FLYWIRE PAYMENTS CORPORATION, BOSTON, MASSACHUSETTS V. ACIT, CIR. -1(1), KOLKATA

ITA 498/KOL/2021

AI Insights

The case revolves around the classification of payments received by Flywire Payments Corporation, a US-based tax resident entity, from Muthoot Forex Ltd. The payments were for the foreign exchange margin on transactions involving the transfer of student fees from India to foreign colleges/universities. The Assessing Officer classified these payments as 'Royalty', leading to tax implications in India. However, the Tribunal found that the appellant merely acted as a payment gateway and did not provide any technology or proprietary services to Muthoot, thus the payments should not be classified as 'Royalty'.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 775748 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2016-2017
• Appeal Filed On: 17-11-2021
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVEEN KISHORE
• Assessee Lawyers: PARUL JAIN; SHIV SINGHAL
• Keywords: TDS

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, KOLKATA BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI RAKESH MISHRA, ACCOUNTANT MEMBER ITA No.498/KOL/2021 (Ǔनधा[रण वष[ /Assessment Year :2016-2017) Flywire Payments Corporation, 10th Floor, 141, Tremont Street, Boston, Massachusetts, United States. Vs CIT(A), Kolkata-22 PAN No. :AADCF 0396 A (अपीलाथȸ /Appellant) .. (Ĥ×यथȸ / Respondent) Ǔनधा[ǐरती कȧ ओर से /Assessee by : Ms. Parul Jain, Shiv Singhal and Dhariya Jain, Advocates राजèव कȧ ओर से /Revenue by : Shri Praveen Kishore, CIT-DR सुनवाई कȧ तारȣख / Date of Hearing : 11/09/2025 घोषणा कȧ तारȣख/Date of Pronouncement : 11/09/2025 आदेश / O R D E R Per George Mathan, JM: This is an appeal filed by the assessee against the order passed by the ld.CIT(A), Kolkata-22, passed in Appeal No.CIT(A), Kolkata- 22/10139/2018-19, dated 22.09.2021, for the assessment year 2016- 2017. 2. Ms. Parul Jain, ld. AR appeared on behalf of the assessee and Shri Praveen Kishore, ld.CIT-DR appeared on behalf of the revenue. 3. It was submitted by the ld. AR that the assessee Flywire Payment Corporation is a US based tax resident entity. It was the submission that the assessee is the payment gateway for many foreign colleges/universities. It was the submission that the students from India when seek admission in such foreign colleges/universities, are intimated the fees for their courses by such foreign colleges/universities. As such foreign colleges/universities do not receive the fees directly, such foreign Printed from counselvise.com ITANo.498/Kol/2021 2 colleges/universities entered into an agreement with the assessee for receipt of the fees from the students and he payment thereto to the foreign colleges/universities. It was the submission that as the assessee is a foreign tax entity and as it does not have any branch in India, the assessee had entered into an agreement with M/s Muthoot Foreign Exchange Company Pvt. Ltd. at the such rate in respect of currency relating to the foreign colleges/universities. The students based on Indian currency after applying exchange rates M/s Muthoot Foreign Exchange Co. Pvt. Ltd., which is subsequently changed to M/s Muthoot Forex Limited transfers such amount to the assessee and during the transfer of funds from the Muthoot to the assessee, there is always positive exchange fluctuation, therefore, the transfer of funds from Muthoot Forex Ltd. to the assessee, consists of two transactions, namely, one for the entire fees which is billed by foreign colleges/universities on the students and the second portion being the exchange fluctuation less the commission charged by Muthoot Forex Ltd. on the assessee. It was the submission of the ld.AR that the agreement between M/s Muthoot Forex Ltd (hereinafter referred to as “Muthoot”) and the assessee was being foreign exchange margin @ 1% of the INR value using rooters INR being equal to at sources as per the agreement dated 1st March, 2013. It was, thus, the submission that M/s Muthoot receives a commission @1% on the exchange value of the entire transaction. Out of the two payments received by the assessee from Muthoot, the entire foreign exchange relating to the student fees as billed by the foreign colleges/universities is transferred by the assessee to such foreign colleges/universities without Printed from counselvise.com ITANo.498/Kol/2021 3 charging any commission. The second part which is exchange fluctuation @1% commission is the income of the assessee. It was the submission that the