CASE UPDATE - DCIT (IT) v. MERRILL LYNCH INTERNATIONAL - Income Tax Appellate Tribunal, Mumbai Bench

IT Appeal No. 9302 (Mum) of 2025 | Assessment Year 2017-18 | Decided: 26 March 2026

Underwriting commission received by a UK-resident entity from Indian companies for ADR/GDR issues constitutes consideration for assuming financial risk, not for rendering technical or consultancy services and therefore cannot be taxed in India as Fees for Technical Services under Section 9(1)(vii) of the Income-tax Act, 1961 or as Fees for Included Services under Article 13 of the India-UK DTAA.

• Background / Facts:

  • The assessee, MERRILL LYNCH INTERNATIONAL, is a company incorporated in the United Kingdom and registered as a Foreign Institutional Investor (FII) with SEBI. It acted as lead manager and underwriter to ADR/GDR issues of Indian companies outside India.

  • For Assessment Year 2017-18, the assessee received underwriting commission aggregating USD 12,77,729 (equivalent to Rs. 8,24,13,521/-) from several Indian entities pursuant to agreements for their overseas securities issues.

  • The commission was received for the assessee's undertaking to subscribe to any unsubscribed portion of the issue in the event the issue was not fully taken up by the public.

  • The assessee filed its return of income declaring total income of Rs. 55,63,19,366/- for the year. The case was selected for scrutiny under CASS.

    
    

• Proceedings Before Lower Authorities:

  • The AO proposed to tax the commission as Fees for Technical Services (FTS) under Section 9(1)(vii) of the Act, relying on the Supreme Court's ruling in GVK INDUSTRIES LTD. v. ITO [2015] 371 ITR 453 (SC), where financial advisory services were held to constitute consultancy services taxable as FTS. The AO further held that the services qualified as Fees for Included Services under Article 13 of the India-UK DTAA, on the basis that the Indian companies independently used the assessee's advisory inputs for their own decision making, thus satisfying the "make available" test in the AO's view.

  • The assessee objected, contending that the services were rendered and utilised entirely outside India, and that, without prejudice, no technical knowledge, skill, experience, know-how or process was "made available" to the Indian clients within the meaning of Article 13 of the India-UK DTAA.

  • The AO rejected both contentions and made an addition of Rs. 8,24,13,521/-.

  • On first appeal, the CIT(A) ruled in favour of the assessee. It distinguished the GVK INDUSTRIES decision on the basis that the India-Switzerland DTAA involved therein does not contain a "make available" clause, unlike the India-UK DTAA. The CIT(A) applied the rule of consistency, noting that the Tribunal had consistently decided the identical issue in the assessee's favour for Assessment Years 2005-06 through 2014-15 across multiple proceedings. It held that underwriting fees did not make available any technical knowledge, skill, or experience to the Indian companies, and accordingly directed deletion of the addition.

    
    

• Tribunal's Reasoning:

  • The Tribunal affirmed the CIT(A)'s order and dismissed the Revenue's appeal, finding no infirmity in the approach adopted below.

  • It reiterated that under Section 90(2) of the Act, a non-resident is entitled to be governed by whichever of the Act or the applicable DTAA is more beneficial. Accordingly, even if the commission were taxable as FTS under the domestic provisions of Section 9(1)(vii), the benefit of the India-UK DTAA must be independently examined.

  • The Tribunal relied heavily on the Special Bench decision in MAHINDRA & MAHINDRA LTD. v. DY. CIT, TDS RANGE 1(1), MUMBAI [2010] 122 ITD 216 (Mumbai), which authoritatively interpreted Article 13(4)(c) of the India-UK DTAA. The Special Bench had held that the "make available" condition requires that the technical knowledge, experience, skill, know-how, or process be actually transmitted to and absorbed by the recipient, such that the recipient can deploy it independently in future without continued reliance on the service provider. The mere fact that a recipient derives benefit from the service provider's expertise does not satisfy this test, the knowledge itself must pass to the recipient.

  • Crucially, the Tribunal went further and held that underwriting commission is fundamentally distinct from any service consideration. It represents payment for the underwriter's assumption of a contingent financial liability i.e., the obligation to purchase unsubscribed shares if the issue is undersubscribed. This act of standing as a financial guarantor does not, in itself, involve rendering any technical, managerial, or consultancy services. Accordingly, the commission cannot satisfy the definitional threshold of FTS under Section 9(1)(vii) in the first place.

  • The Tribunal also noted that the assessee's position had been consistently upheld in no fewer than seven earlier Tribunal orders across Assessment Years 2005-06 to 2014-15, and that this consistent line of precedent had not been disturbed.

  • The Revenue's argument that the matter was governed by GVK INDUSTRIES was expressly distinguished on the basis that the Supreme Court in that case was dealing with a DTAA that did not incorporate the "make available" restrictioN making it inapplicable to the India-UK treaty context.

    
    

• Final Ruling:

  • The Tribunal dismissed the Revenue's appeal in its entirety and upheld the CIT(A)'s order deleting the addition of Rs. 8,24,13,521/-. The Tribunal confirmed that underwriting commission received by MERRILL LYNCH INTERNATIONAL for ADR/GDR issuances is not taxable in India either as FTS under Section 9(1)(vii) of the Act or as Fees for Included Services under Article 13 of the India-UK DTAA. Since it did not fall under Article 13, the income would, if anything, constitute business profits under Article 7 of the DTAA, taxable in India only to the extent attributable to a Permanent Establishment, which the Revenue had not established existed.

    
    

• Key Principle:

  • Underwriting commission paid for assuming contingent financial liability (subscribing to unsubscribed shares) is not consideration for rendering technical or consultancy services, and therefore does not qualify as Fees for Technical Services under Section 9(1)(vii) or as Fees for Included Services under Article 13 of the India-UK DTAA; additionally, for income to be taxable as FTS under the India-UK DTAA, the technical knowledge or skill must be concretely "made available" to the recipient i.e., transmitted and capable of independent future use and a mere derivation of benefit from the service provider's expertise does not suffice.