ITAT Delhi Partly Allows Cross-Appeals in Iyogi Case, Clarifies TDS Rules on Cross-Border Marketing Services

January 06, 2026 : The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has partly allowed cross-appeals filed by the Revenue and the assessee in a detailed ruling on tax deduction at source obligations for cross-border payments made towards marketing and support services under the India–US Double Taxation Avoidance Agreement (DTAA). The Tribunal held that pure marketing support services rendered outside India do not, by themselves, constitute “Fees for Included Services” (FIS). At the same time, it cautioned that inflated or inadequately explained cost components cannot be accepted mechanically and may attract disallowance under Section 40(a)(i) of the Income-tax Act, 1961 if not properly substantiated.

The ruling was delivered by a Bench comprising Judicial Member Sudhir Pareek and Accountant Member S. Rifaur Rahman in cross-appeals relating to Assessment Years 2012–13 and 2013–14, arising from payments made by Iyogi Technical Services Private Limited to its US-based Associated Enterprise (AE) for marketing and support services.

For AY 2013–14, the assessee had declared a loss of over ₹63 crore and claimed deduction of nearly ₹198 crore paid to its AE without deducting tax at source. The assessee argued that these payments represented business income of the AE earned outside India, that the AE had no permanent establishment in India, and that the services did not “make available” any technical knowledge, skill, or process as required under Article 12 of the India–US DTAA.

The Assessing Officer disagreed and treated the payments as FIS under Article 12 of the DTAA and as fees for technical services under Section 9(1)(vii) of the Act. On this basis, the entire amount was disallowed under Section 40(a)(i) for failure to deduct tax under Section 195. Additional disallowances were also made, including a provision for customer refunds and delayed deposit of employees’ PF and ESI contributions.

On appeal, the Commissioner of Income Tax (Appeals) deleted the disallowance under Section 40(a)(i), holding that the services were rendered outside India and did not satisfy the “make available” test. Relief was also granted on the provision for refunds. The Revenue carried the matter to the Tribunal.

After examining the master services agreement, invoices, and detailed cost break-ups annexed to those invoices, the ITAT agreed in principle that the AE had no permanent establishment in India and that pure marketing support services performed abroad would ordinarily not be taxable in India. However, the Bench expressed serious concern over the nature and scale of certain cost components included in the billing.

The Tribunal noted that a significant portion of the amounts claimed related to process outsourcing costs, on-ground technical support, and payment gateway charges, together accounting for a disproportionately high share of total administrative expenses. The assessee failed to satisfactorily explain the basis of allocation or the precise nature of these services. The Bench observed that merely describing payments as “marketing support” is not enough, and that some elements, particularly process outsourcing costs, could potentially fall within the scope of FIS if they involve technical or specialised services.

In the absence of proper documentation, the Tribunal held that blanket acceptance of the assessee’s claim was not justified. It therefore set aside this issue and directed the Assessing Officer to allow clearly identifiable marketing expenses. The remaining administrative and support costs were directed to be restricted to 20 percent, unless the assessee is able to substantiate them with credible evidence after being given an opportunity of hearing.

On the issue of provision for customer refunds, the Tribunal recognised that refund obligations are inherent in subscription-based technical support businesses. However, it ruled that provisions cannot be allowed year after year without verification. The assessee must establish a consistent correlation between provisions created and actual refunds paid. The matter was remanded to the Assessing Officer to verify historical data, with directions to reverse any excess provision and bring it to tax.

The Tribunal also admitted and allowed an additional ground raised by the Revenue regarding delayed deposit of employees’ PF and ESI contributions. Relying on the Supreme Court’s decision in Checkmate Services Pvt. Ltd., the ITAT restored the disallowance under Section 36(1)(va).

As a result, both the Revenue’s appeal and the assessee’s appeal were partly allowed, with key issues remanded for fresh examination. At the same time, the Tribunal reaffirmed the legal position that mere marketing support services rendered outside India, without making available technical knowledge or skill, do not amount to Fees for Included Services under the India–US DTAA.

Cause Title: Addl. CIT vs Iyogi Technical Services Private Limited
Case No.: ITA No. 2064/Del/2018
Coram: Sudhir Pareek (Judicial Member) and S. Rifaur Rahman (Accountant Member)

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