Delhi Tribunal holds advanced seed and plant breeding testing as “royalty” under the India–Netherlands tax treaty

In the case of Nunhems Netherlands B.V. ^[1] (Taxpayer), the Delhi Income Tax Appellate Tribunal (Tribunal) dealt with an issue whether amount received by the Taxpayer, a Dutch tax resident, for (i) provision of test reports of marker testing services and double haploid services for plant seed can be treated as royalty and (ii) provision of IT enabled services to Indian group company (I Co) amounts to fees for technical services (FTS), under the Income Tax Laws (ITL) and India-Netherlands Double Taxation Avoidance Agreement or tax treaty. 

The Taxpayer operated an online platform on which I Co places request for testing plant seeds and leaves and receives the report in excel file on the platform. I Co dispatches the sample seeds and leaves by courier to the Taxpayer for testing. Separately, the Taxpayer also provides back-office IT support services to I Co. The Taxpayer claimed tax treaty benefit of non-taxability of such services in absence of permanent establishment (PE) in India on the ground that they do not constitute “royalty”. The Tax Authority contended that provision of test report results in supplying information in the form of “scientific experience” which has commercial ramification to I Co for breeding plant variety. 

The Tribunal noted the inter-company agreement wherein the Taxpayer was obliged to provide breeding support to I Co for its India business.  The Tribunal upheld tax authority’s contention on the basis that the Taxpayer was not merely providing routine services but was sharing embedded scientific and commercial experience through detailed test reports and breeding outputs under double haploid^[2]  services that directly influenced the I Co’s ability to develop commercially viable seed varieties. The Tribunal emphasized that under Article 12(4) of the tax treaty, payments for information concerning scientific experience qualify as royalty, independent of any “make available” requirement. Accordingly, the Tribunal held that fees earned by the Taxpayer was in nature of “royalty” under the ITL and India-Netherlands tax treaty which was taxable in India.  

In relation to IT support services, the Tribunal upheld that the Taxpayer merely recovered costs charged by a third-party service provider, that no technical knowledge or capability was transferred to ICO, and that the “make available” condition under Article 12(5) of the tax treaty was not satisfied and held that the IT service cost reimbursements were not taxable as FTS.

^[1] TS-1639-ITAT-2025(DEL)
^[2] Tribunal explained that a doubled-haploid (DH) is a genotype formed when haploid cells undergo chromosome doubling. Doubled-haploid technology enhances "forward breeding" by allowing hybrids to be bred with new traits. It enables I Co to get an earlier look at new lines and greater knowledge about their environmental adaptability before they are fully tested, developed and marketed. In this process, I Co sends some seeds to Taxpayer for DH conversion, Taxpayer grows these seeds at their poly houses till the time they become a plant. Out of that plant, a tissue or cell is extracted in R&D center and new plant is formed which is called a DH plant. From DH plant, seeds are extracted again by R&D center and sent back to I Co.