2013 (8) TMI 942 - AT - Income Tax

Summary

Issues Involved:
1. Imposition of tax u/s 201(1) and interest u/s 201(1A) on the Assessee.
2. Applicability of Article 14 of the DTAA between India and Portugal.
3. Applicability of Section 9(1)(vii) of the Income Tax Act.

Summary:

Issue 1: Imposition of tax u/s 201(1) and interest u/s 201(1A) on the Assessee
The Assessee appealed against the order of CIT(A) dated 8.6.2012, challenging the imposition of tax amounting to Rs. 15,79,937/- u/s 201(1) and interest amounting to Rs. 88,908/- u/s 201(1A). The AO noted that the Assessee collected payments on behalf of foreign beneficiaries and transferred them without TDS, asserting that the earnings were taxable u/s 5(2) and TDS was required u/s 195. The Assessee contended that the income was not chargeable in India as services were rendered and utilized outside India.

Issue 2: Applicability of Article 14 of the DTAA between India and Portugal
The Assessee argued that under Article 14 of the DTAA, the income derived from professional services performed in India by a resident of Portugal is taxable only in Portugal unless the person has a fixed base in India or stays for more than 90 days. The CIT(A) dismissed this, stating that the non-resident had a fixed base in India for the entire financial year, making the income taxable in India. However, the Tribunal found that the non-resident did not have a fixed base or stay exceeding 90 days, thus the income was not taxable in India under the DTAA.

Issue 3: Applicability of Section 9(1)(vii) of the Income Tax Act
The CIT(A) held that the services rendered by the non-resident were utilized in India, making the income taxable under Section 9(1)(vii). The Tribunal, however, emphasized that if there is a conflict between the Income Tax Act and the DTAA, the provisions of the DTAA, if beneficial to the Assessee, shall prevail. Since the income was not chargeable to tax under the DTAA, the Assessee was not obligated to deduct TDS.

Conclusion:
The Tribunal set aside the order of CIT(A) and quashed the order passed u/s 201(1) and 201(1A) of the Income Tax Act, allowing the appeal filed by the Assessee.