We are a UK development body. Indian companies pay us a share of the cost of export-promotion projects we run for them, and we make nothing on it. Is that a fee for technical services taxable in India?
No. The Authority ruled that the contributions DECTA received from Indian companies were not income chargeable to tax in its hands at all, and so were not fees for technical services under section 9(1)(vii) or article 13(4) of the India-UK agreement. DECTA ran export promotion and technical assistance projects for Indian companies under a bilateral UK-India development programme. The projects were paid for by the UK Overseas Development Administration; the Indian companies put in roughly a quarter of project cost into a common account. The Authority treated that as a pooling of project expenses, not a price for services. The third question did not arise. The ruling binds only DECTA.
Pronounced by the Authority for Advance Rulings (S. Ranganathan, J. (Chairman), D. B. Lal and R. L. Meena, Members) on 1996-05-17, reported as [1999] 237 ITR 190 (AAR). It bears on section 9(1)(vii), section 195, section DTAA art 13 of the Income Tax Act 1961, in Residence & Treaty Benefit and TDS Defaults matters.
This is the AAR authority for the proposition that you answer the chargeability question before the characterisation question. The Authority did not hold that a cost recovery can never be a technical fee; it held that on these facts the contributions were not income in DECTA's hands in the first place, because the project cost fell on DECTA and, behind it, on the British government, and the Indian companies' payments were simply the mechanism by which they bore a share of the expense. That is a narrower and stronger point than a general reimbursement argument. It is worth setting against the Authority's later ruling in Timken India, where a cost-only recharge by a US parent was held taxable, and against AT&S India on secondment recharges - the difference lies in who bore the cost and why.
Binding only on the applicant who sought it, in respect of the transaction the ruling was sought on, and on the Principal Commissioner or Commissioner and the authorities subordinate to him in respect of that applicant and that transaction — and only until the law or the facts change (section 245S). It binds nobody else. The Tribunal and the courts nonetheless treat a considered ruling as persuasive, which is why practitioners cite them.
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DECTA was a United Kingdom body providing export promotion and technical assistance to companies in developing countries under a bilateral programme between the United Kingdom and India. It executed projects designed to help Indian companies with their exports. The cost of those projects was met directly by DECTA and, behind DECTA, by the United Kingdom's Overseas Development Administration. The Indian companies participating in a project contributed roughly 25 per cent of the project cost, paid into a bank account and described in the arrangements as token amounts towards joint project expenses rather than as a fee for services. DECTA asked the Authority three questions: whether the contribution amounts it received to recover part of the cost of technical assistance were taxable income; whether, if they were, they were fees for technical services within section 9(1)(vii) of the Act or article 13(4) of the India-UK double taxation agreement; and whether, assuming they were technical fees, they were taxable in India having regard to DECTA's memorandum of association.
The Authority answered the first question in the negative: the contributions were not income chargeable to tax in DECTA's hands at all. On the second, and consequently, the contributions did not constitute fees for technical services, whether under section 9(1)(vii) of the Act or under article 13(4) of the India-UK agreement. The third question, which was framed to arise only if the amounts were held to be technical fees, therefore did not arise and was not answered. The Authority's characterisation of the arrangement was that DECTA executed projects that would help Indian companies with their exports, that this was done at DECTA's own expense and indirectly at the cost of the Overseas Development Administration or the British government, and that the contribution by the Indian companies was simply the mechanism by which they were made to meet a part of the expenses incurred on the projects. It was a pooling of project costs, not consideration moving from the Indian companies to DECTA for services supplied to them.
The Authority resisted the temptation to go straight to the definition in Explanation 2 to section 9(1)(vii). It asked first whether anything had accrued to DECTA that answered the description of income, and looked at where the economic burden of the projects actually fell. The projects were DECTA's own programme, funded by the British government through the Overseas Development Administration, and undertaken as development assistance rather than as a trade. The Indian companies were not buying anything: they were being required to carry a share, about a quarter, of the cost of a programme run for their benefit and paid for by someone else, and their contributions went into a common account to be spent on the project. On that footing the receipt had none of the marks of a trading receipt - there was no price, no margin, no supply of a service in exchange for a consideration measured by that service. Since the contributions were not income, the question whether they answered the description of fees for technical services never had to be reached, and the Authority said so expressly rather than deciding the characterisation point in the alternative. That is why the ruling is narrow: it turns on the absence of a chargeable receipt, and not on a proposition that recoveries without profit are outside section 9(1)(vii).
