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TMI Blog2013 (10) TMI 826X X X X Extracts X X X X X X X X Extracts X X X X ..... ing State unless the non-resident carried out the business through a PE in India. In the case on hand, revenue has not established that the non-resident has a PE in India. Hence in the absence of the PE in India, the business profit of the non-resident is not taxable in India. Even if it is considered that the payments made to non-resident will fall under Article 22 of the Treaty viz. "Other Income", then also the payments are not taxable to tax in India since as per Article 22, income of a resident shall be taxable only in that contracting State i.e., UAE and not in India. Payment made to the non-resident was not chargeable to tax in India and, therefore, there was no liability to deduct tax at source in respect of the said payment under section 195 of the Act – Reliance has been placed on the various cases, one of case relied upon is Brakes India Ltd v. DCIT (LTU)[2013 (9) TMI 192 - ITAT CHENNAI] - Assessee's case doesn't fall within the ambit of s. 201 (1) of the Act for all the assessment years under consideration, the question of charging of interest u/s 201(1A) of the Act does not arise – Decided in favor of Assessee. - ITA Nos. 1008 to 1013 of 2012 - - - Dated:- 4-10-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments made to the non-residents as provided u/s 195 of the Act. The AO had, further, noticed in 15CB report that the remittance was towards commission for export for services rendered outside India and that the same was in the nature of business income of the beneficiary who had got no permanent establishment in India and that his stay in India did not exceed 90 days during the year etc. Being queried by issuance of a Notice, the assessee had furnished a detailed submission on the issue. After due consideration of the assessee's lengthy contentions as recorded in the order under dispute, the AO had rejected the assessee's claim by extensively quoting the provisions of s. 9 (1) of the Act and concluded that - "18. Therefore, in the light of the above discussion made in the preceding paragraphs, it is clear that the payments made to non- residents is deemed to accrue or arisen u/s 5 and 9 of the Income-tax Act, 1961 and would therefore, constitute an income chargeable under the Indian Income-tax Act, 1961. The fact that the non-resident would be rendering services outside India and also getting payment outside India, are wholly irrelevant considerations. Since, the source o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Income-tax Act. Further, from the Explanation to section 9(2) of the I.T. Act, inserted with retrospective effect from 1.6.1976, it is clear that the fees for technical services shall be deemed to be accrued or arise in India and shall be includable in the total income of the non- residents even if the non-residents do not have residents or place of business or business connection in India and services have been rendered outside India. Thus, the remittances made to the above 2 non-residents are chargeable to tax in India u/s 9(1) (vii) of the Income-tax Act and, therefore, the appellant was required to deduct the tax u/s 195 of the I.T. Act. However, in the cases of Augusta Trading and Bureau Couecou, the payment is clearly in the nature of the commission for the services rendered outside India and, therefore, as held by the Hon'ble Supreme Court of India in the case of CIT v. Toshoku Limited (1225 ITR 525), the commission paid to them will not be chargeable to tax in India and, therefore, the question of deducting tax at source on the payment made to them does not arise. Accordingly, the assessing officer is directed to re- compute the interest u/s 201 201(1A) of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of section 201(1) and 201(1A) of the Act in the present case. 7.1 Briefly, the assessee is engaged in the business of processing of fruit products and exporting the same to its customers in various countries through its agents positioned in their respective countries. It was the case of the assessing officer that the source of income being situated in India, the non-residents are liable to income-tax in India under the Income-tax Act and since the assessee had failed to make deduction tax from the payments made to them as required u/s 195 of the Act, the assessee was treated as 'assessee in default' u/s 201(1) of the Act. 7.2. However, on a perusal of the materials placed before us, we have noticed that none of the assessee's agents based abroad have rendered any services in India. Admittedly, none of the assessee's agents have their offices or business establishments in India for rendering such services to the assessee. The commissions to such agents have been paid not in India but overseas. Since no part of the services were rendered by such agents in India, no income arose on the payment of commissions to such agents and, consequently, as rightly argued by the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resident was in the course of business carried on and we find that the learned CIT (Appeals) was also of the same view. Thus, we are of the view that the payment of market fees to the non-resident in the present case on hand is to be dealt with as per Article 7 of the Treaty between India - UAE. The AAR in Teknisil (Sendirian) Berhard In Re (supra) held as under at Para 12 and 13 thereof: "12. The authority is of the opinion that neither of these contentions put forward by the Department can be accepted. It is true that the income derived by the TSB under the agreement can be described as fees for technical services though that specific expression does of fid a place in the contract. But, this makes no difference because that description is not sufficient to take it out of the purview of Article 7 which makes the income or profit of an enterprise of a State taxable only in that State unless the enterprise carries on business in other State through a permanent establishment situated therein. To say that TSB is not carrying on a business and