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2010 (11) TMI 609 - AT - Income TaxDTAA - TDS - commission and reimbursement of expenses - commission paid for entertainers / artiste in India - Held that - the payment of commission to Colin Davie is not covered by article 18 of DTAA between India and U.K. as Colin Davie himself has neither taken any part in events during the dates of engagement nor exercised any personal activities in India - The services are rendered outside India by Colin Davie and income arising from that Article 7 of DTAA between India and U.K. covers services rendered - Not taxable in India - No TDS u/s 195. Reimbursement of expenses - The law is well settled that any payment made towards reimbursement of expenses is not chargeable to tax - There was no obligation to deduct TDS
Issues Involved:
1. Obligation to deduct tax at source on payments made to non-residents. 2. Taxability of commission paid to a foreign agent. 3. Taxability of reimbursement of expenses to foreign artistes. Issue-wise Detailed Analysis: 1. Obligation to Deduct Tax at Source on Payments Made to Non-Residents: The revenue's primary grievance was that the Commissioner of Income-tax (Appeals) [CIT(A)] held that the assessee was not obligated to deduct tax at source on certain payments made to non-residents. The CIT(A) ruled that payments to agents and reimbursements of expenses were not taxable, considering them integral parts of payments to artists. The revenue contended that the division of these payments was artificial and should be considered as a whole for tax purposes. 2. Taxability of Commission Paid to a Foreign Agent: The appellant, Wizcraft International Entertainment Pvt. Ltd., engaged Colin Davie Artiste Services and Planet-7, proprietary concerns of Mr. Colin Davie, as agents for coordinating the performance of international artists in India. The appellant argued that the commission paid to Colin Davie was not taxable in India as he rendered services outside India. According to the Double Taxation Avoidance Agreement (DTAA) between India and the United Kingdom (U.K.), the commission income of Colin Davie should be taxable only in the U.K. since he did not have a permanent establishment (PE) in India. The appellant cited Article 7 of the DTAA, which states that business profits of an enterprise of a contracting state shall be taxable only in that state unless the enterprise carries on business through a PE in the other contracting state. The appellant also referenced the Supreme Court's decision in Carborandum Co. v. CIT [1977] 108 ITR 335, which held that activities or operations in India are essential for a non-resident to have a business connection in India and be liable to tax. Additionally, the appellant relied on CBDT Circular No. 17(XXXVII) of 1953 and Circular No. 786 dated 7-2-2000, which clarified that foreign agents operating in their own country are not liable to Indian Income-tax and no tax is deductible under section 195 for services rendered outside India. 3. Taxability of Reimbursement of Expenses to Foreign Artistes: The appellant reimbursed expenses incurred by the artistes for their performances in India, including travel, visa, and equipment costs. The appellant argued that these reimbursements did not contain any element of income and were purely for expenses incurred, thus not subject to tax. The Assessing Officer, however, treated these reimbursements as taxable, raising a demand for the same. The Tribunal examined the agreements between the appellant and Mr. Colin Davie, noting that the artiste and agent fees were separately specified. The Tribunal found no material evidence to support the Assessing Officer's conclusion that the entire consideration, including the agent's commission, was in fact fees payable to the artistes for performance in India. The Tribunal held that the commission paid to Colin Davie was not covered by Article 18 of the DTAA, as he did not exercise any personal activities in India and the services were rendered outside India. Therefore, the commission income was taxable only in the U.K., and there was no obligation on the appellant to deduct tax at source. Regarding the reimbursement of expenses, the Tribunal noted that the payments were indeed reimbursements and not chargeable to tax. The Tribunal cited the Bombay High Court's decisions in DIT (IT) v. Krupp UDHE Gmbh [2010] 38 DTR 251 and CIT v. Siemens Aktiongesellschaft [2008] 220 CTR (Bom.) 4251, which established that reimbursement of expenses is not taxable and no tax deduction at source is required. Conclusion: The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order that there was no obligation on the part of the appellant to deduct tax at source on the commission paid to Colin Davie and the reimbursement of expenses to the artistes. The Tribunal concluded that the commission income was taxable only in the U.K. under the DTAA, and the reimbursements were not chargeable to tax.
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