another country of which the non-resident is tax resident, then it has to be examined as to whether income, which is otherwise chargeable under the Act in the hands of the non-resident, can be brought to tax as per the terms of DTAA also. If the income is chargeable to tax under the regular provisions of the Act then the second question is to examine the provisions of DTAA and if the same is still taxable under DTAA then the non-resident is liable to tax in respect of such income. If however the DTAA immunes such income from tax net, then that income cannot be taxed notwithstanding the fact that the same is taxable under the general provisions of the Act. Having come to the conclusion that the management commission and selling commission are in the nature of income by way of fees for technical services under section 9(1)(vii) now it remains to be seen whether they can be taxed under the DTAA also. ………… 19.17 The case of the assessee before the Assessing Officer was that it is covered by (c) above, which fact has not been denied by the Officer. Hence to bring any payment within the parameters of fees for technical services it is of paramount importance that the technical knowledge, experience or skill etc., is made available to it. Referring to the order passed by the Tribunal in Raymonds Ltd.’s case (supra) the learned A.R. stated that the Mumbai Bench also considered the DTAA with U.K. and held that the technical services rendered by the lead managers in connection with the GDR issue Printed from counselvise.com 9 I.T.A. No. 9302/Mum/2025 must be made available so as to be covered under Article 13. He submitted that the Tribunal held that since the services were not made available hence the management and selling commission could not be taxed in the hands of the payee. He argued that the facts and circumstances considered in Raymonds Ltd. are identical to those under consideration in as much as in that case also GDR issue was brought out and lead managers were appointed who were paid for similar services, in the similar manner. He also referred to certain cases in which the order in the case of Raymonds Ltd. (supra) has been followed by different benches of the Tribunal taking the similar view. 19.18 We have considered the rival submissions in the light of material placed before us and precedents relied upon. We find that clauses (1) and (2) of Article 13 in the DTAA with U.K. clearly provide that the fees for technical services is taxable in India. Now we have to consider the meaning of the term “fees for technical services” as employed in this Article. As noted above clause (4) of Article 13 defines the meaning of the term “fees for technical services”. The entire quarrel is about the applicability or otherwise of sub-clause (c) of clause 4 of Article 13 as per which fees for making available of the technical knowledge, experience, skill etc., is included in the definition of fees for technical services. In other words the technical knowledge, experience or skill etc., must be made available to the assessee so as to be covered within its scope and mere providing of such services without making them available to the assessee will not serve the purpose and hence will be outside the ambit of Article. The assessee has ab initio contended before the authorities below that even if the services rendered by the lead managers were held to be technical services but those were not “made available” to the assessee. “Rendering of any technical or consultancy services is followed by “which make available the technical knowledge, experience, skill, know-how”. In this context it becomes imperative to understand the meaning of the expression “make available” as used in this Article. Make available means to provide something to one, which is capable of use by the other. Such use may be for once only or on a continuous basis. In our context to make available the technical services means that such technical information or advice is transmitted by the non- resident to the assessee, which remains at its disposal for taking the benefit therefrom by use. Even the use of such technical services by the recipient for once only will satisfy the test of making available the technical services to the assessee. If the non-resident uses all the technical services at its own end, albeit the benefit of that directly and solely flows to the payer of the services, that cannot be characterized as the making available of the technical services to the recipient. 19.19 The meaning of the expression “make available” has been aptly considered in the case of Intertek Testing Services India (P.) Ltd., In re [2008] 307 ITR 418/175 Taxman 375 (AAR - New Delhi) as under:— Printed from counselvise.com 10 I.T.A. No. 9302/Mum/2025 “Now, we shall proceed to analyse further clause (c) of article 13(4). Rendering of service and making use of service go together. They are two sides of the same coin. But clause (c) of article 13(4) does not stop at that. It carves out a qualification thereby employing the words ‘which make available technical experience, skill, know-how or processes’. Rendering of technical or consultancy service is followed by a relative pronoun ‘which’ and it has the effect of qualifying the services. That means, the technical or consultancy service rendered should be of such a nature that ‘make available’ to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting the technical knowledge, etc., so that the payer