AO held that the payment made by Muthoot to the assessee was in the nature of “Royalty”, insofar as Muthoot has used the technological support for use of the software and for sharing part of the right of carrying on the business of e-Commerce through web bases customer interface. It was the submission that the AO has in page 11 of his order taken the stand that the assessee is having exclusive right for the International payment solutions to its clients, being the foreign educational institutions, and has shared it with Muthoot for remittance from India and because right to use the web-portal catering to international tuition fee payments was obtained by Muthoot on the condition that on remittances from India, certain percentage of remittance will be paid to Flywire Payment Corporation, the payment made in this regard may be safely classified as “Royalty”. It was the submission that this is not a case the assessee has not received any royalty payments from Muthoot. Ld.AR drew our attention to bank account of the assessee wherein it clearly shows that the payments having been received from Muthoot through all its accounts with City Bank. It was the submission that the assessee does not know which bank Muthoot using for transfer of the funds to the assessee’s bank account. Ld. AR drew attention to the agreement between the foreign colleges/universities and the assessee as also the agreement the between the assessee and Muthoot. Therefore, it was the submission that there is no technology transfer nor is there any services provided to Muthoot to the assessee nor the work around the services if any are Printed from counselvise.com ITANo.498/Kol/2021 4 provided by Muthoot to the students. It was the submission that Muthoot only asks as the collection agent of the assessee. It was the submission that the assessee provides the students details to Muthoot and Muthoot only does foreign exchange conversion of the students and transfer to the assessee. It was the submission that the order of the ld.AO and that of ld.CIT(A) is liable to be reversed. 4. In reply, ld.CIT-DR drew our attention to the pages 17 to 22 of the order of the ld.CIT(A). It was the submission that the detailed nature of transaction has been brought out by the ld. CIT(A) in page 17 of his order, wherein the ld. CIT(A) has categorically found that Muthoot is using specializes the services with the assessee. It was the submission that at page 19 the ld. CIT(A) has categorically recorded various transactions and the action i.e. done by the Indian entity being Muthoot which includes the payment of technical fees owed by it to the assessee after TDS. Ld.CIT-DR drew our attention to the last paragraph and the order of the ld.CIT(A) at page 22. It was the submission that Muthoot itself did not have any necessary knowhow or technological wherewithal to consummate its business plans, it hired the services of the appellant who was well-versed in and in proprietary possession and the knowledge base requirement to help Muthoot in its endeavors. It was the submission that these payments made by Muthoot to the assessee was royalty payments on which TDS was liable to be made. It was the submission that as Muthoot having also deducted the TDS, royalty having been earned in India, therefore, the same is liable to be taxed in India. Printed from counselvise.com ITANo.498/Kol/2021 5 5. We have considered the rival submissions. The facts in the present case clearly shows that the assessee is having a proprietary agreement with certain foreign colleges/universities for collection and remittance of the fees in respect of such foreign colleges/universities. As such foreign colleges/universities do not want to be involved in the collection and the processing of foreign exchange. The assessee is a US based entity and is a tax resident of the US. The assessee admittedly has an agreement with Muthoot Exchange Co. Pvt. Ltd. whose name has now been changed as Muthoot Forex for the processing and receipt of the fees of such foreign colleges/universities from Indian students. The agreement between the assessee and Muthoot Forex, the sample at pages 30-32 of its paper book reads as follows :- Printed from counselvise.com ITANo.498/Kol/2021 6 Printed from counselvise.com ITANo.498/Kol/2021 7 Printed from counselvise.com ITANo.498/Kol/2021 8 6. A perusal of such agreement shows that no technology is being provided to M/s Muthoot nor is there any reference to any software that is to be used. In fact, the agreement is more