2021 (12) TMI 100 - AT - Income Tax

Income taxable in India - payments made to the law firm in Poland -nature of Fee for technical services under section 9(1) (vii) of the Act as well as Article 13 of India Poland DTAA - Criteria for Entities to be considered a tax resident - eligibility of Exception to section 9(1)(vi)(b) / 9(1)(vii)(b) - Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State - Whether the Partnership firm was not eligible for benefit under India Poland DTAA, on the ground that assessee was a fiscally transparent entity not liable to tax in Poland in its own right and Whether the Partners are fully taxable in respect of their shares of income in Partnership Firm as per CIT? - HELD THAT - Only on fulfillment of either of the two circumstances under Article 15, one could say that the money received by the non resident is taxable in India. Due to non fulfillment of above conditions, taxability under Article 15 does not trigger. In the present case the nonresident payee has given a certificate that there is no fixed place of business/PE in India, more particularly placed at page 40-41 of paperbook. Nothing has been brought on record by the revenue to establish that the non resident payee has any fixed place of business PE in India. In that view of the matter, the income ceases to be taxable in India. - Decided in favour of assessee. Entitled to interest on refund of tax deposited u/s 195 - Hon ble Supreme Court in case of UOI vs Tata Chemicals Ltd. 2014 (3) TMI 610 - SUPREME COURT held that, deductee is entitled for interest on refund tax deposited under section 195. The Ld..AR placed reliance on CBDT Circular No.11/2016 allowing interest on refund under section 244A on excess TDS deposited under section 195 of the Act. Nothing contrary has been brought on record by the Ld.CIT DR. Respectfully following the decision of Hon ble Supreme Court, we hold that the deductee is entitled to interest on refund of tax deposited under section 195 of the Act. Taxability of payment made by assessee in India to the non residents - payee is a non resident and assessee filed application under section 248 seeking declaration that payments made to Zintro is not taxable in India - HELD THAT - We find the issue to be decided in the grounds raised by the assessee are in relation to taxability of payment made by assessee in India to the non residents. The decision of Hon'ble Karnataka High Court in the case of Samsung Electronics Co. Ltd. 2011 (10) TMI 195 - KARNATAKA HIGH COURT on the basis of which the revenue authorities concluded that the payment to non-residents are in the nature of royalty and FTS, now stand overruled by the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd 2021 (3) TMI 138 - SUPREME COURT and therefore in all fairness, the issue is to be remanded to the Ld.CIT(A) to examine the terms of the agreement under which services were rendered to the Assessee. The Ld.CIT(A) is directed to analyse in the light of the provisions of the DTAA and principles laid down by Hon ble Supreme Court, as to whether the same would amount to Royalty and FTS. We accordingly remand the issue to the Ld.CIT(A). The Ld.CIT(A) will afford opportunity of being heard to the Assessee in the set aside proceedings.

Summary

Issues Involved:
1. Exception to section 9(1)(vi)(b) / 9(1)(vii)(b) not examined by CIT(A)
2. Payments to non-residents were not chargeable to tax under the DTAA
3. Rate of 20% u/s 206AA is not applicable for grossing up u/s 195A
4. Grant of interest on refund

Detailed Analysis:

1. Exception to section 9(1)(vi)(b) / 9(1)(vii)(b) not examined by CIT(A)
The appellant argued that the payments made to non-residents were for services utilized in a business carried on outside India or for earning income from sources outside India. Therefore, such payments should not be deemed to accrue or arise in India under section 9(1)(vi)/(vii) and should not be liable for TDS under section 195. The Tribunal noted that the CIT(A) did not appreciate this exception and erred in construing the legal services provided by the non-resident vendor as training services, applying Article 13 instead of Article 15 of the India-Poland DTAA.

2. Payments to non-residents were not chargeable to tax under the DTAA
The appellant contended that the payments to non-residents were not chargeable to tax under the DTAA and consequently not liable for TDS under section 195. The Tribunal examined the payments under Article 13 of the India-Poland DTAA, which deals with "Royalties and Fees for Technical Services." The CIT(A) held that the payments fell under "Royalties and fees for technical services" as defined in para 4 of Article 13. However, the Tribunal found that the law firm in Poland was a fiscally transparent entity, and the partners were taxable in Poland. Thus, the services rendered by the non-resident law firm could not be considered as FTS under Article 13(4) and should be analyzed under Article 15 - "Independent personal services." Since the non-resident firm did not have a fixed place of business or PE in India, the income was not taxable in India.

3. Rate of 20% u/s 206AA is not applicable for grossing up u/s 195A
The appellant argued that the rate of 20% as per section 206AA is not applicable for grossing up of income and payment of TDS under section 195A. The CIT(A) observed that section 206AA was not applicable where the DTAA restricted the rate of withholding to a lower rate. The Tribunal upheld this view, allowing the appellant a refund of the differential amount paid.

4. Grant of interest on refund
The appellant sought interest on the refund of TDS paid out of its own funds. The CIT(A) denied this, stating that sections 214 and 244A do not contain provisions for interest in an appeal made under section 248. However, the Tribunal, relying on the Supreme Court's decision in UOI vs. Tata Chemicals Ltd. and CBDT Circular No. 11/2016, held that the deductee is entitled to interest on the refund of tax deposited under section 195.

Conclusion:
The Tribunal partly allowed the appeals for the assessment years under consideration. The issues regarding the exception to section 9(1)(vi)(b) / 9(1)(vii)(b) and the applicability of DTAA were decided in favor of the appellant, while the issue of the rate of 20% u/s 206AA for grossing up u/s 195A was also resolved in favor of the appellant. The Tribunal remanded the issue of taxability of payments to Zintro Inc. to the CIT(A) for fresh consideration in light of the Supreme Court's decision in Engineering Analysis Centre of Excellence Pvt. Ltd. vs. CIT & Anr. The appellant was also granted interest on the refund of TDS paid.