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2011 (12) TMI 78 - AAR - Income TaxFees for technical services - Double Taxation Avoidance Convention (DTAC) between India and Netherlands - payment made to SSSABV for business support services. - The services include invoice processing, monitoring operational execution, SOX (Business Controls - Board) and goods receipts/invoice receipts and other services relating to accounts payable/receivable. It also includes general accounting and credit management - held that - the consideration paid for the financial services received by the applicant is not in the nature of fees for technical services within the meaning of Article 12.5(b) of the DTAC between India and the Netherlands. Since there was no contention that SSSABV had a permanent establishment in India in terms of Article 5 of the DTAC between India and Netherlands, on question No. (ii) we rule that the payment received by SSSABV is not chargeable to tax in India. Since there is no liability to tax in India we rule on question No.(iii) that the applicant has no obligation to withhold tax under section 195 of the Income-tax Act.
Issues Involved:
1. Nature of payments made by the applicant to SSSABV under the Agreement for Business Support Services. 2. Taxability of payments received by SSSABV in India. 3. Obligation of the applicant to withhold tax under section 195 of the Income-tax Act. Issue-wise Detailed Analysis: 1. Nature of Payments: The primary issue was whether the payments made by the applicant to SSSABV under the Agreement for Business Support Services constituted "fees for technical services" (FTS) under Article 12 of the India-Netherlands Tax Treaty. The applicant argued that the services provided by SSSABV were not technical or consultancy services as defined in the treaty. They emphasized that the services did not make available technical knowledge, experience, skill, know-how, or processes to the applicant. The Revenue, however, contended that the services were technical in nature, benefiting the applicant by standardizing processes and deploying standard systems. They argued that the payments could be considered royalties under section 9(1)(vi) of the Income-tax Act due to the specialized technical system involved. The Authority ruled that the services provided by SSSABV were financial services related to accounts and not technical services within the meaning of Article 12.5(b) of the DTAC between India and the Netherlands. They noted that the services were rendered through SSSABV's branch in the Philippines without making any technical knowledge available to the applicant. 2. Taxability of Payments: The second issue was whether the payments received by SSSABV were chargeable to tax in India. The applicant asserted that since SSSABV did not have a permanent establishment (PE) in India under Article 5 of the India-Netherlands Tax Treaty, the payments should not be taxable in India. The Revenue did not contest the absence of a PE but maintained that the nature of services rendered was technical, which would make the payments taxable as FTS. The Authority ruled that the payments were not taxable in India as fees for technical services under the DTAC between India and the Netherlands. They emphasized that SSSABV did not have a PE in India, and thus the payments were not chargeable to tax in India. 3. Obligation to Withhold Tax: The third issue was whether the applicant had an obligation to withhold tax under section 195 of the Income-tax Act on the payments made to SSSABV. The applicant argued that since the payments were not taxable in India, there was no obligation to withhold tax. The Revenue's alternative contention was that the payments could be considered royalties, which would necessitate withholding tax. The Authority concluded that since the payments were not taxable in India as FTS and there was no PE of SSSABV in India, the applicant had no obligation to withhold tax under section 195 of the Income-tax Act. Conclusion: The Authority ruled that: - The payments made by the applicant to SSSABV for financial services were not in the nature of fees for technical services under Article 12.5(b) of the DTAC between India and the Netherlands. - The payments received by SSSABV were not chargeable to tax in India due to the absence of a permanent establishment. - Consequently, the applicant had no obligation to withhold tax under section 195 of the Income-tax Act. The ruling was pronounced on the 21st day of December, 2011.
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