9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2011 (6) TMI 145 - AT - Income TaxDTAA - TDS u/s 195 - fees for technical services (FTS) - No Permanent Establishment ( PE ) - Circular No. 7 of 2009, dated 22-10-2009 - An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, where such persons are acting in the ordinary course of their business - Held that the appellant is a wholly owned subsidiary of ACM UK and the fact that the appellant works only for ACM UK are factors which will have a bearing - Even though the Assessing Officer has not examined the case from any particular sub-clause of Article 5(4) of the India-UK DTAA, it is clear from his order that he had applied Article 5(4)(c) of the India-UK DTAA - Appeal is allowed by way of remand
Issues Involved:
1. Characterization of commission payments to ACM UK. 2. Taxability of ACM UK's income in India. 3. Applicability of Article 5 of the India-UK DTAA regarding Permanent Establishment (PE). Detailed Analysis: 1. Characterization of Commission Payments to ACM UK: The appellant, ACM Shipping India Limited, entered into a service agreement with its parent company, ACM UK, to obtain contact information of international ship owners for arranging shipments. The appellant argued that the commission paid to ACM UK for these services should not be characterized as fees for technical services (FTS) under Article 13(4) of the India-UK Tax Treaty. Instead, they claimed it to be business income, which should not be taxable in India due to the absence of a Permanent Establishment (PE) of ACM UK in India, as per Article 7(1) of the DTAA between India and the UK. 2. Taxability of ACM UK's Income in India: The Assessing Officer (AO) disagreed with the appellant's submissions, asserting that ACM UK, being the majority shareholder and the appellant's principal business beneficiary, effectively operated through an agency PE in India. Consequently, the AO directed the appellant to deduct tax at source before making payments to ACM UK. On appeal, the CIT(A) held that the commission earned by ACM UK for services rendered outside India was not taxable in India, relying on Circular No. 23, dated 23-7-1969, which clarified that transactions on a principal-to-principal basis do not accrue income in India. The CIT(A) also noted that ACM UK did not conduct any business in India and that the appellant operated independently despite being a subsidiary. 3. Applicability of Article 5 of the India-UK DTAA Regarding Permanent Establishment (PE): The CIT(A) concluded that the appellant was not an agency PE of ACM UK, as the agreement between the two entities was on a principal-to-principal basis. However, the Tribunal noted that the CIT(A) did not properly examine the applicability of Article 5(4)(c) and Article 5(5) of the India-UK DTAA, which pertain to the establishment of a PE through habitual securing of orders and the independence of the agent, respectively. The Tribunal observed that the appellant habitually secured orders for ACM UK and that the commission payments were linked to services rendered in India, thus potentially establishing a business connection and taxable income in India. Tribunal's Decision: The Tribunal set aside the order of the CIT(A) and remanded the issue back for fresh consideration, specifically directing the CIT(A) to re-examine the applicability of Article 5(4)(c) and Article 5(5) of the India-UK DTAA. The CIT(A) was instructed to consider the fact that the appellant is a wholly-owned subsidiary of ACM UK and works predominantly for ACM UK. The Tribunal emphasized the need for a detailed examination of whether the appellant's activities constituted a PE under the DTAA, and whether the commission payments should be taxable in India. The appeals were allowed for statistical purposes, with instructions for the CIT(A) to provide the appellant an opportunity to be heard before making a final decision.
|
