2013 (1) TMI 399 - HC - Income Tax

Whether a respondent- assessee can be considered to be a tax resident of Germany? - Held that - Respondent-assessee is receiving royalty and fees for technical services rendered in India & as Article 12 of DTAA, royalty and fees for technical services received in India by a person resident outside India are not liable to tax in India in excess of 10% of the gross amount received. On examination term resident in terms of Article 4 of the DTAA means any person who, under the laws of Germany is liable to tax therein by reason of his domicile, residence, place of management or any criterion of a similar nature . Thus both the CIT(A) and the Tribunal has on examination of records found that respondent-assessee is filing Trade Tax Return in Germany and therefore is paying tax to which the DTAA applies. Further, the Tax Resident Certificate dated 18.03.2005 issued by German Authorities evidences the fact that the respondent-assessee is considered as a taxable unit under the taxation laws of Germany. Therefore, the DTAA is applicable to the respondent-assessee and the benefit of Article 12(2) thereof cannot be denied - it is not open to deny the benefit of the DTAA on the basis of the OECD commentary - in favour of assessee. Interest chargeable u/s 234B - Held that - The issue is covered in favour of the assessee as Director of Income Tax (International Taxation) v/s. NGC Network Asia LLC 2009 (1) TMI 174 - BOMBAY HIGH COURT wherein held that when a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the payee-assessee - in favour of assessee.

Summary

Issues:
1. Whether the respondent can be considered a tax resident of Germany?
2. Whether interest was chargeable under section 234B of the Act?

Analysis:
Issue 1:
The respondent, a Non-Resident Foreign Company, filed its income return for the Assessment Year 2002-03, claiming benefits under the India-Germany Double Taxation Avoidance Agreement (DTAA) for Royalties and Technical Service Fees. The Assessing Officer initially denied DTAA benefits, stating the respondent was not liable to tax in Germany as a limited partnership. However, the CIT(A) and the Tribunal found in favor of the respondent, citing evidence of Trade Tax payments in Germany and a Tax Resident Certificate issued by German Authorities. The High Court upheld the Tribunal's decision, emphasizing that the respondent satisfied the DTAA requirements, making them eligible for the lower tax rate under Article 12(2) for income earned in India. The Court rejected the Revenue's argument based on OECD commentary, stating the DTAA governed the issue.

Issue 2:
Regarding interest chargeability under section 234B of the Act, both parties agreed that a previous court decision supported the respondent's position. Citing the case of Director of Income Tax v/s. NGC Network Asia LLC, the Court found no grounds to entertain the issue further. Consequently, the appeal was dismissed with no costs awarded.