2011 (1) TMI 126 - AT - Income Tax

Consultancy services considered as included services within the meaning of Article 12 of Indo Canada Treaty - whether the same could be taxed under Article 7 of the Treaty as business income - AO had not examined the issue of PE as he had taxed the income under Article 12(4)(b) and not under Article 7 - income is not taxable as fees for included services as in that case taxability as business profit under Article 7 is required to be seen for which PE is relevant - order of CIT(A) set aside and restore the matter back to him for passing a reasoned and speaking order giving clear finding as to the nature of services rendered by the assessee - appeal of the revenue allowed

Summary

Issues:
1. Whether consultancy services provided by the assessee could be considered as 'included services' under Article 12 of Indo Canada Treaty?
2. If not, whether the same could be taxed under Article 7 of the Treaty as business income?

Analysis:
The case involved a dispute regarding the taxability of consultancy services provided by the assessee under the Indo Canada Treaty. The Assessing Officer (AO) contended that the payments received were in the nature of 'fees for included services' as per Article 12(4)(b) of the treaty. The AO emphasized that the services made available technical knowledge, skill, know-how, experience, and processes, falling under the definition of 'fees for included services'. The AO relied on the expression "made available" to support the taxability of the income in India.

In response, the assessee argued before the Commissioner of Income Tax (Appeals) [CIT(A)] that the consultancy services provided were not technical in nature and should not be considered as 'fees for included services'. The CIT(A) examined the facts and held that the income could not be categorized as included services under Article 12(4). Additionally, the CIT(A) ruled that since the assessee did not have a Permanent Establishment (PE) in India, the receipts could not be taxed under Article 7 as business income.

Upon further appeal, the Appellate Tribunal noted discrepancies in the evidence presented. The Tribunal observed that the details of services provided and the exact nature of the projects were not adequately clarified. The Tribunal also highlighted that the issue of PE was not thoroughly examined by the AO or the CIT(A). The Tribunal concluded that a proper and reasoned order was necessary, directing the CIT(A) to reevaluate the case, provide clear findings on the nature of services rendered, and examine the PE issue. The Tribunal emphasized the importance of considering all relevant aspects before reaching a decision on the taxability of the income.

Ultimately, the Tribunal allowed the appeal of the revenue for statistical purposes, setting aside the CIT(A)'s order and remanding the matter back for a comprehensive reassessment. The decision highlighted the significance of a well-reasoned order considering all relevant factors, including the nature of services, PE implications, and previous tribunal decisions.