2014 (8) TMI 1187 - AT - Income Tax

Delay in filing appeal u/s. 248 extending upto 933 days - TDS on payments made to non-resident payees, and deposited the same in the State Exchequer - assessee approached the CIT(A) u/s 248 claiming that on the payments made to three non-resident payees, no tax was required to be deducted at source and CIT-A accepted the same - Indo-Thailand DTAA - HELD THAT - Section 248 of the Act primarily deals with a situation where a person has deducted and paid tax to the Government, but thereafter denies his liability to deduct such tax. Thus, an appeal u/s 248 of the Act is preferred by a person only after he has actually paid the tax to the credit of the Central Government, whose liability he seeks to deny. In such a situation, where the bonafides of the assessee are not in challenge, the reasons advanced for the delay ought to be construed liberally. In conclusion, we hereby affirm the action of the CIT(A) condoning the delay in filing of the appeals before him. Thus, Revenue fails on this aspect. TDS on payments made to non-resident payees - DTAA between Indo-Thailand - PE in India - In the present case, there is no material to suggest that the recipient concerns have a permanent establishment in India or that they were present in India for a period exceeding 183 days during the previous year relevant to the assessment year under consideration. In this context, learned counsel for the assessee furnished appropriate certificates from the three recipient concerns tabulating the period for which their representatives were present in India during the relevant period which show that the presence in India was for less than 183 days. Therefore, on this aspect also, we find no merit in the plea of the Revenue and the discussion made by the CIT(A) in para 3.8 of his order in this context is hereby affirmed. As revenue CIT(A) has not considered the taxability of the impugned income as business income under Article 7 of the DTAA - Article 7 of the DTAA deals with business profits to be considered for taxation. The said Article states that the income or profits of the enterprise of a contracting State shall be taxable only in that State unless the enterprise carries on business in the other contracting State through a Permanent Establishment (PE) situated therein. The taxability is only of so much income as is attributable to that PE for the sales in that other State of the goods or merchandise. In this context, having regard to the definition of PE provided in Article 5(2)(j) of the Indo-Thailand DTAA, we find that the three recipient concerns cannot be said to have any PE in India so as to bring the impugned income to tax as business profits in India as per Article 7 of the DTAA. Therefore, on this count also we find no reason to interfere with the conclusion of the CIT(A) to the effect that assessee was not required to deduct tax on payments to the three recipient concerns. - Decided in favour of assessee

Summary

Issues Involved:
1. Condonation of delay in filing appeals under Section 248 of the Income Tax Act, 1961.
2. Requirement of tax deduction at source (TDS) on payments made to non-resident payees.
3. Applicability of Double Taxation Avoidance Agreement (DTAA) between India and Thailand.
4. Taxability of payments under Article 22 (Miscellaneous Income) and Article 14 (Independent Personal Services) of the DTAA.
5. Examination of Permanent Establishment (PE) under Article 5(2)(j) of the DTAA.
6. Taxability of income as business income under Article 7 of the DTAA.

Detailed Analysis:

1. Condonation of Delay in Filing Appeals:
The Revenue objected to the delay in filing appeals by the assessee before the CIT(A), which ranged from 832 to 933 days. The CIT(A) condoned the delay, citing the assessee's reliance on incorrect advice from their previous counsel regarding the taxability of the amounts in India. The CIT(A) referenced multiple judgments, including the Supreme Court's decision in *Collector, Land Acquisition vs. Mst. Katiji and Others*, to justify the condonation. The Tribunal affirmed the CIT(A)'s decision, noting that the reasons provided by the assessee were bona fide and that Section 248 of the Act necessitates a liberal approach towards delay condonation.

2. Requirement of TDS on Payments to Non-Resident Payees:
The assessee had deducted and deposited TDS on payments made to three non-resident entities from Thailand for professional services related to the development of a resort. The CIT(A) ruled that no TDS was required on these payments under the DTAA between India and Thailand. The Tribunal upheld this finding, agreeing that the services rendered fell under "fees for technical services" as per Section 9(1)(vii)(b) of the Act but were not taxable under the DTAA.

3. Applicability of DTAA Between India and Thailand:
The CIT(A) concluded that the payments were not taxable under the Indo-Thailand DTAA, which does not have a specific provision for taxing "fees for technical services." The Tribunal affirmed this conclusion, referencing Section 90(2) of the Act, which allows the provisions of the DTAA to prevail if they are more beneficial to the assessee.

4. Taxability Under Article 22 and Article 14 of the DTAA:
The Revenue argued that the payments should be taxed under Article 22 (Miscellaneous Income) or Article 14 (Independent Personal Services) of the DTAA. The Tribunal rejected this argument, noting that "fees for technical services" cannot be taxed under the residual clause of Article 22, as supported by the Madras High Court's judgment in *Bangkok Glass Industry Co. Ltd. vs. ACIT*. Furthermore, Article 14 was deemed inapplicable as the recipient entities did not have a presence in India exceeding 183 days, nor did they maintain a fixed base or PE in India.

5. Examination of Permanent Establishment (PE) Under Article 5(2)(j) of the DTAA:
The Revenue's contention that the CIT(A) failed to consider whether the consultancy services constituted a PE under Article 5(2)(j) was dismissed. The Tribunal found no evidence suggesting that the recipient entities had a PE in India, as their presence was limited to less than 183 days, and there was no fixed base in India.

6. Taxability as Business Income Under Article 7 of the DTAA:
The Revenue argued that the payments should be considered business income under Article 7 of the DTAA. The Tribunal found that the recipient entities did not have a PE in India, as defined under Article 5(2)(j) of the DTAA. Consequently, the payments could not be taxed as business profits in India.

Conclusion:
The Tribunal affirmed the CIT(A)'s order, concluding that the assessee was not required to deduct tax on the payments made to the non-resident entities. The Revenue's appeals were dismissed, and the decision was pronounced in the open court on 28th August, 2014.