The Hon’ble High Court of Delhi (‘Delhi HC’), recently in International Management Group (UK) v. Commissioner of Income-tax,^[1] has held that receipts from off-shore managerial / advisory services by the International Management Group (‘IMG UK’) to the Board of Control for Cricket in India (‘BCCI’) for organising IPL, both in India and abroad, is not taxable in India, either as business income or as fees for technical services (‘FTS’) under Article 7 or Article 13(4)(c) of the India-UK Double Taxation Avoidance Agreement (‘UK DTAA’), respectively.

In this case, IMG UK provided on-shore as well as off-shore services to BCCI. IMG UK admitted to the existence of a service permanent establishment (‘PE’) under Article 5(2)(k) of the UK DTAA, and by applying the profit-split method, attributed a portion of service fee to on-shore activities to the PE, thus offering the same to tax in India. To the contrary, the balance work was attributed to services provided off-shore and income on such account was not offered to tax on the ground that same was not attributable to the PE.

Revenue Department, however, sought to tax the income from off-shore services as FTS in India under Article 13(2)(ii) of the UK DTAA or alternatively under Section 9(1)(vii)(b) of the Income-tax Act, 1961 (‘IT Act’). Refuting such allegations, IMG UK argued that the income flowing from a single contract could not be taxed as FTS, given that income attributable to PE had already been taxed as business income. Thus, when on-shore services are taxed as business income, off-shore services cannot be taxed differently as FTS. It was further argued that the provision of services by IMG UK did not satisfy the make-available condition under Article 13 of the UK DTAA, since neither did IMG UK enable BCCI to perform the services on its own nor did it transfer any technical knowledge.

With respect to the FTS argument, the Delhi HC ruled in favor of IMG UK and held that the services rendered did not satisfy the make-available test and thus could not be construed as FTS under Article 13(4) of the UK DTAA.  With respect to the IPL tournaments held abroad, the Delhi HC appreciated that services were utilised by BCCI in connection with business outside India, and thus are not taxable in terms of Section 9(1)(vii) of the IT Act.

In addition to these conclusions, the Delhi HC made important observations on the argument of bifurcation of income into business income and FTS. It acknowledged that contracts are multi-faceted in nature with various streams of income that can be pigeonholed into different categories of income under the DTAA. Thus, it can be construed to mean that the same income can have different tax implications if there is a reasonable basis to do so and just because part income has been offered to tax under a particular head, it does not preclude the Revenue Department from taxing the remainder income, albeit under a different head of income under the UK DTAA.

[1] International Management Group (UK) v. Commissioner of Income-tax, 2024: DHC: 4893-DB.