2014 (2) TMI 902 - AAR - Income Tax

Nature of services provided - Existence of Permanent Establishment DTAA between India and Brazil - Held that - The services provided by the non-resident companies to the applicant company are line production services it is been held in the applicant s own case that the payments of similar nature are specifically characterized as work for the purpose of section 194C by Explanation to that section thus, following the same ruling, the payments made by the applicant to the non-resident company specifically falls under the definition of work under section 194C of the IT Act and they will not be taxable without Permanent Establishment in India - the payment will not suffer withholding of tax under section 195 of the Income-tax Act, 1961.

Summary

Issues:
1. Whether payments made for line production services to a company incorporated in Brazil are in the nature of Independent Personal Services under the India-Brazil Tax Treaty?
2. Would the liability to tax on payments for line production services be governed by Article 7 of the India-Brazil Tax Treaty?
3. Are payments for equipment and services provided in Brazil considered as Royalty under the India-Brazil Tax Treaty?
4. Are payments for line production services considered as Other Income under the India-Brazil Tax Treaty?
5. Does the company providing services have a Permanent Establishment in India, and are the payments chargeable to tax in India in its absence?
6. Are payments for equipment and services considered as Royalty under Section 9(1) of the Income Tax Act?
7. Are payments for line production services considered as Fees for Technical Services under Section 9(1) of the Income Tax Act?
8. If not, would the payments be charged to tax under Section 9(1)(i) of the Income Tax Act?
9. Would the receipts by the company suffer withholding tax under Section 195 of the Income Tax Act, and at what rate?

Analysis:
1. The applications sought ruling on various aspects of payments made to a Brazilian company for line production services for a reality show shot in Brazil. The dispute arose under the India-Brazil Tax Treaty. The services provided included crew arrangement, props, safety measures, and filming equipment. The company also engaged in stunt services for the show. The key issue was whether these payments constituted Independent Personal Services under the treaty.

2. The ruling authority considered the nature of services provided by the Brazilian company and the applicability of tax liability under the India-Brazil Tax Treaty. It was determined that the payments for line production services fell under the definition of work under section 194C of the Income Tax Act. As a result, without a Permanent Establishment in India, the payments were not taxable, and withholding tax under section 195 of the Income Tax Act was not applicable.

3. The authority addressed the question of whether payments for equipment and services provided in Brazil could be classified as Royalty under the treaty. The ruling clarified that the payments for line production services specifically constituted work under the Income Tax Act, and thus, were not taxable without a Permanent Establishment in India.

4. The judgment emphasized the distinction between technical services and logistic services provided by the Brazilian company. It was concluded that the services rendered were line production services falling under the definition of work under the Income Tax Act. Therefore, the payments were not subject to withholding tax in India.

5. In conclusion, the ruling provided clarity on the tax implications of payments made for line production services to a non-resident company under the India-Brazil Tax Treaty. The judgment highlighted the importance of the nature of services provided and the presence of a Permanent Establishment in determining the tax liability on such payments.