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2016 (3) TMI 501 - AT - Income TaxIncome accrued and arisen in India - whether the services rendered by the assessee could be termed FIS as per the provisions of Article 12 of the DTAA? - Held that - Services rendered by the assessee cannot be taxed u/s.9(1)(vii)of the Act as unless the services were rendered and utilised in India the income could not be taxed in India Perusal of the contracts entered into by the assessee with JTPCL, reveal that the services provided by it under the contracts did not in any way make available technical knowledge and experience skill or know-how to the Indian Compnay. It had supplied the equipments to Indian company outside India, so the payments made by JTPCL to the assessee would not constitute FIS as per Article 12 of the Treaty. Services mentioned in Examples 4 and 7 of the MoU are more or less similar to the services rendered by the assessee.We have also taken note of Article 12 (5)of the Treaty which stipulates that FIS would not include the amounts if same are inextricably and essentially linked to the sale of property. In the case under consideration in our opinion the services provided by the assessee were linked inextricably and essentially to the start-up services and sale of equipment to JTPCL. Therefore the payment received by it cannot be treated as FIS. In our opinion, payment received by the assessee under the contract constituted business profit within the meaning of article 7 of the Tax-treaty. As per article 7(1) of the treaty business profit of an assessee can be taxed in India only if it has a PE in India. In the case under consideration the assessee is not having PE in India whether fixed or otherwise. Considering the above we are of the opinion that the order of the FAA cannot be sustained. So reversing his order, we decide effective ground of appeal in favour of the assessee.
Issues Involved:
1. Taxability of payments received by the assessee from Jindal Tractebel Power Company Limited (JTPCL) under the contract. 2. Classification of services rendered by the assessee as "Fee for Included Services" (FIS) under Article 12 of the Indo-US DTAA. 3. Applicability of Section 9(1)(vii) of the Income-tax Act, 1961, regarding fees for technical services (FTS). Detailed Analysis: 1. Taxability of Payments Received by the Assessee: The assessee argued that the payments received from JTPCL for various services and supplies were not taxable in India as the services were rendered outside India, and no Permanent Establishment (PE) was created in India. The Assessing Officer (AO) contended that the services were utilized in India, making the income taxable under Section 9(1)(vii) and Article 12(4)(b) of the DTAA. The First Appellate Authority (FAA) upheld the AO's decision, stating that the technical and consultancy services provided by the assessee were essential for setting up the power plant in India, thus taxable as FIS. 2. Classification of Services as "Fee for Included Services" (FIS): The AO and FAA classified the payments as FIS under Article 12 of the DTAA, arguing that the services rendered, including engineering, design, and start-up services, made available technical knowledge and expertise to JTPCL. The assessee countered that the services did not involve the transfer of technology or technical know-how, and thus, should not be classified as FIS. The Tribunal analyzed the nature of services provided, including engineering and design work, providing specifications, and start-up services, and concluded that these did not make available technical knowledge or skills to JTPCL, as required under Article 12(4)(b) of the DTAA. 3. Applicability of Section 9(1)(vii) of the Income-tax Act: The Tribunal referred to the Supreme Court's decision in the case of Ichikawajama-Harima Heavy Industries Ltd., which emphasized that for income to be taxable under Section 9(1)(vii), the services must be rendered and utilized in India. The Tribunal noted that the services provided by the assessee were rendered outside India, and there was no sufficient territorial nexus to tax the income in India. The Tribunal also referred to the Madras High Court's decision in Neyveli Lignite Corporation, which held that payments for services rendered outside India could not be taxed in India. Conclusion: The Tribunal concluded that the services rendered by the assessee did not qualify as FIS under Article 12 of the DTAA, as they did not make technical knowledge available to JTPCL. Additionally, the payments could not be taxed under Section 9(1)(vii) of the Income-tax Act, as the services were rendered outside India. Consequently, the Tribunal reversed the FAA's order and allowed the assessee's appeal, holding that the payments received by the assessee were not taxable in India. Order Pronouncement: The appeal filed by the assessee was allowed, and the order was pronounced in the open court on 11th March 2016.
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