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2019 (8) TMI 792 - AT - Income TaxTDS u/s 195 - payment towards 'fees for technical services' under Article 12 of DTAA with Swiss Confederation - assessee being engaged in manufacturing of master batches and engineering plastic compounds made payment to Dr. Werner Stibal and Hans Peter Meyer both scientists and non-resident Indians, residing in Switzerland - number of days stay in India - no fixed PE in India - HELD THAT - As decided in assessee's own case Services rendered by Dr. Werner Stibal and Hans Peter Meyer are covered under Article 14 of the DTAA which are independent scientific activities. Moreover, finding on facts have been returned by the coordinate Bench of the Tribunal that the assessee has no fixed PE in India and it is undisputed case of the assessee that both Dr. Werner Stibal and Hans Peter Meyer have not stayed in India for 183 days or more and as such, no tax is required to be deducted at source, hence disallowance made by the AO/confirmed by the ld. CIT (A) is ordered to be deleted. Consequently, the appeal filed by the assessee is hereby allowed.
Issues Involved:
1. Disallowance of ?11,77,391 and ?10,16,330 under Section 40(a)(i) by treating payments to Dr. Werner Stibal and Hans Peter Meyer as 'fees for technical services' under Article 12 of DTAA with Swiss Confederation. 2. Determination of whether the payments fall under 'independent personal services' under Article 14 of DTAA, thereby not liable for deduction of tax at source under Section 195. Issue-wise Detailed Analysis: 1. Disallowance under Section 40(a)(i): The assessee, engaged in manufacturing master batches and engineering plastics compounds, made payments totaling ?21,93,721 to non-residents Dr. Werner Stibal and Hans Peter Meyer of Switzerland for technical services. The Assessing Officer (AO) disallowed these payments under Section 40(a)(i), treating them as 'fees for technical services' under Article 12 of the DTAA with Switzerland, thereby requiring tax deduction at source under Section 195. This decision was based on previous assessment orders for AYs 2008-09 to 2012-13. 2. Classification under Article 14 of DTAA: The assessee argued that the payments were for 'independent personal services' under Article 14 of the DTAA, which exempts such payments from tax deduction at source if the service provider does not have a fixed base in India or a stay exceeding 183 days. The CIT (A) upheld the AO’s decision, leading the assessee to appeal to the Tribunal. Tribunal's Findings: The Tribunal noted that the services provided by Dr. Werner Stibal and Hans Peter Meyer were independent scientific services, as per agreements dated 01.06.2012 and 24.10.2012, and that they did not have a fixed PE in India nor stayed for 183 days or more. The Tribunal referenced its own decision in the assessee’s case for AYs 2008-09 to 2011-12, where it held that such services fall under Article 14, not Article 12, of the DTAA. Article 14 pertains to 'independent personal services,' which includes independent scientific activities, and explicitly excludes such services from the definition of 'fees for technical services' under Article 12(5)(b). Relevant Legal Provisions: - Article 14 (Independent Personal Services): Specifies that income from professional services or other independent activities is taxable only in the resident state unless the individual has a fixed base or stays for 183 days or more in the other state. - Article 12 (Royalties and Fees for Technical Services): Defines fees for technical services and includes a clause excluding services covered under Article 14 or 15. Conclusion: The Tribunal concluded that the payments to Dr. Werner Stibal and Hans Peter Meyer were for independent scientific services covered under Article 14 of the DTAA. As they did not have a fixed base in India nor stayed for 183 days or more, no tax was required to be deducted at source. The Tribunal ordered the deletion of the disallowance of ?11,77,391 and ?10,16,330, allowing the appeal filed by the assessee. Order Pronouncement: The order was pronounced in open court on June 14, 2019.
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