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2011 (5) TMI 351 - AAR - Income TaxDTAA with UK - Royalty or Fees for technical services - No permanent establishment - data processing services agreement - TDS u/s 195 - All the services do not speak of rendering any managerial, technical or consultancy services. In the written submission the applicant has said that these are in the nature of routine data entry, application sorting, document handling and data capturing services and do not involve the usage of any sophisticated technology. - Held that - these services can not be held as technical, managerial or consultancy services - the consideration received for such services is not taxable.
Issues Involved:
1. Taxability of the amount received/receivable by RRD, UK under the data processing services agreement as 'fees for technical services' under the Income-tax Act, 1961 and the Double Taxation Avoidance Agreement (DTAA) between India and the UK. 2. Chargeability of the amount received/receivable by RRD, UK to tax in India considering RRD, UK does not have a permanent establishment in India. 3. Requirement for the applicant to withhold tax under section 195 of the Income-tax Act while making remittance to RRD, UK if the amount is not taxable in India. Detailed Analysis: Issue 1: Taxability as 'Fees for Technical Services' The applicant, an Indian company, entered into a data processing services agreement with RRD, UK, a tax resident of the UK. The services rendered by RRD, UK include receiving, sorting, reviewing, scanning, and transmitting hard copy applications. The applicant contended that these services do not involve technology transfer or technical knowledge, and thus should not be classified as 'fees for technical services' under the Income-tax Act and the DTAA. Article 13 of the Indo-UK DTAA defines 'fees for technical services' and emphasizes that such services must "make available technical knowledge, experience, skill, know-how, or processes" to the recipient. The applicant argued that the services provided by RRD, UK do not transfer any technical knowledge or skills to RRD India, and hence do not qualify as 'fees for technical services' under the DTAA. The Revenue admitted that there is no permanent establishment of RRD, UK in India and cited the Explanation to section 9(2) of the Income-tax Act, which deems income to accrue or arise in India irrespective of the non-resident's presence. However, the applicant cited precedents from the Authority for Advance Rulings (AAR) and the Supreme Court, which support the view that mere provision of services does not constitute 'fees for technical services' unless technical knowledge is made available to the recipient. Issue 2: Chargeability to Tax in India Given that RRD, UK does not have a permanent establishment in India, the applicant argued that the amount received should not be chargeable to tax in India. The DTAA provisions and the Supreme Court's judgment in Ishikawajima-Harima Heavy Industries Ltd. v. DIT were cited to support this position. The Authority examined the nature of services provided by RRD, UK and concluded that these services do not involve managerial, technical, or consultancy services as defined under the Income-tax Act. The services were categorized as routine data entry, application sorting, document handling, and data capturing, which do not involve sophisticated technology or transfer of technical knowledge. Issue 3: Requirement to Withhold Tax under Section 195 Since the Authority ruled that the amount received by RRD, UK is not taxable in India under the DTAA, the question of withholding tax under section 195 of the Income-tax Act does not arise. Conclusion: 1. The amount received by RRD, UK is not taxable as 'fees for technical services' under Article 13 of the Indo-UK DTAA. 2. The amount received by RRD, UK is not chargeable to tax in India as RRD, UK does not have a permanent establishment in India. 3. The applicant is not required to withhold tax under section 195 of the Income-tax Act while making remittance to RRD, UK. This ruling was pronounced on May 16, 2011.
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