Cornell University vs DCIT (International Taxation): ITAT Mumbai Rules Executive Education Receipts Fall Outside Fees for Included Services Under Article 12(5)(c) of India-USA DTAA

1. Background and Parties

Cornell University, a not-for-profit research university incorporated in New York, USA in 1865, is registered as a corporation under Section 501(c)(3) of the Internal Revenue Code of the USA. The university carries out educational, research, and public engagement activities and offers both degree and non-degree programmes. For the purposes of the India-USA Double Taxation Avoidance Agreement (DTAA), Cornell holds a valid Tax Residency Certificate, making it eligible to invoke treaty protections.

In addition to its mainstream academic activities, the university delivers certification, professional, and executive education courses digitally from the United States to Indian students and employees of Indian corporate entities. The subject areas covered by these programmes include Data Science and Analytics, Human Resources, Law, Engineering, Leadership, Environmental Social Governance, Finance and Business, Marketing, Food and Plant Science, Entrepreneurship and Innovation, Healthcare, Nutrition, Project Management, and Hospitality. The duration of these courses ranges from a few weeks to several months, depending on the specific programme chosen.

2. The Assessment and What Was Disputed

For Assessment Year 2022-23, Cornell University received ₹17,23,12,909 from Indian parties in connection with these educational courses. The assessee claimed that these receipts were not chargeable to tax in India as Fees for Included Services (FIS) under Article 12 of the India-USA DTAA, on account of the specific exclusion contained in Article 12(5)(c), which carves out from FIS any amounts paid "for teaching in or by educational institutions."

The assessee had also discharged Equalisation Levy at 2% on these receipts, owing to the expanded scope of Equalisation Levy applicable to e-commerce supply or services, but maintained that such payment was made out of caution to avoid prolonged litigation and could not determine the treaty character of the receipt.

The Assessing Officer, while accepting that Cornell University is an educational institution, nevertheless held that the courses offered to corporate entities were tailor-made to enhance specific skills of subscribers and were customised to corporate requirements. On that basis, the Assessing Officer characterised the services as technical in nature and treated ₹17,23,12,909 as Fees for Technical Services/Fees for Included Services. The Assessing Officer also drew an adverse inference from the fact that Equalisation Levy had been paid, viewing it as inconsistent with the assessee's claim of non-taxability.

3. Dispute Resolution Panel's Position

The Dispute Resolution Panel (DRP) upheld the Assessing Officer's addition, though on somewhat different reasoning. The DRP noted that complete course content details and client agreements — other than the Master Service Agreement and Statement of Work with Accenture Solutions Private Limited — had not been placed on record.

(i) Teaching vs. Training Distinction

The DRP drew a distinction between "teaching" and "training," holding that teaching ordinarily occurs in an academic or scholastic environment, while training is directed at skill development, practical application, and job-specific competence. Since the participants were largely working professionals employed with corporate entities and the programmes were aimed at professional development and skill enhancement, the DRP characterised the activity as "training" rather than "teaching" and therefore rejected the application of Article 12(5)(c).

(ii) Make Available Requirement

The DRP further held that the services made available specialised knowledge, technical skills, and know-how to participants — and because this knowledge remained with participants after course completion, the "make available" requirement under Article 12(4) was satisfied.

(iii) Non-Credit Clause and Article 21

The DRP placed particular reliance on a clause in the Master Service Agreement providing that classes, coursework, training, lectures, or similar instruction under the arrangement were "not for credit," would not be recorded on a Cornell University transcript, and would not assure admission to Cornell University. The DRP considered this clause to be inconsistent with teaching by an educational institution.

The DRP also referred to Article 21 of the India-USA DTAA, which uses the phrase "education or training," and from this inferred that the treaty itself recognises education and training as distinct concepts, thereby excluding corporate training programmes from the scope of "teaching" under Article 12(5)(c).

On these combined grounds, the DRP upheld the Revenue's treatment of the receipts as FIS and directed that the addition be confirmed in the final assessment order dated 31 January 2025, passed under Section 143(3) read with Section 144C(13) of the Income Tax Act, 1961.

4. The Treaty Framework: Article 12 of the India-USA DTAA

The ITAT Mumbai reproduced and analysed Article 12 of the India-USA DTAA in full. The provision, as reproduced in the order, reads: