2014 (5) TMI 149 - HC - Income Tax

Interpretation of Article 18 of Indo-UK DTAA TDS on commission paid to Mr. Colin Davie who acted as an agent between the Assessee and the Artists - Held that - The Tribunal has correctly understood the limited controversy - the Assessee paid the remuneration to the Artists, to the agent and reimbursed the expenses in connection with the visit and performance of the Artists in India - the Assessee deducted tax at source and paid to the credit of the Central Government on the fees paid to the International Artists in India - The Tax was deducted at source on the payment made to Artists for performance in India but it was not deducted at source on the commission paid to Mr. Colin Davie who acted as an agent between the Assessee and the Artists performed in India. Mr. Colin Davie did not perform any services in India, but they were rendered outside India - thus, the commission income to the agent is not liable to tax in India - There was no obligation on the part of the assessee to deduct the tax at source at the time of making of payment - in the facts peculiar to the case of Mr. Colin Davie, Article 18 and particularly clause (2) is not attracted - The payment in relation thereto is not in terms of clause (2) of Article 18 - Mr. Colin Davie's commission income cannot be said to be taxable in India as such no substantial question of law arises for determination Decided against Revenue.

Summary

Issues: Interpretation of Article 18 of Indo-UK DTAA, Tax deduction on reimbursement of expenses, Tax liability on commission payment to agent

Interpretation of Article 18 of Indo-UK DTAA:
The appeal challenges the order passed by the Income Tax Appellate Tribunal, which confirmed the order of the Commissioner of Income Tax. The main issue raised by the Appellant is the interpretation of Article 18 of the Double Taxation Avoidance Agreement between India and the UK. The Appellant argues that the Tribunal erred in holding that tax should be deducted at source on payments for reimbursement of expenses. The Appellant contends that since no application was made under Section 195(2) of the Income Tax Act, tax should have been deducted on the gross amounts. The Appellant relies on the Assessing Officer's findings, the wording of Article 18, and a judgment of the Supreme Court in a related case.

Tax deduction on reimbursement of expenses:
The Assessing Officer held that payments made to performing artists in India, either directly or through their agent, are to be treated as consideration payable to the artists. The income of the artists is taxable in the state where the activities are organized, in this case, India. The Assessing Officer noted that while tax was paid on the amount claimed to be paid to the artists, no tax was deducted on payments made to the agent or for expenses. This led to the Assessee being treated as a defaulter. The Commissioner of Income Tax (Appeals) disagreed with the Assessing Officer, stating that reimbursement of expenses for artists' performances in India does not constitute taxable income under the DTAA. The Tribunal upheld this view, concluding that the commission paid to the agent, who did not perform any services in India, is not taxable in India. The Tribunal found that tax was correctly deducted at source on payments made to the artists for their performances in India.

Tax liability on commission payment to agent:
The Tribunal analyzed the payments made to the artists, the reimbursement of expenses, and the commission paid to the agent. It found that the commission income to the agent, who did not perform any services in India, is not liable to tax in India. The Tribunal concluded that the commission income falls outside the scope of Article 18 of the DTAA. It held that the agent's income could not be assessed in India, and therefore, no tax deduction was required on the commission payment. The Tribunal dismissed the appeal, stating that no substantial question of law was raised.

In conclusion, the judgment clarifies the tax treatment of payments to artists, reimbursement of expenses, and commission payments to agents under the DTAA, emphasizing the importance of correctly interpreting relevant articles and ensuring proper tax deductions in line with the law.