The Income Tax Appellate Tribunal (ITAT) provided a decision on 11 June 2014 in the case of DDIT v. IATA BSP India  that payment towards BSP Link services is not fees for technical services (FTS) by virtue of the most favored nation (MFN) clause in the France – India Income and Capital Tax Treaty (1992) (as amended through 2000) (the Treaty). Under the MFN clause, the restricted scope of FTS under the India – United States Income Tax Treaty (1989) and the India – Portugal Income Tax Treaty (1998) is applicable to the Treaty.

Here the issue was whether the payment for the BSP Link services from the Taxpayer to ADP-GSI France was taxable as FTS under the Treaty?

On that issue The ITAT given their decision that the payment for the BSP Link services is not FTS under the Treaty by virtue of the MFN clause (i.e. clause 7 of the protocol to the Treaty) whereby the restrictive scope of FTS (i.e. make available technical knowledge) of the India-US tax treaty and the India-Portugal tax treaty is applied to the present case.

The ITAT examined the agreement and came to the decision that provision of the BSP Link services, whereby manual operations such as the issue of debit notes/credit notes, issue of refunds, billing statements and all information relating to air tickets were carried out electronically, does not indicate that the service provider is making available technical knowledge, experience, skill, know-how, etc.

However this decision is in direct conflict with the ruling of the Authority for Advanced Ruling in the case of Steria India Limited wherein it held that the MFN clause cannot be used to import the “make available” clause in the definition of FTS.