Prefatory Note
The case of Criteo Singapore Pte. Ltd. v. ACIT[i] before the Delhi ITAT concerns the taxation of receipts earned by a Singapore-based entity from its Indian group company under the India-Singapore Double Taxation Avoidance Agreement (DTAA). The ruling addresses three principal issues: the taxation of (i) receipts from data centre services, (ii) receipts from the provision of advertisement space, and (iii) receipts from business support services, under s.9(1)(vi) and s.9(1)(vii) of the Income-tax Act, 1961 ('IT Act'), read with a. 12 of the India-Singapore DTAA. The decision has significant implications for the characterization of income as ‘royalty’ or ‘fees for technical services’, as well as the applicability of the ‘make available’ clause under the DTAA.
Facts
The dispute in this case arose from the characterization of payments received by the assessee, a Singapore-based entity, from its Indian subsidiary, Criteo India Pvt. Ltd., for various cross-border services. Criteo Singapore, a tax resident of Singapore, provided services, including data centre services, advertisement space services, and business support services to Criteo India under an inter-company services agreement during the assessment year 2020-21.
The assessee maintained that these receipts were not taxable in India under the provisions of the India-Singapore DTAA, as it had no Permanent Establishment (PE) in India, and the payments did not qualify as royalty or fees for technical services under a. 12 of the DTAA.
During the assessment, the Assessing Officer ('AO') disputed the assessee’s tax position and recharacterized the receipts as taxable income under the Income-tax Act, read with the DTAA. Specifically, the AO concluded that payments for data centre services constituted ‘royalty’, as they involved the use or right to use the equipment.
Similarly, the AO held that payments for advertisement space also fell within the scope of ‘royalty’, alleging that Criteo Singapore had granted rights to use digital platforms and advertisement inventories to Criteo India. Regarding the business support services, which included finance, HR, legal, and IT support, the AO classified these payments as ‘fees for technical services’ under s.9(1)(vii) of the IT Act and a. 12(4) of the DTAA, asserting that the services had been ‘made available’ to Criteo India, thereby enabling it to independently apply the acquired knowledge.
The Dispute Resolution Panel ('DRP') upheld the AO’s findings, holding that the nature of the services clearly fell within the ambit of ‘royalty’ and ‘FTS’ under domestic tax law and the DTAA. Aggrieved by these findings, the assessee appealed to the Delhi ITAT, contesting both the characterization of the payments and the misapplication of the DTAA provisions.
The Decision of the ITAT
The Delhi ITAT ruled comprehensively in favour of the assessee, concluding that none of the payments qualified as ‘royalty’ or ‘fees for technical services’ under the India-Singapore DTAA and directing the deletion of the additions made by the AO.
On the issue of data centre services, the ITAT held that the payments could not be categorized as ‘royalty’ under a. 12(3) of the DTAA, as there was no use or right to use any equipment by Criteo India. The Tribunal emphasized that Criteo India only accessed stored data remotely without any control or possessory rights over the underlying infrastructure, such as servers or networking hardware. Relying on the Delhi High Court’s rulings in Asia Satellite Telecommunications Co. Ltd.[ii] and Shin Satellite Public Co. Ltd.[iii], the ITAT observed that for payments to be considered royalty, there must be a transfer of rights involving possession or control of equipment, which was absent in this case.
Concerning the advertisement space services, the ITAT rejected the AO’s classification of these payments as ‘royalty’, finding that Criteo Singapore merely acted as an intermediary, purchasing advertisement inventory from third-party platforms (such as Google and Facebook) and reselling it to Criteo India. The Tribunal clarified that no proprietary digital rights or licenses were transferred to Criteo India, and the payment was purely for a service facilitating advertisement placement. The Tribunal’s reasoning drew support from the Bangalore ITAT’s ruling in Google Ireland Ltd.[iv], which held that procuring digital ad space for resale is a service transaction and does not amount to granting rights over digital content or platforms.
Regarding the business support services, the ITAT held that these services did not constitute ‘fees for technical services’ under a. 12(4) of the DTAA, as the services did not satisfy the ‘make available’ condition. The Tribunal noted that the services provided by Criteo Singapore, including finance, HR, legal, and IT support, were routine back-office services that did not transfer any technical knowledge or skill that Criteo India could independently apply in the future. The ITAT drew guidance from the Karnataka High Court’s ruling in CIT v. De Beers India Minerals Pvt. Ltd.[v], emphasizing that ‘fee for technical services’ requires a transfer of know-how or expertise, enabling the recipient to replicate the service independently, which was not established in the present case.
The ITAT concluded that the AO and the DRP had erred in their interpretation of both the DTAA and the nature of the services provided. The Tribunal directed the deletion of the tax demands, holding that the receipts from data centre services, advertisement space services, and business support services were not taxable in India under the DTAA and that no PE of Criteo Singapore existed in India to trigger domestic tax liabilities.
Our Analysis
The Delhi ITAT’s ruling is a significant development in the interpretation of ‘royalty’ and ‘fees for technical services’ under the DTAA, providing crucial guidance on the ‘use or right to use’ test and the ‘make available’ principle.
On Data Center Services: The Tribunal’s analysis aligns with established jurisprudence that mere remote access to stored data without control over underlying equipment does not constitute royalty. The ruling reaffirms the principle laid down in cases like Asia Satellite Telecommunications and Shin Satellite Public Co. Ltd., highlighting that ‘use’ or ‘right to use’ under the DTAA requires control and dominion over equipment. This decision provides clarity for cross-border technology service providers on the non-taxability of cloud-based services under the DTAA.
On Advertisement Space Services: The judgment highlights the distinction between services and royalty, emphasizing that providing advertisement space acquired from third-party publishers constitutes a service, not a license or lease of rights. The reliance on precedents such as Google Ireland Ltd. (Supra) and Dow Jones & Company Inc.[vi] strengthens the position of digital services providers operating without a PE in India.
On Business Support Services: The Tribunal’s application of the ‘make available’ clause is consistent with landmark rulings such as De Beers India Minerals Pvt. Ltd. (Supra) and International Management Group (UK) Ltd.[vii], reinforcing that routine support services without transfer of technical knowledge are not taxable as FTS under the DTAA. This ruling protects multinational companies from arbitrary tax claims under s.9(1)(vii) of the IT Act and a.12(4) of the DTAA.
In conclusion, the Delhi ITAT’s ruling provides robust protection to cross-border digital service providers against unjustified taxation under the India-Singapore DTAA while reaffirming the principles of treaty override and narrow interpretation of royalty and FTS clauses. The judgment will serve as an authoritative precedent for future disputes involving digital economy transactions and the characterization of income under international tax treaties.
End Notes
[i] [2025] 170 taxmann.com 162 (Delhi - Trib.).
[ii] (2011) (332 ITR 340).
[iii] [2016] 68 taxmann.com 8.
[iv] (2023) 148 taxmann.com 106.
[v] [2012] 21 taxmann.com 214.
[vi] [2022] 135taxmann.com 270.
[vii] [2024] 164 taxmann.com 225.
Authored by the Matalegal Editorial Board, the views expressed are personal and do not constitute legal opinions.