2015 (7) TMI 476 - AT - Income Tax

Consultancy fee paid to Ms Olaf Grandlund OY Finland - whether was not chargeable to tax in India and thus that there was no requirement to withhold to tax on the impugned payments, even though these had been characterized as FTS taxable on source basis? - whether services do not come within the purview of Article 13(4) (c) of the DTAA between India and Finland as technical services - the services rendered cannot be even be taxed under Article 7 read with Article 5 of the DTAA in the absence of PE of Olof in India - Held that - As per Article 7( 1) of the tax treaty, Business Profits earned by a Finnish Enterprise is taxable in India only if that Finnish enterprise carries on business in India through a PE in India. The term PE has been defined in Article 5 of the India-Finland tax treaty to include a branch, office, factory, workshop, etc of the Finnish enterprise in India. Where the Finnish enterprise does not have a PE in India under the provisions of Article 5 of the India-Finland treaty, no portion of the income from services provided to a customer in India are liable to taxation in India. In the instant case, admittedly Olof Granlund did not have any office/ place of business in India. Further, the services were performed by Olof Granlund primarily from outside India and its employees made intermittent visits to India only for the purpose of attending meetings with the respondent.Accordingly, Olof Granlund Oy did not have a PE in India under the provisions of Article 5 of the India-Finland tax treaty during the subject period. Certificate obtained by the respondent from Olof Granlund in this regard is on record. In light of the above, we are of the considered opinion that the payments received by Olof Granlund from the respondent for provision of services are not liable to taxation in India under the narrower provisions of the India-Finland tax treaty. Following the ratio laid down In Transmission Corporation s case 1999 (8) TMI 2 - SUPREME Court we hold that the question of deduction of tax at source on the impugned payments does not arise. The CIT(A) on the same parity of reasoning allowed the appeal. Therefore, we dismiss the grounds of appeal filed by the revenue - Decided in favour of assessee.

Issues Involved:
1. Taxability of consultancy fees paid to a foreign company under the India-Finland DTAA.
2. Requirement to withhold tax on payments characterized as Fees for Technical Services (FTS).
3. Interpretation of "make available" under Article 13(4)(c) of the India-Finland DTAA.
4. Admissibility of fresh evidence under Rule 46A.
5. Applicability of the MOU accompanying the Indo-US DTAA to interpret the Indo-Finland DTAA.
6. Validity of the CIT(A)'s order.

Detailed Analysis:

1. Taxability of Consultancy Fees:
The core issue was whether the consultancy fees paid to Olof Granlund Oy, a Finnish company, were chargeable to tax in India under the India-Finland Double Taxation Avoidance Agreement (DTAA). The respondent-assessee, Nokia India Private Ltd., argued that the payments were not liable to tax in India as the services were rendered outside India and did not fall under the definition of Fees for Technical Services (FTS) as per Article 13(4)(c) of the DTAA. The CIT(A) agreed with this view, holding that the services did not "make available" technical knowledge, experience, skill, know-how, or processes to the assessee.

2. Requirement to Withhold Tax:
The TDS Officer contended that the payments should have been subjected to tax withholding under Section 195 of the Income Tax Act, 1961, as they were characterized as FTS. The CIT(A) held that since the payments were not chargeable to tax under the DTAA, the provisions of Section 195 were not triggered, and thus, there was no requirement to withhold tax.

3. Interpretation of "Make Available":
The term "make available" was pivotal in determining whether the services rendered by Olof Granlund Oy constituted FTS. The CIT(A) relied on various judicial precedents, including the decision in Raymond Limited vs. DCIT, to conclude that the services did not "make available" technical knowledge or skills to the assessee. The Tribunal upheld this interpretation, noting that the services provided were mainly design review services and did not enable the assessee to apply the technical knowledge independently in the future.

4. Admissibility of Fresh Evidence:
The revenue argued that the CIT(A) erred by relying on the terms of an agreement between the assessee and Leighton Contractors (India) Pvt. Ltd., which was not part of the TDS Officer's order and thus constituted fresh evidence under Rule 46A. The Tribunal did not find merit in this argument, as the CIT(A)'s decision was based on the nature of services provided and their classification under the DTAA.

5. Applicability of MOU Accompanying Indo-US DTAA:
The CIT(A) and the Tribunal referred to the MOU accompanying the Indo-US DTAA to interpret the term "make available" under the India-Finland DTAA. The Tribunal upheld this approach, noting that parallel treaty interpretation is permissible and has been affirmed by various judicial pronouncements.

6. Validity of the CIT(A)'s Order:
The Tribunal found no perversity in the CIT(A)'s order, which was based on a detailed examination of the nature of services and their classification under the DTAA. The Tribunal dismissed the revenue's appeal, affirming that the payments made by the assessee to Olof Granlund Oy were not chargeable to tax in India and thus, there was no requirement for tax withholding.

Conclusion:
The Tribunal upheld the CIT(A)'s decision that the consultancy fees paid to Olof Granlund Oy were not chargeable to tax in India under the India-Finland DTAA. Consequently, there was no requirement for the assessee to withhold tax on these payments. The appeal filed by the revenue was dismissed.

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