For Full Access To All Latest Judgments on Income Tax
Click Here To Subscribe Now
Take a tour of our Income-Tax Library

In the instant case, there is no dispute that the payment made was in the nature of FTS and there is no article in DTAA for taxing the FTS separately. Therefore, the payment made to the non resident required to be taxed under article 7 under the head ‘business profits’. There is no PE in India to non resident. The AO has not made out a case of having PE to non resident in India. Therefore, the payment made to non resident are not to be taxed in India as business profits. Though the department has tried to distinguish the case laws, the fact remains that in the case laws referred above, the payment was made in the nature of Fee for Technical Services and the department has also accepted that the payment made to the non resident was in the nature of FTS.

Shanti Prime Publication Pvt. Ltd.

Sec. 9 of Income Tax act, 1961—Income—Income deemed to accrue or arise in India - In the absence of provision of DTAA to tax fee for technical services, the same would be taxed as per article 7 of DTAA as business profits and in the absence of PE in India, the said income is not chargeable to tax in India.

Facts: Assessee company received retainer fee from Teknomin Constructions Ltd., Vijayawada and claimed the same as non taxable as per DTAA entered between India and Philippines. AO noticed from the computation statement that assessee claimed the deduction of the entire receipt stating that in the absence of PE in India as per the Indo Philippines DTAA and in the absence of FTS article in the Indo Philippines DTAA, the same is not taxable in India and arrived at Nil income. However, AO viewed that FTS required to be taxed, accordingly made the addition and taxed the same at 40% at the maximum marginal rate. CIT(A) dismissed the appeal of the assessee.

Held, that in the absence of provision of DTAA to tax fee for technical services, the same would be taxed as per article 7 of DTAA as business profits and in the absence of PE in India, the said income is not chargeable to tax in India.Though the decision was rendered in the context of India-UAE agreement, the same is very much relevant in the assessee’s case. Even though the India-Philippines DTAA does not have an Article dealing with 'FTS', its taxation would be governed by Articles 7 or Article 23 as the case may be, depending on the facts and circumstances of each case. If Article 24(1) of the DTAA is interpreted as dealing with taxation of items of income not dealt within the foregoing Articles 6 to 23 of the India-Philippines DTAA, as per domestic laws, it would render Article 23 thereof redundant. The Tribunal ultimately held that there is no merit in the contention put forth by revenue that in the absence of 'FTS Article under the India- Philippines Treaty, payments made to IBM-Philippines are taxable in India as per Article 24(1). Consequently, the findings of the authorities below that the payments made to IBM Philippines are taxable under Section 9(1 )(vii) on the basis of Article 24(1) of the India- Philippines DTAA, was held to be incorrect and unsustainable. Accordingly, we hold that the lower authorities have erred in taxing the FTS separately u/s9(1)(vii) . Accordingly orders of the lower authorities are set aside and the appeals of the assessee are allowed. - PARAMINA EARTH TECHNOLOGIES INC. V/s DY. CIT - [2020] 182 ITD 045 (ITAT-VISAKHAPATNAM)