of service could derive an enduring benefit and utilize the knowledge or know-how in future on his own without the aid of the service provider. By making available the technical skills or know- how, the recipient of the service will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider. In other words, to fit into the terminology ‘make available’, the technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end. The services offered may be the product of intense technological effort and a lot of technical knowledge and experience of the service provider would have gone into it. But that is not enough to fall within the description of services which make available the technical knowledge, etc. The technical knowledge or skills of the provider should be imparted and absorbed by the receiver so that the receiver can deploy similar technology or techniques in future without depending on the provider. Taking some examples, training given to a commercial aircraft pilot or training the staff in particular skills such as software development would fall within the ambit of the said expression in clause (c). Supposing, a prescription and advice is given by the doctor after examining the patient and going through the clinical reports. The service rendered by the doctor cannot be said to have made available to the patient, the knowledge and expertise possessed by the doctor. On the other hand, if the same doctor teaches or trains students on the aspects of diagnosis or techniques of surgery, that will amount to making available the technical knowledge and experience of the doctor.” 19.20 Similar view has been taken in the case of Raymonds Ltd. (supra). It, therefore, follows that making available the technical services to the recipient is sine qua non for treating consideration paid for it as fees for technical services under Article 13 of DTAA with U.K. Adverting to the facts of the instant case we find that the lead managers had rendered technical, managerial or consultancy services in the GDR issue, but such services were not made available to the assessee inasmuch as the assessee only derived the benefit from the technical services provided by the lead managers without getting any technical knowledge, experience or skill in its possession for use at its own. We, therefore, hold that Article 13 of DTAA with U.K. does not apply to the instant case and hence the ‘management and selling commission’ cannot be taxed in India. The other two items Printed from counselvise.com 11 I.T.A. No. 9302/Mum/2025 namely underwriting commission and expenses reimbursed have already been held by us to be not in the nature of fees for technical services. If the underwriting commission does not fall within Article 13 of DTAA with U.K., then that will fall within the scope of Article 7, being the ‘Business profit’ which is a general provision for the income earned. It is a settled legal position and also clearly borne out from the language of Article 7 that the profits of an enterprise which carries on business in the other State shall be taxed only to the extent which is attributable to its Permanent establishment. The assessee argued before the Assessing Officer that the non-resident had no permanent establishment in India, which has not been contradicted by the Assessing Officer. Nowhere from the assessment order it comes out that the Assessing Officer had treated any place as permanent establishment of the non-resident. In the absence of any permanent establishment of the non-resident in India, in our considered opinion, the ‘Business profits’ under Article 7 cannot be charged to tax and hence underwriting commission would also be outside the ambit of tax as per DTAA. Thus the entire amount paid by the assessee in relation to the FCCB issue, viz., management, selling and underwriting commission along with the reimbursement of expenses cannot be taxed in the hands of the non- resident and resultantly there can be no obligation on the assessee to deduct tax at source under section 195. Resultantly the assessee cannot be treated as “assessee in default” under section 201(1) of the Act.” 5.1. In the present facts of the case assessee has received underwriting commission for assuring that if the issue is not fully subscribed then the underwriters shall take up the unsubscribed portion of the shares and in return for such undertaking the commission will boot be paid at a specific percentage of the amount of the total issue. Thus the underwriting commission is only for incurring the liability of subscribing to the unsubscribed portion left over by the general public. In our opinion the assurance so given for purchasing the unsubscribed shares does not require rendering of any services by the underwriter. Thus underwriting commission cannot fall within the definition of fee for technical services under section 9 (1) (vii) of the Act. Respectfully following the above view, we Printed from counselvise.com 12 I.T.A. No. 9302/Mum/2025 do not find any infirmity in the order of the Ld. CIT(A) and the same is upheld. Accordingly, the grounds raised by the revenue are dismissed. In the result, appeal filed by the revenue is dismissed. Order pronounced in the open court on 26/03/2026 Sd/- Sd/- (BIJAYANANDA PRUSETH) (BEENA PILLAI) Accountant Member Judicial Member Mumbai Dated: 26/03/2026 SC Sr. P.S. Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By order (Asstt. Registrar) ITAT, Mumbai Printed from counselvise.com "