Summary: As foreign universities expand their presence in India through executive education, professional certifications and corporate learning programmes, the tax treatment of such receipts has become a critical issue. In this blog, we examine the Mumbai ITAT’s recent ruling in Cornell University, which affirms that teaching-related receipts may qualify for educational exclusion under the India-US tax treaty, while also highlighting the importance of careful structuring of cross-border education offerings.
India’s expanding higher education landscape and growing demand for professional upskilling are creating significant opportunities for foreign universities. Alongside a broader policy push to position India as a global education and research hub, cross-border education is extending beyond conventional degree programmes to executive education, professional certifications and corporate learning.
Courses offered through a range of formats, including short, open-enrolment programmes, longer certificate programmes, and custom corporate training built for specific enterprise clients, are delivered on campus, online, or in a blended format. As foreign institutions expand their reach into India, tax characterisation of the receipts earned from such offerings has increasingly come under sustained scrutiny from the Indian tax authorities.
While the characterisation and subsequent taxation of such receipts would depend on the underlying facts, one recurring issue in this context is whether the income earned from offering such courses can be regarded as fees for technical services (“FTS”) (or fees for included services (“FIS”), as the case may be). Notably, many of India’s tax treaties exclude ‘payments for teaching in or by educational institutions’ from the scope of FTS/ FIS. The key question, however, is how far this exclusion extends and whether modern executive education and corporate learning programmes continue to qualify as “teaching” for treaty purposes.
Against this backdrop, the Mumbai Income Tax Appellate Tribunal’s (“ITAT”) recent decision in Cornell University v. Dy. CIT (Int. Tax) Circle 2(1)(1),[1] is a significant development. The ruling examined the character of receipts earned by a US-based university from online courses and certificate programmes offered to employees of Indian corporate entities, and their taxability specifically under the India-USA Double Taxation Avoidance Agreement (“Tax Treaty”).
Facts
The taxpayer, Cornell University (“Cornell”), a not-for-profit educational institution incorporated in the USA, offered online courses and certificate programmes to Indian students and/ or employees of Indian corporate entities. Cornell claimed that fees earned from delivering such courses and programmes was not taxable in India as FTS/FIS, by virtue of Article 12(5)(c) of the India-USA Tax Treaty, which specifically excludes payments for teaching in or by educational institutions from the definition of FIS.
While accepting the status of Cornell as an educational institution, the tax authorities noted that the courses offered were customised for corporate customers and intended to enhance particular skills of employees. Further, the tax authorities sought to draw a distinction between “teaching” conducted in an academic or scholastic environment, and “training” focused on skill development, practical application and job-specific competence. Consequently, the tax authorities held that the programmes were akin to “training” rather than “teaching”, basis which it rejected Cornell’s claim to the Article 12(5)(c) exclusion.
On appeal before the ITAT, the principal question before the court was whether the fees earned by Cornell was taxable as FIS under the India-USA Tax Treaty or fell within the “teaching” exclusion under Article 12(5)(c) of the said Treaty.
ITAT’s Ruling
At the outset, the ITAT observed that Article 12(5) of the India-USA Tax Treaty overrides Article 12(4) of the said Treaty. Therefore, once a payment qualifies for exclusion under Article 12(5), it cannot be brought within the FIS ambit merely because it satisfies the definition contained in Article 12(4).
The ITAT rejected the “teaching” versus “training” distinction. It held that since the India-USA Tax Treaty neither defines “teaching” nor restricts it to formal education or credit-bearing courses, the tax authorities could not read additional qualifications into the Treaty’s plain language to contend that Cornell’s programmes fell outside the scope of “teaching”.
The ITAT further relied on illustrations provided under the Technical Explanation to the India-USA Tax Treaty[2] (which is an official guide to the said Tax Treaty) (“Technical Explanation”) to substantiate its interpretation of Article 12(5) of the Tax Treaty. The ITAT specifically noted Examples 10 and 11 of the Technical Explanation, which gave instances of services falling within the “teaching” exclusion. Example 10 deals with an Indian manufacturer sponsoring its engineers to study aeronautical engineering at a US university. Example 11 extends this to the same manufacturer approaching an Indian university to establish a course in aeronautical engineering, where the university in turn contracts with a US manufacturer to second one of its engineers as a visiting professor. Drawing support from these examples, the ITAT observed that the educational exclusion under Article 12(5)(c) is not lost merely because the programme is technical in nature, delivered for the commercial benefit of an employer, or tailored to the requirements of a corporate participant.
Thus, drawing support from guidance emerging from earlier decisions, and the contemporaneous documentation produced by the taxpayer, the ITAT concluded that the amounts received by Cornell fell within the exclusion under Article 12(5)(c) of the India-US Tax Treaty.
Key Takeaways
The Mumbai ITAT’s ruling is a positive development for foreign universities offering executive and professional education programmes in India and is consistent with earlier decisions recognising the educational nature of similar activities.[3]
However, the ruling does not create a blanket exemption for all such courses. The ITAT emphasised that whether a programme qualifies as “teaching” under Article 12(5)(c) of the India-US Tax Treaty will depend on the nature and substance of the activities undertaken in each case. Accordingly, foreign universities should carefully evaluate their programmes and maintain relevant documentation that demonstrates their educational character.
It is also important to note that the decision is confined to the characterisation of programme fees as FTS/ FIS. Depending on the facts, other issues such as permanent establishment exposure, GST implications or royalty characterisation may still require separate consideration.
Finally, as the ruling was rendered under the India-US Tax Treaty, universities resident in other jurisdictions will need to examine the position under their applicable Treaty. While some of India’s treaties contain a similar exclusion for teaching activities, many do not.
[1] TS-1669-ITAT-2026(Mum).
[2] Technical Explanation of the Convention and Protocol Between the United States of America and the Republic of India for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income Signed at New Delhi On September 12, 1989.
[3] See Regents of the University of California, UCLA Anderson School of Management Executive Education, USA, In re, [2016] 73 taxmann.com 113 (AAR – New Delhi); UC Berkeley Center for Executive Education, In re, [2016] 73 taxmann.com 200 (AAR – New Delhi); Eruditus Education (P.) Ltd., In re, [2013] 37 taxmann.com 337 (AAR – New Delhi); and Harvard Medical International Inc. v. Dy. CIT (International Taxation)-3(1), [2013] 33 taxmann.com 50 (Mumbai – Trib.)/[2013] 58 SOT 329 (Mumbai).
Recent Comments