ITAT Mumbai: Ancillary Software Support Not FTS, ₹482.7 Cr Tax Addition Dropped
Tribunal rules India–Singapore DTAA protects software support services
Landmark judgment clarifies taxation of cross-border IT services
By Our Legal Reporter
New Delhi: December 25, 2025:
In a landmark ruling, the Mumbai Income Tax Appellate Tribunal (ITAT) has held that ancillary software support services provided by a Singapore-based company cannot be classified as fees for technical services (FTS) under Article 12 of the India–Singapore DTAA. The Tribunal deleted a staggering ₹482.7 crore tax addition made by the Assessing Officer (AO), bringing relief to multinational IT companies and clarifying the tax treatment of software-related support services.
Background of the Case
- The assessee, a Singapore tax resident company, distributed software licenses in India and provided support and maintenance services related to those licenses.
- The Assessing Officer (AO) and Dispute Resolution Panel (DRP) had treated the consideration of ₹482.7 crore for these services as FTS, arguing that the services “made available” technical knowledge and customization.
- The company challenged this classification, arguing that the services were ancillary and subsidiary to the sale/distribution of software and did not involve transfer of technical know-how.
Court’s Observations
The ITAT made several critical findings:
- Ancillary Services ≠ FTS: The Tribunal held that support and maintenance services were ancillary to software distribution and did not amount to technical services.
- No “Make Available” Clause Triggered: Under the India–Singapore DTAA, for services to qualify as FTS, they must “make available” technical knowledge or skills. The Tribunal found that the services did not meet this test.
- DTAA Protection: The Tribunal emphasized that DTAA provisions override domestic law, protecting the assessee from unwarranted taxation.
- Deletion of Addition: As a result, the ₹482.7 crore addition was deleted, offering significant relief to the company.
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Legal Issue at Stake
The central legal issue was whether software support services provided by a foreign company should be taxed as FTS in India.
- Under Section 9(1)(vii) of the Income Tax Act, FTS includes managerial, technical, or consultancy services.
- However, the India–Singapore DTAA narrows this definition, requiring that services must “make available” technical knowledge.
- The ITAT clarified that routine support services do not meet this threshold.
Impact of the Ruling
This judgment has wide implications:
- For Multinational IT Companies: Provides clarity and relief, ensuring that routine software support services are not taxed as FTS.
- For Tax Authorities: Reinforces the importance of applying DTAA provisions correctly and avoiding overreach.
- For Cross-Border Trade: Encourages smoother business operations between India and Singapore, boosting investor confidence.
- For Legal Precedent: Strengthens jurisprudence on the interpretation of “make available” in DTAA cases.
Broader Context
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- Similar rulings have been delivered in cases involving bandwidth charges and digital services, where ITAT clarified that such receipts are not taxable as royalty or FTS.
- The judgment aligns with India’s broader effort to harmonize domestic tax law with international treaties, ensuring fairness in cross-border taxation.
- Legal experts note that this ruling will likely influence future disputes involving IT services, cloud computing, and software licensing.
Reactions
- Tax Experts: Welcomed the ruling as a progressive step that prevents double taxation and protects treaty rights.
- Corporate Sector: Multinational IT firms see this as a major relief, reducing litigation risks.
- Policy Analysts: Highlighted that the judgment strengthens India’s reputation as a fair jurisdiction for foreign investors.
Conclusion
The ITAT Mumbai’s ruling that ancillary software support services are not FTS under the India–Singapore DTAA is a landmark in international tax law. By deleting the ₹482.7 crore tax addition, the Tribunal has reinforced the principle that routine support services do not amount to technical services unless they “make available” technical knowledge.
This judgment provides clarity, reduces litigation, and strengthens investor confidence in India’s tax regime.
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