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2017 (4) TMI 459 - AT - Income TaxTDS u/s 195 - fee for Technical services(FTS) - non deduction of tax at source - Indo-Thailand DTAA - PE situated in India - assessee in default - Held that - The remittances in question are in the nature of fees for technical services in the hands of Thai entities, the income embedded in these remittances is not taxable in India in the hands of these entities, in terms of the provisions of Indo Thai tax treaty. The plea of the Assessing Officer, for invoking the domestic law provisions in respect of fees for technical services, as the Indo Thai tax treaty does not specifically deal with the same, already stands negated in the case of Bangkok Glass Industries (2015 (4) TMI 503 - MADRAS HIGH COURT ), in the context of Indo Thai tax treaty itself. It is only elementary that under article 90(2) where the Government has entered into a tax treaty with any tax jurisdiction, in relation to the assessee to whom such treaty applies, the provisions of this (i.e. Income Tax) Act shall apply to the extent they are more beneficial to that assessee . While on this issue, we may also take note of the landmark Special Bench decision in the case of Motorola Inc. vs. Dy. CIT 2005 (6) TMI 226 - ITAT DELHI-A wherein the Tribunal had, inter alia, observed that DTAA is only an alternate tax regime and not an exemption regime and, therefore, the burden is first on the Revenue to show that the assessee has a taxable income under the DTAA, and then the burden is on the assessee to show that that its income is exempt under DTAA . Quite clearly, when there is no taxability under the respective treaty provisions, there cannot be any taxability under the provisions of the Income Tax Act either. - Decided in favour of assessee. TDS liability on reimbursement of expenses under the cost sharing arrangement for regular preventive maintenance - taxable as fees for technical services under section 9(1)(vii) - Satisfy the requirements of make available clause - Held that - As we have noted earlier, it is not even the case of the Assessing Officer that the assessee, i.e. recipient of services, was enabled to use these services in future without recourse to the service providers. The tests laid down by Hon ble Court in DIT Vs Guy Carpenter & Co Ltd 2012 (5) TMI 31 - DELHI HIGH COURT were clearly not satisfied. For this short reason alone, the amounts in question were not taxable as fees for technical services under the provisions of the respective tax treaties. The law is well settled, we may add at the cost of repetition, that under article 90(2) where the Government has entered into a tax treaty with any tax jurisdiction, in relation to the assessee to whom such treaty applies, the provisions of this (i.e. Income Tax) Act shall apply to the extent they are more beneficial to that assessee . When the amounts are not taxable under the provisions of the respective tax treaties, there cannot be any occasion to deal with the provisions of the Income Tax Act. We, therefore, approve the conclusions arrived at by the CIT(A) on this issue as well, and decline to interfere in the matter.- Decided in favour of assessee.
Issues Involved:
1. Non-deduction of tax at source for payments to foreign entities. 2. Taxability of reimbursement of expenses. 3. Taxability of insurance brokerage payments. 4. Taxability of installation and commissioning charges. 5. Taxability of professional services fees. 6. Taxability of data processing charges. 7. Taxability of advisory services fees. 8. Taxability of software installation and annual license fees. 9. Taxability of other remittances. Detailed Analysis: Issue 1: Non-deduction of Tax at Source for Payments to Foreign Entities The Assessing Officer (AO) raised concerns about the non-deduction of tax at source on payments made by the assessee to foreign entities, arguing that these payments fell under the category of "fees for technical services" (FTS) as per Explanation 2 to Section 9(1)(vii) of the Income Tax Act. The CIT(A) held that Article 12 of the Double Taxation Avoidance Agreement (DTAA) with Thailand did not define FTS and considered the payments as business profits under Article 7, which are taxable in India only if the foreign entity has a Permanent Establishment (PE) in India. Since the entities did not have a PE in India, the CIT(A) ruled that the assessee was not liable to deduct tax under Section 195. The Tribunal upheld this view, stating that the income embedded in these payments is not taxable in India under the Indo-Thai tax treaty. Issue 2: Taxability of Reimbursement of Expenses The AO contended that reimbursements to Ford Motor Company (USA and UK) should be treated as FTS. The CIT(A) disagreed, holding that reimbursements without an income element do not attract tax deduction at source under Section 195(1). The Tribunal upheld this view, noting that the services provided did not involve any transfer of technology, and thus did not satisfy the "make available" clause in the Indo-US and Indo-UK tax treaties. Issue 3: Taxability of Insurance Brokerage Payments The AO treated payments to Ford Motor Company (USA) for insurance brokerage as managerial fees under Section 9(1)(vii). The CIT(A) ruled that these payments did not fall under FTS as per the DTAA with the USA. The Tribunal agreed, noting that the "make available" clause was not satisfied, and upheld the CIT(A)'s decision. Issue 4: Taxability of Installation and Commissioning Charges The AO argued that installation and commissioning charges paid to various foreign entities should be treated as FTS. The CIT(A) upheld this view. However, the Tribunal disagreed, noting that the services did not "make available" any technical knowledge or skills to the assessee. The Tribunal ruled that these payments were not taxable as FTS under the respective DTAAs and directed the AO to delete the related disallowance. Issue 5: Taxability of Professional Services Fees The AO treated payments to individuals for professional services as FTS. The CIT(A) upheld this view. The Tribunal, however, ruled that these payments fell under "independent personal services" as per the DTAAs with the UK and the USA, and since the conditions for taxability under Article 15 were not met, the payments were not taxable in India. Issue 6: Taxability of Data Processing Charges The AO treated data processing charges paid to Ford Espana as FTS. The CIT(A) upheld this view. The Tribunal disagreed, noting that the "make available" clause in the protocol to the Indo-Spanish DTAA was not satisfied. The Tribunal ruled that these payments were not taxable as FTS and directed the AO to delete the related tax withholding demand. Issue 7: Taxability of Advisory Services Fees The AO treated advisory fees paid to Deutsche Bank (Singapore) as FTS. The CIT(A) upheld this view. The Tribunal disagreed, ruling that the services did not "make available" any technical knowledge or skills to the assessee. The Tribunal directed the AO to delete the related tax withholding demand. Issue 8: Taxability of Software Installation and Annual License Fees The AO treated payments for software installation and annual license fees as FTS. The CIT(A) upheld this view. The Tribunal disagreed, noting that the payments for software were not taxable as royalty under the Indo-US DTAA and that the support services did not satisfy the "make available" clause. The Tribunal directed the AO to delete the related tax withholding demand. Issue 9: Taxability of Other Remittances The AO did not specifically address the taxability of certain remittances. The Tribunal restored the matter to the AO for fresh adjudication, directing that unless the AO could demonstrate how the services satisfied the "make available" clause in the respective DTAAs, there could be no tax withholding liability. Conclusion: The Tribunal dismissed the appeals filed by the AO and allowed the appeals filed by the assessee, directing the deletion of the tax withholding demands for the respective assessment years.
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