India: Ruling on availability of treaty benefits to a non-beneficial owner recipient

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2026

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement


India: Ruling on availability of treaty benefits to a non-beneficial owner recipient

nayak.jpg

jain.jpg

Rajendra Nayak


Aastha Jain

The Delhi Income Tax Appellate Tribunal (Tribunal) recently ruled in the case of JC Bamford Investments, England (taxpayer) on whether the benefit of lower tax rate under the India – UK tax treaty is available on royalty paid to a UK resident which is not a beneficial owner (BO) of such royalty income. In the facts of case, the taxpayer was a UK-incorporated and UK-resident company. JC Bamford Excavators (JCBE), also a UK resident and a group company of the taxpayer, had entered into a technology transfer agreement (TTA) with an Indian group company, JC Bamford India (JCBI). Under the TTA, JCBE licensed certain intellectual property (IP) to JCBI along with an exclusive right to manufacture and market excavator loaders in India. The consideration towards exploitation of IP was paid by JCBI to JCBE and was characterised as royalty. By virtue of a subsequent tripartite agreement, JCBE sub-licensed the IP to the taxpayer subject to the right of JCBI to continue to exploit IP. Consequently, royalty was paid by JCBI to the taxpayer and in turn the taxpayer remitted 99.5% of the royalty received to JCBE.

The India-UK treaty provides for a lower rate of tax on royalty income of UK resident, arising in India as compared to the rate under Indian Tax Laws (ITL). The Indian tax authorities denied this benefit, on the premise that the taxpayer was merely a conduit and not the BO of royalty received from JCBI.

The Tribunal examined the meaning of the phrase BO which is not otherwise defined under the ITL or the treaty. It was observed that, in common parlance, a BO is one who is entitled to the income in its own right. It is the person who is free to decide (a) whether or not the capital or other assets should be used or made available for use by others or (b) on how the yields therefrom are used or (c) both of the above. Sometimes, a BO may turn out to be a person different from the immediate recipient or formal owner or recipient of the income.

In the given facts, it was JCBE and not the taxpayer, who was the BO of the royalty income from JCBI. However, the requirement as per the treaty for applicability of lower rate in India is that the BO, not the formal recipient of royalty income, is a resident of the UK. Accordingly, since the BO being JCBE is also a UK tax resident, it was held that the taxpayer can avail the benefit of the lower rate under the treaty, despite the fact the taxpayer is not the BO of the royalty.

The present ruling attempts to clarify the meaning of one of the most significant phrases, 'beneficial owner' and its application in the context of royalty taxation under the India-UK tax treaty.

Rajendra Nayak (rajendra.nayak@in.ey.com) and Aastha Jain (aastha.jain@in.ey.com)

EY

Tel: +91 80 4027 5275

Website: www.ey.com/india

more across site & shared bottom lb ros

More from across our site

It was also a memorable night for Galicia, KPMG, Skadden and Pinheiro Neto, all of which scooped major awards at a gala ceremony in New York
The former Deloitte UK CEO earned a 45% raise in a year when 1,000 staff reportedly lost their jobs – and the pay gap is only getting bigger
In a seminal development for big law, the 95-year-old firm is set to cease operations after a series of high-profile partner departures
UK Chancellor John Healey extended a VAT cut, suspended tariffs, increased a bank surcharge and vowed to increase funding for HMRC
Kristine Riisberg warned that TP decisions can determine top-up tax exposure under pillar two, while global consensus over the rules remains unsettled
Both Germany’s NIS2 and the EU AI Act now determine whether a tax function can meet its obligations – and both can make management personally accountable
Originators, loan purchasers and securitisation vehicles may need to revisit servicing agreements and pricing after a key judgment narrowed the VAT credit management exemption
Opening doors for existing talent within Baker McKenzie and a desire for enhanced legal capabilities informed Ricardo Perera’s switch from KPMG
Boaz Goren’s move to the upstart PE-backed firm takes the number of senior UK tax professionals who have left EY this year to 13
The allegations against Deloitte Cyprus raise uncomfortable questions about how far the big four can distance themselves from misconduct at member firms
Gift this article