2015 (8) TMI 457 - AAR - Income Tax

Taxability of the income generated by fees for technical services (FTS) - applicant relies on DTAA between India and Belgium and also the DTAA between India and Portugal and, since the Portugal Treaty goes beyond the Treaty in between India and Belgium as per the protocol the applicant will be entitled to take the benefit of Portugal Treaty also - Held that - We examined the application threadbare. The three questions which have been asked do not pertain to income on royalty or the income generated on account of the earned interest. There is no statement found in the whole application that the applicant does not have an income from royalty or from interest. In that view, Shri Piyush Kaushik made a categorical statement before us that he is not inviting any question on the income received by the applicant on royalty and interest income. On the other hand, he has made a categorical statement in writing that the applicant was convinced about the taxability of the royalty and interest income. In our opinion, therefore, this cannot be seen as a device to avoid the tax. In that view we would prefer to admit the application. We make it clear that the Department will be free to take such action as is permissible by law in respect of income on royalty and interest income aspect.

Summary

Issues:
1. Taxability of income generated by fees for technical services (FTS) under Double Taxation Avoidance Agreements (DTAA) between India, Belgium, and Portugal.
2. Allegation of using the application as a device to avoid tax by not disclosing income from royalty and interest.

Analysis:
1. The applicant sought a ruling on the taxability of income from fees for technical services (FTS) under the DTAA between India, Belgium, and Portugal. The applicant argued that the Portugal Treaty extended benefits beyond the India-Belgium Treaty, allowing them to claim benefits under both agreements. The Revenue opposed the application, alleging it was a tactic to evade tax. They claimed that the applicant, after filing the application, declared nil income but later revealed income from royalty and interest during assessment, leading to tax assessment on those amounts.

2. The Authority examined the application thoroughly and noted that the questions raised did not concern income from royalty or interest. The applicant explicitly stated that they were not disputing the taxability of royalty and interest income. The Authority accepted this stance, concluding that the application was not an attempt to avoid tax. They decided to admit the application while clarifying that the Revenue could take lawful action regarding the income from royalty and interest separately.

This judgment clarifies the distinction between the issues raised in the application regarding FTS income under DTAA and the alleged attempt to avoid tax by not disclosing royalty and interest income. The Authority's decision to admit the application while allowing the Revenue to address the royalty and interest income separately ensures a fair assessment of the tax liabilities involved.