2018 (10) TMI 2024 - AT - Income Tax

TDS u/s 195 - addition u/s 40(a)(i) - assessee has paid in foreign currency a sum as export commission on which no tax was deducted at source - Scope of MFN clause available in the Protocol of Indo-Belgium DTAA - as submitted as per the Indo Belgium DTAA Article 12 the payment related to the managerial services was categorized as fees for technical services and was taxable in the other contracting state - HELD THAT - Though the CIT(A) noted that the definition of the term fees for technical services under the treaty between India and Belgium includes services of managerial nature having regard to the MFN clause in the India-Belgium Treaty the restrictive definition of the term fee for technical services in the India-UK Treaty can be applied and by following various decisions as referred hereinabove CIT(A) held that the payment made to SG Exprover cannot be considered to partake of the nature of fees for technical services and allowed the ground raised by the assessee without obtaining any comments from the AO. We direct the Assessing Officer to examine the MFN clause available in the Protocol of Indo-Belgium DTAA as to whether the same shall override the specific provisions laid down under Article 12 and decide the issue afresh in accordance with law. Thus the ground raised by the Revenue is allowed for statistical purposes. Cross objection - contention of the assessee is that the only service rendered by the SG Exprover is procurement of export orders for the assessee and the payments made to them are only commission for procurement of export orders and therefore the ld. CIT(A) erroneously held that the services rendered by SG Exprover is managerial services - By considering the materials furnished by the assessee it was the observation of the Assessing Officer that the services rendered by the assessee are in the nature of managerial services in view of the Article 12 of the Indo-Belgium DTAA and the ld. CIT(A) found considerable merits in the above observations. Thus we find no infirmity in the order of the ld. CIT(A). Accordingly the ground raised in the Cross Objection stands dismissed.

Summary

Issues:
1. Addition made under section 40(a)(i) of the Income Tax Act, 1961 regarding payment for managerial services categorized as "fees for technical services" under Indo Belgium DTAA - Article 12.

Analysis:
The appeal pertains to the Revenue challenging the order of the ld. Commissioner of Income Tax (Appeals) regarding the deletion of an addition made under section 40(a)(i) of the Income Tax Act, 1961. The Assessing Officer disallowed a certain amount related to managerial services as "fees for technical services" under section 9(1)(vii) of the Act and Indo Belgium DTAA - Article 12. The ld. CIT(A) allowed the assessee's appeal based on precedents and held that the payment cannot be considered as "fees for technical services."

Upon hearing both sides, the Tribunal examined the Indo-Belgium DTAA - Article 12, which defines "fees for technical services" broadly, encompassing managerial services. The Tribunal noted that the payment made for managing sales affairs to a company in Belgium is taxable only in India as per the treaty. The Tribunal directed the Assessing Officer to consider the Most Favored Nation (MFN) clause in the treaty and decide the issue afresh.

Regarding the Cross Objection, the assessee contended that the payments made were solely for procurement of export orders, not managerial services. However, the Assessing Officer and ld. CIT(A) found the services to be managerial in nature under the treaty. The Tribunal upheld the decision of the ld. CIT(A) in this regard.

In conclusion, the appeal by the Revenue was allowed for statistical purposes, and the Cross Objection by the assessee was dismissed. The Tribunal's order was pronounced on October 29, 2018, in Chennai.