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TMI Blog2019 (8) TMI 1206X X X X Extracts X X X X X X X X Extracts X X X X ..... re concerned, the aforementioned tabular chart would show that the income tax department proceeded on completely erroneous view of the matter. The income tax department has treated monies received under the award towards arbitration costs and legal costs as income of the decree holder and thereby proceeded to take the stand that the same will be taxable as fee for technical services , both under the provisions of Income Tax Act, 1962 (in short 1962 Act ) and the DTAA. Clearly, nothing can be further from reality. Therefore, the stand taken by the income tax department on this score would also have to be rejected.This brings me to the last aspect which relates to the interest. Taxability qua interest would also be the subject matter of Article 22(3) of the DTAA. In my opinion, this stand is plainly wrong. The language of Article 22(3) of the DTAA does not support the stand of the income tax department. Assessment proceedings, if any, can only commence against the judgment debtor i.e. the Indian entity. At that stage, the judgment debtor would be free to take every defence that may be available to it in law including the defence that withholding tax need be deducted as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . A perusal of the order dated 17.12.2018 would show that the balance amount was withheld towards withholding tax. 4.1. To give effect to this order, the matter was placed before the Joint Registrar (Judicial) on 7.1.2019. The Joint Registrar (Judicial) correctly appreciated the fact, though not articulated in his order, that an inadvertent typographical error had crept in paragraph 1 of the order dated 17.12.2018. The amount of tax withheld was noted as ₹ 20,20,22,530/-. Since the prayer made in the application I.A. No. 528/2018 was also extracted in paragraph 4 of the order, it perhaps became clear to the Joint Registrar (Judicial) that the amount directed to be released was in fact ₹ 20,20,22,530/-. The order dated 17.12.2018 shall stand corrected to that limited extent. 4.2. It is in this background that the decree holder now has approached this Court for release of the balance sum equivalent to ₹ 16,99,90,498/- along with accrued interest. 4.3. As is obvious, from the discussion above, the balance amount was kept back to ascertain the view of the Income Tax Department as to whether the decree holder could be called upon to pay withholding tax. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... USD 80,440 This portion of the award is in lieu of expenses incurred by Glencore International on a number of items which mainly include costs incurred on engaging professional experts like lawyers etc. for the purposes of arbitration. Therefore, Glencore has incurred these expenses for availing services which are prima-facie technical/consultancy services which are taxable as Fee for Technical services under the provisions of Income Tax Act as well as DTAA. The payment by Dalmia to Glencore appears as reimbursement but if we see the money flow from Dalmia to Glencore and from Glencore to legal/technical experts, this means that the source of fee for technical services is in India. Under the Income-tax Act such services are taxable @ 40% + surcharge and education cess i.e. 42.024%, in a case like this one. However, under the beneficial provisions of DTAA, FTS is taxable @ 10%. Considering the facts of the case and providing benefit of DTAA the decree holder, tax may be deducted on this amount @ 10%. Legal Costs USD 4,73,332 Interest on the above USD 6,36,853 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome which can be taxed, if at all, in India. 10. Therefore, I am not inclined to accept the stand of the income tax department with respect to this aspect of the matter, as indicated hereinabove by me. 11. Insofar as the monies received towards arbitration costs and legal costs are concerned, the aforementioned tabular chart would show that the income tax department proceeded on completely erroneous view of the matter. 12. The income tax department has treated monies received under the award towards arbitration costs and legal costs as income of the decree holder and thereby proceeded to take the stand that the same will be taxable as fee for technical services , both under the provisions of Income Tax Act, 1962 (in short 1962 Act ) and the DTAA. 13. Clearly, nothing can be further from reality. Therefore, the stand taken by the income tax department on this score would also have to be rejected. 14. This brings me to the last aspect which relates to the interest. 14.1 Mr. Ajit Sharma, says that the taxability qua interest would also be the subject matter of Article 22(3) of the DTAA. In my opinion, this stand is plainly wrong. The language of Article 22(3) of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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