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2013 (12) TMI 1169 - AAR - Income TaxAmount paid for production of television programme whether consitute fee for technical services - Held that - As per Article 7 of the India-Singapore Tax Treaty - The profits of an enterprise of a Contacting State shall be taxable only in the State except if the profits of the enterprise are directly or indirectly attributable to the permanent establishment in the other state - The services of foreign company were utilized and payment for the services were also received outside India - There is no permanent establishment of that comany in India - Profits arising out of the transactions for services rendered by NAPL are not taxable in India - Decided in favour of assessee.
Issues Involved:
1. Taxability of payments made to Noise Associates as "fees for technical services" under the India-Singapore Tax Treaty. 2. Treatment of payments as business income in the absence of a Permanent Establishment (PE) in India. 3. Applicability of withholding tax under Section 195 of the Income Tax Act. 4. Determination of whether the transaction is an arrangement for the purpose of tax avoidance. Issue-wise Detailed Analysis: 1. Taxability of Payments as "Fees for Technical Services": The applicant, M/s Endemol India Private Limited (EIPL), engaged Noise Associates Private Limited (NAPL), a Singapore-based company, to provide services for the production of a reality show. The primary question was whether the payments made to NAPL were chargeable to tax in India as "fees for technical services" under Article 12 of the India-Singapore Tax Treaty. The applicant argued that the services were merely supportive and routine, not involving any professional or technical expertise. The Revenue contended that the services provided by Ms. Chantal Prud' Homme, an executive producer, were specialized and involved managerial, consultancy, and technical skills, thus falling under the definition of "fees for technical services." The ruling concluded that while the services were supervisory, they required special skills and knowledge, making them managerial and consultancy services. However, the "make available" clause of the Treaty was not fulfilled, as the technical knowledge or expertise was not transferred to the applicant. Therefore, the payments were not considered "fees for technical services" under the Treaty. 2. Treatment of Payments as Business Income: The second issue was whether the payments should be treated as business income, considering NAPL did not have a Permanent Establishment (PE) in India. The applicant argued that NAPL had no office or employees in India, and the services were rendered outside India. The Revenue did not provide substantial evidence to contradict this. The ruling agreed with the applicant, stating that in the absence of a PE in India, the payments made to NAPL were not taxable as business income under Article 7 of the India-Singapore Tax Treaty. 3. Applicability of Withholding Tax under Section 195: The third issue concerned the applicability of withholding tax under Section 195 of the Income Tax Act. Given the conclusions on the first two issues-that the payments were neither "fees for technical services" nor business income taxable in India-the ruling held that the transaction would not be subject to withholding tax under Section 195, following the Supreme Court's decision in Transmission Corporation of AP Appeal Limited vs CIT. 4. Determination of Tax Avoidance Arrangement: The final issue was whether the transaction constituted an arrangement for the purpose of tax avoidance. The ruling found no sufficient material or evidence suggesting that the transaction was solely for tax avoidance. The Department did not press this issue during the hearing. Conclusion: 1. Payments to NAPL are not "fees for technical services" under Article 12 of the India-Singapore Tax Treaty. 2. Payments are not taxable as business income in India due to the absence of a PE. 3. The transaction is not subject to withholding tax under Section 195 of the IT Act. 4. No evidence of tax avoidance arrangement was found. The ruling was pronounced on December 6, 2013.
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