2012 (8) TMI 647 - AT - Income Tax

Indo UAE DTAA - Non-deduction of tax from payments made towards fees for registration of trade-mark applications in UAE to Emirates Advocates - Revenue contended the same to be fees for technical services and applicability of Section 195 - Held that - Nowhere from the records it can be found as to what was the nature of services which were rendered by Emirates Advocates . Merely stating that this was for the purpose of registration of trade-mark application and, therefore, it is in the nature of professional services, cannot be upheld. The exact nature of services has to be seen from the document. Even if the benefit has to be taken under Article 4 of the Indo UAE Treaty, then it is essential that tax residency certificate issued by the competent authority of Govt. of UAE is required and not any certificate from the payee itself. Such a Tax Residency Certificate has not been filed before the authorities below. Thus, matter needs to be restored back to the file of the AO to examine the issue afresh and for de novo verification - appeal of assessee allowed for statistical purposes.

Summary

Issues:
1. Whether payments made towards fees for registration of trade-mark applications in UAE to Emirates Advocates constitute 'fees for technical services' under Explanation 2 to section 9(1)(vii) and are liable for TDS under Section 195.
2. Whether the services rendered by Emirates Advocates were technical or professional in nature.
3. Whether the payees were entitled to benefits under the DTAA between India and UAE.
4. Whether the tax residency certificate provided by Emirates Advocates was sufficient to establish their residency in UAE.

Analysis:
1. The appeal was filed against the CIT(A)'s finding that the payments for trademark registration constituted 'fees for technical services' under Explanation 2 to section 9(1)(vii) and required TDS under Section 195. The Assessing Officer held that the payment was for technical services and taxable, rejecting the assessee's claim that income not arising in India is not taxable. The CIT(A) upheld this view, considering the services as consultancy services. However, the Tribunal found insufficient evidence to determine the nature of services and ordered a fresh examination by the Assessing Officer, emphasizing the need for a tax residency certificate from UAE authorities for DTAA benefits.

2. The assessee argued that the services by Emirates Advocates were professional, not technical, citing section 194J(1) to distinguish between professional and technical services. They provided documents showing UAE residency and professional licensing. The Tribunal acknowledged the distinction but highlighted the lack of clarity on the services provided. It directed the Assessing Officer to reevaluate the nature of services rendered by Emirates Advocates to determine the taxability under Section 9(1)(vii) and the DTAA.

3. The issue of DTAA benefits arose concerning the residency status of the payees. The assessee claimed entitlement to DTAA benefits as UAE residents, supported by certificates from Emirates Advocates. However, the Tribunal stressed the necessity of a tax residency certificate from UAE authorities for DTAA applicability. The lack of such documentation led to the decision to remand the case for further examination by the Assessing Officer.

4. The Tribunal highlighted the importance of a valid tax residency certificate issued by the UAE government to establish the residency status of Emirates Advocates. While the assessee provided certificates from the payees, the Tribunal deemed them insufficient for DTAA purposes. The case was remanded for the assessee to produce the required documentation for a comprehensive assessment by the Assessing Officer.

In conclusion, the Tribunal allowed the appeal for statistical purposes, setting aside the CIT(A)'s decision and remanding the case to the Assessing Officer for a fresh examination of the issues related to the nature of services rendered, taxability under Section 9(1)(vii), and DTAA benefits, emphasizing the need for proper documentation to support the claims made by the assessee.