2024 (3) TMI 1204 - AT - Income Tax

Income taxable in India or not - Taxation of Technical Collaboration Fees @ 10% u/s. 9(1)(vii) r.w.s 115A(1)(b) - As per assesee there is no Service PE existing in India - as submitted during the scrutiny assessment proceedings assessee has voluntarily agreed to tax the FTS u/s. 115A to buy peace, to avoid litigation and also to avoid penal proceedings, thus this amount is not taxable in India, in the absence of Service PE - HELD THAT - There is no dispute on the fact that the assessee is not having a Permanent Establishment PE in India. Further, there is no specific clause in the DTAA entered into between the Republic of India and Mauritius as pointed out by the Ld. AR in his written submissions, Article-12A was inserted w.e.f 1/4/2017 and cannot be applied for the FY 2017-18. We also find that various judicial pronouncements including the Coordinate Benches and various Hon ble High Courts have held that in the absence of any specific provisions in the DTAA, the scope of taxing the said income shall be only business profits subject to existence of PE in India, and cannot be tax under the residuary Article of the relevant DTAA. The said income cannot be expanded within the scope of section 9(1)(vii) r.w.s 115A of the Act. It is settled position of law that in the absence of a clause in DTAA not dealing with a particular item of income, the payments are not be regarded as residuary income but as business income which is not chargeable to tax in India, in the absence of any PE of the Non-Resident in India. Decided in favour of assessee.

Summary

Issues Involved:
The judgment involves the taxation of Technical Collaboration Fees at 10% under section 9(1)(vii) read with section 115A(1)(b) of the Income Tax Act, 1961 for the Assessment Year 2017-18.

Comprehensive Details:
The appeal was filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals) regarding the taxation of Fees for Technical Services (FTS) received by the appellant, a Mauritius tax resident. The dispute arose as the Ld. AO considered the appellant to have a "Service PE" in India, invoking the provisions of section 9(1)(vii) read with section 115(A)(1)(b) of the Act. The Ld. CIT(A) directed the Ld. AO to tax the fees received as FTS at 10%. The assessee raised multiple grounds of appeal challenging this decision.

The primary issue raised by the assessee was the taxation of Technical Collaboration Fees at 10% under section 9(1)(vii) read with section 115A(1)(b) of the Act. The Ld. AR argued that in a previous assessment year, the Ld. CIT(A) had allowed the appeal of the assessee, emphasizing the absence of a "Service PE" in India. The Ld. AR contended that the FTS should be taxed as business profits under Article-7 of the DTAA, as the assessee lacked a PE in India.

In contrast, the Ld. Departmental Representative argued that in the absence of specific DTAA provisions, section 115A should apply. The Ld. DR highlighted that the assessee had paid a differential tax amount during scrutiny, suggesting a change in the assessee's stance. The Ld. DR relied on Circular No. 333 [F.No.506/42/81-FTD], dated 2-4-1982 to support upholding the Ld. CIT(A)'s order.

After hearing both sides and examining the records, the Tribunal noted the absence of a PE in India for the assessee. It was observed that the DTAA between India and Mauritius did not contain specific clauses applicable to the case. Citing various judicial pronouncements, the Tribunal held that in the absence of specific DTAA provisions, the income should be treated as business profits, subject to the existence of a PE in India. The Tribunal referred to relevant case laws to support its decision, ultimately allowing the appeal of the assessee.

In conclusion, the Tribunal ruled in favor of the assessee, emphasizing the absence of a PE in India and the application of business profits taxation principles in the absence of specific DTAA clauses. The appeal was allowed on 26th March, 2024.