2017 (4) TMI 1436 - AT - Income Tax

TDS u/s 195 - foreign remittances - payment of fees by assessee s bank to Amas Bank - HELD THAT - We do not find anything wrong in asessee s denial of its liability to pay tax u/s.195. In respect of the amount payable to AMAS Bank UAE, we also found that the services rendered by Amas Bank were purely of a commercial nature and bore the character of income arising to it wholly outside India, emanating from commercial services rendered by the Bank in the course of carrying on of its business wholly outside India. Services under the Agreement with Amas Bank were neither rendered in India nor utilized in India. In this view of the matter, the services did not partake of the character of fees for technical services as defined in the Explanation to Section 9(1)(vii)(b) . The issue is squarely covered by the decision of Bangalore bench in case of ABB FZ-LLC 2016 (11) TMI 368 - ITAT BANGALORE and also by the decision in case of Mckinsey Business Consultants 2015 (2) TMI 683 - ITAT MUMBAI Payment of fees by assessee s bank to Amas Bank is not liable to tax in India and the tax already paid be refunded to assessee. In terms of paragraph 4 of the Agreement (Annexure 1 hereto), so entered by assessee, the payment of fees shall be free, inter alia, of any withholding tax, meaning thereby that such tax was to be borne by the assessee under the Agreement, thus the basis condition for making an appeal under Section 248 of the Act for a declaration that no tax was deductible on the said income being fulfilled. - Appeals of the assessee are allowed.

Summary

Issues:
1. Taxability of payment to AMAS Bank as fees for technical services under section 9(1)(vii)(b) of the IT Act.
2. Taxability of payment under the India-UAE Tax Treaty.
3. Applicability of tax treaty clauses in the absence of specific provisions.

Analysis:
1. The assessee appealed against the CIT(A)'s order concerning the payment made to AMAS Bank, arguing that it should not be taxable as fees for technical services under section 9(1)(vii)(b) of the IT Act. The assessee contended that the India-UAE Tax Treaty does not address 'fees for technical service,' and as AMAS Bank lacks a Permanent Establishment in India, the payment should not be taxable under Article 7 of the Tax Treaty. Additionally, the appellant argued that in the absence of a specific clause on fees for technical services in the tax treaty, the payment should not be taxable as per Article 22 of the Tax Treaty.

2. The Tribunal examined the facts where the assessee, a scheduled bank in India, engaged AMAS Bank for services related to raising capital abroad through Global Depository Receipts. AMAS Bank, based in the UAE, provided services as the sole Book-runner, Global coordinator, and Lead-Manager for the GDR offer. The payment for these services was a percentage of the gross proceeds of the GDR issue. The Tribunal found that the services provided by AMAS Bank were commercial in nature and did not have any connection to India. Therefore, the payment did not fall under the definition of fees for technical services as per the IT Act. The Tribunal referenced previous decisions to support this conclusion.

3. The Tribunal ruled in favor of the assessee, stating that the payment to AMAS Bank was not taxable in India. The Tribunal emphasized that the services were provided outside India and did not qualify as fees for technical services. As per the agreement between the parties, the payment of fees was to be free of any withholding tax, indicating that the tax liability was on the assessee. Consequently, the Tribunal allowed the appeals of the assessee and ordered the refund of the tax already paid on the amount to AMAS Bank.

This judgment clarifies the taxability of payments made to foreign entities for services rendered outside India, emphasizing the importance of analyzing the nature of services provided and their connection to India for determining tax liability under relevant tax treaties and domestic laws.