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2020 (5) TMI 491 - HC - Income TaxRevision petition u/s 264 - waiver of interest from deducting tax at source for the payments made to the said non-resident company under Section 195 - 2nd respondent ordered deducting of tax at the source of payment at 20% under the Double Taxation Avoidance Agreement (hereinafter referred as DTAA) entered between the Government of India and the Government of UK HELD THAT - From the reading of letter dated 01.01.2011 of the said MD IN Services Private Limited UK, the non-resident overseas company indicates that the service provided by them to the petitioner was in the nature of consultancy services - payments made by the petitioner to the said UK company would be an income deemed to accrue/arise in India within the meaning of Section 9(1)(vii)(b) of the Income Tax Act, 1961. Payments made by the petitioner to the said UK company cannot be said to be towards fees payable in respect of services utilised in a business or profession carried out by the petitioner outside India as no such business had been established at the time of such payment. Petitioner was merely prospecting such business and therefore engaged the services of the said UK company as a consultant. As the petitioner has not established any business, the payment would not come within the purview of the exception provided in the Section 9(1)(vii)(b). Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with United Kingdom of Great Britain and Northern Ireland also makes it clear that payments for fees towards technical services may also be taxed in the contracting state in which they arise and according to the law of that states. The expression fees for technical service has been defined in Article 13 Paragraph 4 to mean payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services offered technical or other personnel). Exception to the definition of fees for technical services in Paragraph 4 has been specified in Paragraph 5 to Article 13. It is to be noted that none of the exception provided in Paragraph 5 are attracted. W.P. dismissed.
Issues Involved:
1. Validity of the impugned order dated 24.11.2011 rejecting the revision petition under Section 264 of the Income Tax Act, 1961. 2. Applicability of Section 195 of the Income Tax Act, 1961 regarding tax deduction at source for payments made to a non-resident company. 3. Interpretation of the Double Taxation Avoidance Agreement (DTAA) between India and the UK. 4. Whether the payments made by the petitioner to the UK company qualify as fees for technical services under Section 9(1)(vii)(b) of the Income Tax Act, 1961. Detailed Analysis: 1. Validity of the Impugned Order: The petitioner challenged the impugned order dated 24.11.2011 passed by the 1st respondent, which rejected the revision petition filed under Section 264 of the Income Tax Act, 1961. The rejection was based on the ground that the petitioner did not furnish an undertaking waiving the right of appeal before the appropriate appellate forums. The court upheld the impugned order, finding no merit in the petitioner's arguments. 2. Applicability of Section 195 of the Income Tax Act, 1961: The petitioner had entered into an agreement with a UK-based company for insurance product development, paying 2000 pounds per month. The petitioner sought a waiver of interest from deducting tax at source under Section 195 of the Income Tax Act, 1961. The 2nd respondent ordered a tax deduction at source at 20% under the DTAA between India and the UK, as the non-resident company did not have a Permanent Account Number (PAN). The court upheld the tax deduction at source at 20%, noting that the payments were taxable in India as "fees for technical services." 3. Interpretation of the Double Taxation Avoidance Agreement (DTAA): The court referenced the DTAA between India and the UK, noting that the proposed payments for consultancy services were taxable in India. The court cited the case of Danisco India (P.) Ltd. Vs. Union of India, where it was observed that DTAAs override domestic law if the provisions of the DTAA are more beneficial to the assessee. However, in this case, the DTAA did not provide any relief to the petitioner, as the payments were deemed taxable in India. 4. Qualification of Payments as Fees for Technical Services: The court analyzed whether the payments made by the petitioner to the UK company qualified as fees for technical services under Section 9(1)(vii)(b) of the Income Tax Act, 1961. The services provided by the UK company were in the nature of consultancy services, including evaluation, development of risk management, and insurance products. The court concluded that the payments were deemed to accrue or arise in India and did not fall within the exception provided in Section 9(1)(vii)(b), as the petitioner had not established any business outside India at the time of payment. Conclusion: The court dismissed the writ petition, finding no merits in the petitioner's arguments. The payments made to the UK company were taxable in India as fees for technical services, and the petitioner was liable to deduct tax at source under Section 195 of the Income Tax Act, 1961. The DTAA between India and the UK did not provide any relief to the petitioner in this context. The court upheld the impugned order and dismissed the writ petition with no cost.
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