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TMI Blog2024 (1) TMI 1232X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of Bangladesh. The services for the said project are being rendered by the petitioner herein to ICT and the same is governed by DTAA. As per Article 12 of the DTAA, only fees for included services are taxable in the source State and not the fees for the technical services, which is in question in the present proceedings. Further, as per Article 7(1) of the DTAA, the business profits of an enterprise of a contracting State shall only be taxable in the State unless the enterprise carries out the business in other contracting State through a PE. In the present case, no material is placed on record to show that PE of the petitioner company, having office at Hyderabad, is involved in any manner in the above project. In the above factual background, and in the absence of any material placed before this Court, it can be inferred that no taxable event has taken place in India and thus, petitioner company cannot be subjected to TDS for payments made by ICT to the petitioner company. Though, petitioner has got an alternative remedy of revision before the appellate authority under Section 264 of the Income Tax Act against the impugned order, this Bench is not inclined to relegate th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technocrats Private Limited (hereinafter referred to as 'ICT), a company incorporated in India, entered into a joint venture agreement dated 28.06.2021, for the purpose of engaging the petitioner company's Independent Engineering Services with respect to ICT's project in Bangladesh. The said project entailed upgrading a Joydev-Debogram-Bhulta-Mandanpur Road (N-105, also known as the Dhaka By-Pass Road) in Bangladesh into four lanes vide a Public-Private Partnership. The petitioner company has a Permanent Establishment [PE] in Hyderabad, from India, and the Indian PE is assessed to tax under the Income Tax Act, 1961 (for short the Act ) vide PAN No. AAFCS7792F. It is stated that the joint venture agreement was not entered into with the PE at all. Therefore, it does not create information rights and obligations on permanent establishment in India. 5. It is further contended that joint venture agreement was exclusively between the petitioner and ICT and PE is therefore, no way involved, which is also evident from the petitioner company s board resolution, dated 30.03.2021. It is further stated that petitioner company s President and CEO signed an undertaking that PE in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... country and amount paid is for source with respect to the Dhaka By-pass Road project and therefore, it falls under exception carved out in Section 9(i)(vii)(b) of the Act. As per which, any fee for technical services paid by a resident for services utilized in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India shall be excluded from the ambit of income by way of fees technical services. 9. Alternatively, it is contended that the fees for the consultancy services rendered at Bangladesh by petitioner Company to ICT, is governed by the DTAA between the U.S.A. and India. Under Article 12 of the DTAA, only fees for included services are taxable in the source State, and not the fees for technical services which is in question in the present proceedings. It is also contended that as per Article 7(1) of the DTAA, the business profits of an enterprise of a contracting State shall only be taxable in the State unless the enterprise carries out the business in the other contracting State through a PE. 10. In the present case, the petitioner Company s Indian PE is not involved in the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, 1961 and that such amounts would be deemed to be income accruing in India under Section 9(1) of the Act. 15. It is further contended that in the event of the payment/expenditure as well as the income accruing by/ to the Bangladesh Project PE, no reason whatsoever has been given as to why the payment is being routed through India. This leads to the inference that such circumvention is designed to avoid tax/ withholding tax in multiple jurisdictions. Further, Section 197 of the Act is relevant only when the payee is eligible for any credit or at the time of payment of amount as contemplated under Section 197(1) of the Act. In the instant case, the expenditure regarding the consultancy services rendered by the petitioner in Bangladesh is attributable to the Project PE in Bangladesh and the expenditure is in no way related to ICT India. Therefore, the occasion for applying for a certificate under Section 197 of the Act does not arise as the payer would be an assessee under the tax jurisdiction of Bangladesh. 16. It is also contended that the petitioner has failed to come abreast as to why payments are being routed through India for work done and income accruing in Bangla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and wherein, it is further contended that such cancellation is illegal and contrary to the provisions contained in Section 197(1) and (2) r/w Section 44BBB of the Act and is vitiated by non-application of mind and violative of the principles of natural justice. The Madras High Court at paragraph-5 held as under: 5. .. even if the certificate for deduction at source at a lower rate is withdrawn, the consequence of such withdrawal would be that deduction has to be made at a higher rate, but ultimately the question of liability is to be decided in assessment proceedings. The liability of the petitioner is not being finally determined at the time of the withdrawal of the certificate. If ultimately it is found that the petitioner is liable to pay tax at a rate lower than the deduction to be made, it is obvious that the amount paid is to be refunded. 21. Further, it is relevant to refer clauses of joint venture agreement dated 28.06.2021, which reads as under: 2.1. Once executed by all of the Members, this Agreement shall be effective as of the date on which the performance of Services begins in accordance with GCC Clause 17.1 and 18.1 of the Services Agreement. The Membe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Schedule 1, clause 1.2:- The Project is: Independent Engineering (IE) Services for Upgrading of Joydevpur Debogram Bhulta Madanpur (Dhaka By-Pass) Road (N-105) into 4 lanes through Public Private Partnership, Bangladesh. Schedule 2, Scope of Services (Clause 5.2) : - The brief responsibilities of ICT and Sheladia have been mentioned below : (i) Sheladia shall provide the key Senior Structural Engineer and undertake the scope of services under this position as outlined in the Job Description in the Services Agreement, with due attention to deadlines and coordination with the team. (ii) ICT shall lead the project with support of Sheladia and shall discharge its duties in a fair, impartial and efficient manner, consistent with the highest standards of professional integrity and Good Industry Practice. (iii) The Client will provide in-country facilities, including furnished and equipped office space, transport and logistic support. (iv) ICT and Sheladia shall carry out their work as laid down in the Service Agreement. 22. As per Schedule 3 Annexure A of joint venture agreement, ICT agrees to pay to Sheladia for the serv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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