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2012 (8) TMI 745 - AAR - Income TaxDouble Taxation and Prevention of Fiscal Evasion with the Swiss Confederation - Partnership agreement with Switzerland company - residential status of partners - Held that - As far as the partners are concerned, they are not the recipients of the income. Their right is only to share the profits of the partnership. Since they cannot be said to receive any income from Siemens India Limited on the basis of the agreement relied on, it cannot be said that they being residents of Switzerland could invoke the DTAC to be taxed in terms of Article 14 of the DTAC regarding the particular income - The argument that the partners are residents of Switzerland and their incomes from the partnership are taxable in Switzerland is of no avail since what is involved is not the income, the partners receive from the partnership but the income derived by the firm from an Indian entity - The partnership is not shown to be a person liable to taxation in Switzerland - thus the Swiss Partnership will not be treated as a resident under the India Switzerland DTAC. Taxability on legal fees earned by the Swiss Partnership/Partners - Held that - As the income received for rendering professional services by the partnership to the Indian company is in India and not elsewhere. The partnership sends its invoices to the Indian company, its client and the payment is remitted from India. The fact that the major part of the services are rendered outside India in respect of a dispute arising in India cannot alter the source of income. On the facts of this case it can be concluded that the source of income is in India, the legal fees received by the Swiss Partnership will be taxable in India.
Issues Involved:
1. Whether the Swiss Partnership/Partners would be treated as a resident of Switzerland under the DTAC and hence be entitled to treaty benefits. 2. Whether the legal fees earned by the Swiss Partnership/Partners shall be taxable in India under the Treaty. 3. Whether the Swiss Partnership/Partners have a fixed base in India under the terms of Article 14 of the Treaty. 4. Whether the payer is required to withhold any tax under section 195 of the Indian Income-tax Act, 1961 while making remittances if the legal fees earned by the Swiss Partnership/Partners is not taxable in India under the Treaty. Issue-wise Detailed Analysis: 1. Residency and Treaty Benefits: The primary question was whether the Swiss Partnership could be considered a resident of Switzerland under the DTAC. The partnership, under Swiss law, is not a separate taxable entity; only the partners are taxed on their shares of income. The applicants claimed that the partnership should be considered a body of persons under Article 3(d) of the DTAC and thus eligible for treaty benefits. However, the Revenue argued that since the partnership is neither taxed nor liable to be taxed in Switzerland, it does not qualify as a resident under Article 4 of the DTAC. The judgment concluded that the partnership, not being a taxable entity in Switzerland, cannot claim the benefits of the DTAC. Therefore, the Swiss Partnership will not be treated as a resident under the India-Switzerland DTAC. 2. Taxability of Legal Fees in India: The next issue was whether the legal fees earned by the Swiss Partnership are taxable in India. The judgment noted that the income is received by the partnership for professional services rendered to an Indian company in connection with a dispute arising from a contract executed in India. Despite the adjudication proceedings being held outside India, the judgment emphasized that the source of income is in India due to the nature of the services and the connection to an Indian contract. Therefore, the legal fees received by the Swiss Partnership are taxable in India. 3. Fixed Base in India: The third issue was whether the Swiss Partnership/Partners have a fixed base in India under Article 14 of the DTAC. The judgment found that since the partners did not receive any income directly from Siemens India Limited, this question does not arise. The income in question was derived by the partnership, not the individual partners. 4. Withholding Tax under Section 195: The final issue was whether Siemens India Limited is required to withhold tax under section 195 of the Indian Income-tax Act, 1961, while making remittances to the Swiss Partnership. Given the findings that the partnership is not a resident under the DTAC and that the legal fees are taxable in India, the question of withholding tax under section 195 does not arise. Conclusion: Based on the above reasoning, the rulings were as follows: 1. The Swiss Partnership will not be treated as a resident under the India-Switzerland DTAC. 2. The legal fees received by the Swiss Partnership will be taxable in India. 3. The question of the Swiss Partnership/Partners having a fixed base in India does not arise. 4. The question of withholding tax under section 195 does not arise based on the findings.
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