The contribution by the Indian companies is the modus operandi by which they are made to meet a part of the expenses incurred on the projects.
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Handle my notice → Ask a CA on WhatsAppNo. The Authority ruled that the contributions DECTA received from Indian companies were not income chargeable to tax in its hands at all, and so were not fees for technical services under section 9(1)(vii) or article 13(4) of the India-UK agreement. DECTA ran export promotion and technical assistance projects for Indian companies under a bilateral UK-India development programme. The projects were paid for by the UK Overseas Development Administration; the Indian companies put in roughly a quarter of project cost into a common account. The Authority treated that as a pooling of project expenses, not a price for services. The third question did not arise. The ruling binds only DECTA. This was decided by the Advance Ruling (S. Ranganathan, J. (Chairman), D. B. Lal and R. L. Meena, Members) and bears on section 9(1)(vii), section 195, section DTAA art 13 of the Income Tax Act 1961. It is reported as [1999] 237 ITR 190 (AAR). This is the AAR authority for the proposition that you answer the chargeability question before the characterisation question. The Authority did not hold that a cost recovery can never be a technical fee; it held that on these facts the contributions were not income in DECTA's hands in the first place, because the project cost fell on DECTA and, behind it, on the British government, and the Indian companies' payments were simply the mechanism by which they bore a share of the expense. That is a narrower and stronger point than a general reimbursement argument. It is worth setting against the Authority's later ruling in Timken India, where a cost-only recharge by a US parent was held taxable, and against AT&S India on secondment recharges - the difference lies in who bore the cost and why. If it applies to you, the first step is this: Argue chargeability first: show the receipt is not income in your client's hands before you argue about section 9(1)(vii).
DECTA was a United Kingdom body providing export promotion and technical assistance to companies in developing countries under a bilateral programme between the United Kingdom and India. It executed projects designed to help Indian companies with their exports. The cost of those projects was met directly by DECTA and, behind DECTA, by the United Kingdom's Overseas Development Administration. The Indian companies participating in a project contributed roughly 25 per cent of the project cost, paid into a bank account and described in the arrangements as token amounts towards joint project expenses rather than as a fee for services. DECTA asked the Authority three questions: whether the contribution amounts it received to recover part of the cost of technical assistance were taxable income; whether, if they were, they were fees for technical services within section 9(1)(vii) of the Act or article 13(4) of the India-UK double taxation agreement; and whether, assuming they were technical fees, they were taxable in India having regard to DECTA's memorandum of association. The matter was decided on 1996-05-17 by the Advance Ruling (S. Ranganathan, J. (Chairman), D. B. Lal and R. L. Meena, Members). On those facts the Advance Ruling held as follows. The Authority answered the first question in the negative: the contributions were not income chargeable to tax in DECTA's hands at all. On the second, and consequently, the contributions did not constitute fees for technical services, whether under section 9(1)(vii) of the Act or under article 13(4) of the India-UK agreement. The third question, which was framed to arise only if the amounts were held to be technical fees, therefore did not arise and was not answered. The Authority's characterisation of the arrangement was that DECTA executed projects that would help Indian companies with their exports, that this was done at DECTA's own expense and indirectly at the cost of the Overseas Development Administration or the British government, and that the contribution by the Indian companies was simply the mechanism by which they were made to meet a part of the expenses incurred on the projects. It was a pooling of project costs, not consideration moving from the Indian companies to DECTA for services supplied to them.
The Authority resisted the temptation to go straight to the definition in Explanation 2 to section 9(1)(vii). It asked first whether anything had accrued to DECTA that answered the description of income, and looked at where the economic burden of the projects actually fell. The projects were DECTA's own programme, funded by the British government through the Overseas Development Administration, and undertaken as development assistance rather than as a trade. The Indian companies were not buying anything: they were being required to carry a share, about a quarter, of the cost of a programme run for their benefit and paid for by someone else, and their contributions went into a common account to be spent on the project. On that footing the receipt had none of the marks of a trading receipt - there was no price, no margin, no supply of a service in exchange for a consideration measured by that service. Since the contributions were not income, the question whether they answered the description of fees for technical services never had to be reached, and the Authority said so expressly rather than deciding the characterisation point in the alternative. That is why the ruling is narrow: it turns on the absence of a chargeable receipt, and not on a proposition that recoveries without profit are outside section 9(1)(vii). In the words reproduced by the source cited on this page: "The contribution by the Indian companies is the modus operandi by which they are made to meet a part of the expenses incurred on the projects."
