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2023 (3) TMI 1106 - AT - Income TaxTDS u/s 195 - Default u/s 201(1) and 201(1A) - payment for designing of towers made to a foreign company in UAE - payment for designing of towers made to Oilstone UAE was in the nature of FTS OR royalty - HELD THAT - There is no allegation that the service provider i.e. Oilstone UAE has Permanent Establishment (PE)/business connection in India so as to hold that the services may be taxable in India under Article 7 of the India UAE Tax Treaty. Since the payment do not qualify as FTS under the India UAE Tax Treaty in absence of FTS clause in the said treaty, we are of the considered view, that there was no requirement for the assessee to withhold taxes on such payments made to Oilstone UAE. In the instant case, the assessee had also furnished declaration regarding No Permanent Establishment in India of Oilstone UAE to the assessing Officer during the course of assessment hearing. Further copy of Tax Residency Certificate (TRC) to the effect that Oilstone UAE is a tax resident of UAE was also furnished before the assessing Officer during the course of proceedings under section 201 - we are of the considered view that the assessee was not under an Obligation to withhold taxes on such payments made to Oilstone UAE. Accordingly, we find no infirmity in the order of Ld. CIT(Appeals) so as to call for any interference. Appeal of the Department is dismissed.
Issues Involved:
1. Whether the CIT(A) erred in deleting the demand by canceling Section 201(a)/(1A) of the Income Tax Act. 2. Whether the payment for designing towers to Oilstone Technology, UAE, was in the nature of Fees for Technical Services (FTS) or royalty. 3. The nature of the agreement between the assessee and Oilstone Technology, UAE. 4. Taxability of payments made for the work of designing towers under the Income Tax Act, DTAA between India and UAE, and the Copyright Act, 1957. 5. Source of income and its taxability in India. 6. Applicability of Article 12(5) of the DTAA between India and UAE. 7. Consideration of additional grounds of appeal by the Department. Summary: Issue 1: Deletion of Demand under Section 201(a)/(1A) The Department questioned whether the CIT(A) erred in deleting the demand of Rs 2,28,23,683/- by canceling Section 201(a)/(1A) of the Income Tax Act. The Tribunal observed that the appeal was time-barred by 278 days due to the COVID-19 pandemic and condoned the delay based on the Apex Court's directions. Issue 2: Nature of Payment - FTS or Royalty The CIT(A) held that the payment for designing towers made to Oilstone Technology, UAE, was in the nature of FTS and not royalty. The Tribunal agreed, noting that the services involved creating new designs based on specifications provided by the assessee, which constituted technical services rather than the use of existing designs, thus not qualifying as royalty. Issue 3: Nature of Agreement The agreement between the assessee and Oilstone Technology, UAE, was for generating new designs and not for granting rights to use existing designs. The CIT(A) concluded that the payments under the service agreement could not be regarded as royalty. Issue 4: Taxability under Income Tax Act, DTAA, and Copyright Act The CIT(A) observed that the payments were not chargeable to tax in India under domestic law as "fee for technical services" since the services were provided and utilized outside India. The Tribunal upheld this view, noting the absence of an FTS clause in the India-UAE Tax Treaty and the lack of a Permanent Establishment (PE) of Oilstone UAE in India. Issue 5: Source of Income The CIT(A) found that the income was earned from a source outside India, as the services were used for a project in Uganda. The Tribunal agreed, emphasizing that the payments were not taxable in India. Issue 6: Applicability of Article 12(5) of DTAA The Department argued that the payment should be taxable in India under Article 12(5) of the DTAA. However, the Tribunal noted that in the absence of an FTS clause in the India-UAE Tax Treaty, the payments could only be taxed if Oilstone UAE had a PE in India, which was not the case. Issue 7: Additional Grounds of Appeal The Tribunal dismissed the Department's appeal, finding no infirmity in the CIT(A)'s order and concluding that the assessee was not obligated to withhold taxes on payments made to Oilstone UAE. Conclusion: The Tribunal dismissed the Department's appeal, upholding the CIT(A)'s decision that the payments made to Oilstone Technology, UAE, were in the nature of FTS and not royalty, and were not taxable in India due to the absence of an FTS clause in the India-UAE Tax Treaty and the lack of a PE of Oilstone UAE in India.
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