that income by way of technical services has not been specifically provided for by the DTAA may indeed be fatal to the case of the Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise. It is earned through a systematic series of activities carried on by the assessee, i.e., in preparing the project by conducting preliminary studies, collection and assimilation of data and finally preparing the feasibility report and, in this case, with regard to Trans-Harbour Communication Link between the Island city of Bombay and the Industrial and commercial profits and, therefore, it cannot be said that there is no specific provision for dealing with such kind of profit in AADT.....' Recently, the Mumbai ITAT in the case of Channel Guide India Ltd v ACIT (2012) 25 Taxman.Com 25 (Mumbai Trib) has held that, if there is no clause dealing with 'fees for technical services' under the Treaty, the payment shall be dealt with Article 7 of the Treaty dealing with 'business profit'. It was held that Article 22 would not be applicable in such circumstances. Relevant observations of this decision are as under: "23. At the time of hearing before us, the learned Departmental Representative has raised an altogether new contention that there being no clause in the Indo-Thailand Treaty dealing with fees for technical services, the amount in question paid by the assessee to SSA is cov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier Bench of this Tribunal has, with regard to payments to non-residents, observed as under: "12....................the basic question to be considered by us is whether the payment made by the assessee to the agents outside India are in the nature of their business income or fees for technical services. Both the AO as well as the CIT (A) have held the services to be technical services as per provision of s. 9(1)(vii) of the Income-tax Act. For application of the said provision, the nature of the services rendered by the non-residents in Maldives is to be examined. As far as Gemini International is concerned, we find that it supplies building materials to various tourist resorts at Maldives and to facilitate the delivery of goods to its customers, the assessee has engaged the services of M/s Misc. Maldives Pvt Ltd for weighing the goods, clearance from the Customs of Maldives and their delivery to the purchasers. In this whole exercise, we have to examine whether there is any technical, consultancy or managerial services rendered by the non- resident. For every activity of supervision, certain skill and knowledge of the equipment to be dealt with is required but can it be call ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct." (iv) Yet another finding, in the case of Brakes India Ltd v. DCIT (LTU) reported in (2013) TaxCorp (INTL)527(ITAT, Chennai) with regard to the payments of export sales commission and logistic services made to non-residents for non-deduction of tax at source, the Hon'ble Bench of Chennai Tribunal has observed as under: "47. In our opinion, nature of services mentioned above will come not within the definition of 'fees for technical services' given under Explanation 2 to section 9(1) (vii) of the Act. By virtue of such services, the concerned recipients had not made available to the assessee any new technique or skill which assessee could use in its business. The services rendered by the said parties related to clearing, warehousing and freight charges outside India. The logistics service rendered was essentially warehousing facility. In our opinion, this cannot be equated with managerial, technical or consultancy services. Even it is considered as technical service, the fee was payable only for services utilized by the assessee in the business or profession of the non-residents, earned them income outside India. Thus, it would fall within the exception given under sub- clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving financial association between a resident and a non- resident company In the said Circular, CBDT have given clarification regarding the applicability of provisions of sec. 9 in the certain specific situations as under: (1) Non-resident exporter selling goods from abroad to Indian importer (2) Non-resident company selling goods from abroad to Indian subsidiary (3) Sale of plant and machinery to an Indian importer on instalment basis (4) Foreign agents of Indian exporters - a foreign agent of Indian exporter operates in his own country and no part of his income arises in India. His commission is usually remitted directly to him and is, therefore, not received by him or on his behalf in India. Such an agent is not liable to income-tax in India on the commission. (5) Non-resident persons purchasing goods in India (6) Sale by a non-resident to Indian customer either directly or through agents. (7) Extent of the profit assessable u/s 9 In the above Circular relevant Para is No.4 dealing with the subject of foreign agents of Indian exporters. The CBDT vide Circular No.7 of 2009 dtd. 22.10.2009 has withdrawn the Circular No.23/1969 with retrospective effect. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1969 by the CBDT's Circular No.7 of 2009 is having any effect on taxability of commission paid to non-resident agents, such withdrawal of Circular will not be applicable in the year under consideration. In the facts and circumstances, the Circular No.23 of 1969 will be clearly applicable in the year under consideration making such commission payment not liable to tax in India." 7.6 Further, we have also carefully perused the Comprehensive Agreement dated 18.11.1993 entered into by the Government of India with United Arab Emirates for avoidance of double taxation wherein Article 7 speaks thus - "Article 7- Business profits - 1. The profits of an enterprise of a Contracting State shall be taxable only in that STATE unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment." Further, Article 22 of the said agreement specifies that - "Article 22 - Other income - 1. Subject to the provisions of paragraphs (2), items of income ..... 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