It was decided by the Advance Ruling on 1996-05-17 and is reported as [1999] 237 ITR 190 (AAR). Binding only on the applicant who sought it, in respect of the transaction the ruling was sought on, and on the Principal Commissioner or Commissioner and the authorities subordinate to him in respect of that applicant and that transaction — and only until the law or the facts change (section 245S). It binds nobody else. The Tribunal and the courts nonetheless treat a considered ruling as persuasive, which is why practitioners cite them. An advance ruling binds only the applicant who sought it, only for the transaction it was sought on, and only the Commissioner and the officers under him in relation to that applicant and that transaction — and only until the law or the facts change. That is section 245S, and it means the ruling is not a precedent and binds nothing in your case. You cite it because the Authority reasoned the point out, often first and most fully, and the Tribunal and the courts treat a considered ruling as persuasive. Check before you rely on one: most of these were pronounced before 2009, and a great deal of cross-border tax has been rewritten since by amendment, protocol and judgment. On section 9(1)(vii), section 195, section DTAA art 13, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Authority answered the first question in the negative: the contributions were not income chargeable to tax in DECTA's hands at all. On the second, and consequently, the contributions did not constitute fees for technical services, whether under section 9(1)(vii) of the Act or under article 13(4) of the India-UK agreement. The third question, which was framed to arise only if the amounts were held to be technical fees, therefore did not arise and was not answered. The Authority's characterisation of the arrangement was that DECTA executed projects that would help Indian companies with their exports, that this was done at DECTA's own expense and indirectly at the cost of the Overseas Development Administration or the British government, and that the contribution by the Indian companies was simply the mechanism by which they were made to meet a part of the expenses incurred on the projects. It was a pooling of project costs, not consideration moving from the Indian companies to DECTA for services supplied to them. It arises in Residence & Treaty Benefit and TDS Defaults matters, on section 9(1)(vii), section 195, section DTAA art 13 of the Income Tax Act 1961, and was decided by S. Ranganathan, J. (Chairman), D. B. Lal and R. L. Meena, Members. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Document who actually bore the project cost and produce the funding arrangement, not just the invoice. Do not run this as a general 'no profit element, no tax' point - the Authority itself rejected that in Timken India. Check the Explanation below section 9(2), which now deems fees for technical services to accrue in India regardless of where the services were rendered.
Searched for later treatment; none was found. That is not the same as a source affirming it. A search was run and no High Court or Supreme Court decision dealing with this ruling was found on Indian Kanoon; nothing found establishes the position either way. A ruling of the Authority binds only the applicant and the Commissioner in that applicant's case and is not authority binding anyone else, so the absence of judicial treatment is what one would expect. Two things checked do bear on it. The Explanation below section 9(2) as it now stands deems income under section 9(1)(vii) to accrue in India whether or not the non-resident has a place of business here or has rendered services here, which removes the territorial argument though not the chargeability argument this ruling turns on. And the Authority itself took a markedly stricter line on cost-only recharges in In re Timken India Ltd (6 December 2004), holding that an element of profit is not essential for a receipt to be taxable; the two rulings sit uneasily together and Timken is the later. The Authority was replaced by the Board for Advance Rulings from 1 September 2021 (Finance Act 2021; Notification 96/2021), whose rulings are appealable to the High Court under section 245W, and the Income-tax Act 1961 was replaced by the Income-tax Act 2025 with effect from 1 April 2026. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The Indian Kanoon text does not reproduce the constitution of DECTA or its memorandum of association, which the third question turned on, so the basis on which that question was framed is not fully visible. The reported citation is taken from the Indian Kanoon text and was not checked against the ITR volume. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Authority answered the first question in the negative: the contributions were not income chargeable to tax in DECTA's hands at all. On the second, and consequently, the contributions did not constitute fees for technical services, whether under section 9(1)(vii) of the Act or under article 13(4) of the India-UK agreement. The third question, which was framed to arise only if the amounts were held to be technical fees, therefore did not arise and was not answered. The Authority's characterisation of the arrangement was that DECTA executed projects that would help Indian companies with their exports, that this was done at DECTA's own expense and indirectly at the cost of the Overseas Development Administration or the British government, and that the contribution by the Indian companies was simply the mechanism by which they were made to meet a part of the expenses incurred on the projects. It was a pooling of project costs, not consideration moving from the Indian companies to DECTA for services supplied to them.
TaxSphere, “Decta v CIT”, https://taxnotice.vittsphere.com/caselaw/case/decta-aar-1996/ (validity last checked 2026-09-16)
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