specific in regard to the compliance of the tax requirements in India as also the security deposit in the form of 10.000.00 USD. The facts clearly shows that Muthoot is entitled to only 1% of the INR value as has been mentioned in the pricing clause of the said agreement. Admittedly the assessee does make a profit on account of the foreign exchange fluctuation in respect of transfer of fee amount from the Indian students to the foreign colleges/universities on Printed from counselvise.com ITANo.498/Kol/2021 9 whose bill the assessee is functioning. In fact, on such fluctuation Muthoot is receiving a share in the form of commission. The said payment by Muthoot to the assessee is not any service charge quoted by Muthoot for and on behalf of students. No charges are also being collected from the students for arranging the transaction by the assessee. The assessee is only a payment gateway. The assessee only derives income in the form of foreign exchange fluctuation. Thus, as clearly there is no technology transfer or use of any proprietary technology by Muthoot which is owed by the assessee, we are of the view that the payment made by Muthoot to the assessee does not fall within the term “Royalty” for the purpose of Income Tax Act, 1961. This being so, the addition as made by the Assessing Officer and as confirmed by the ld CIT(A) stands deleted. 7. Ld AR has filed the return of income filed with the Tax Authorities in US, the schedule of gross income received by the assessee is in Annexure-B and the income relatable to Muthoot revenue in Annexure-C. The same reads as follows: Printed from counselvise.com ITANo.498/Kol/2021 10 Printed from counselvise.com ITANo.498/Kol/2021 11 Printed from counselvise.com ITANo.498/Kol/2021 12 Printed from counselvise.com ITANo.498/Kol/2021 13 Printed from counselvise.com ITANo.498/Kol/2021 14 Printed from counselvise.com ITANo.498/Kol/2021 15 Printed from counselvise.com ITANo.498/Kol/2021 16 Printed from counselvise.com ITANo.498/Kol/2021 17 Printed from counselvise.com ITANo.498/Kol/2021 18 Printed from counselvise.com ITANo.498/Kol/2021 19 Printed from counselvise.com ITANo.498/Kol/2021 20 Printed from counselvise.com ITANo.498/Kol/2021 21 Printed from counselvise.com ITANo.498/Kol/2021 22 Printed from counselvise.com ITANo.498/Kol/2021 23 Printed from counselvise.com ITANo.498/Kol/2021 24 Printed from counselvise.com ITANo.498/Kol/2021 25 Printed from counselvise.com ITANo.498/Kol/2021 26 Printed from counselvise.com ITANo.498/Kol/2021 27 Printed from counselvise.com ITANo.498/Kol/2021 28 Printed from counselvise.com ITANo.498/Kol/2021 29 8. As it is noticed that in the return filed by the assessee in India, the assessee itself has shown the receipts as Royalty and the TDS has also been deducted by Muthoot under the head “Royalty”, the return in respect of the assessee filed with US Authorities was called for as there was a doubt that the assessee may have claimed the revenue from Muthoot as an expenditure or as not taxable in the USA return. The Assessing Officer is to examine whether the amount shown by the assessee in Annexure-C to the US return representing the revenue from Muthoot has been included in the gross receipts of 16.168 million. If the assessee has included the said amount in the gross receipts as disclosed in the US return, or should the assessee be not able to show that the gross receipts have been offered including the revenue from Muthoot or that the assessee has claimed the same as part of the deduction in the column 26 of the US return, the Assessing Officer shall intimate the US Tax Authorities in regard to the said issue for appropriate action at their end. With these directions, the appeal of the assessee is disposed off. 7. In the result, appeal of the assessee is disposed of as per the terms indicated above. Order dictated and pronounced in the open court on 11 /09/2025. Sd/- (RAKESH MISHRA) Sd/- (GEORGE MATHAN) लेखा सदèय/ ACCOUNTANT MEMBER ÛयाǓयक सदèय / JUDICIAL MEMBER कोलकाता Kolkata; Ǒदनांक Dated 11 /09/2025 Prakash Kumar Mishra, Sr.P.S. Printed from counselvise.com ITANo.498/Kol/2021 30 आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy of the Order forwarded to : आदेशानुसार/ BY ORDER, (Assistant Registrar) Income Tax Appellate Tribunal, Kolkata 1. अपीलाथȸ / The Appellant- 2. Ĥ×यथȸ / The Respondent- 3. आयकर आयुƅ(अपील) / The CIT(A), 4. आयकर आयुÈत / CIT 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड[ फाईल / Guard file. स×याͪपत ĤǓत //True Copy// Printed from counselvise.com "