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2014 (4) TMI 887 - ITAT DELHIExistence of Permanent establishment - DTAA between India and UK - Whether the stay of the seconded employees of the assessee for more than 90 days in India, engaged in providing managerial services to JCB India, constitute Services Permanent Establishment (P.E) - Held that:- TTA provides not only for the supply of IP Rights by the assessee to JCB India but also to depute its personnel for rendering services in connection with such IP Rights - The assignment of personnel by the assessee is not independent of TTA - the assessee was not to appoint and select some personnel for sending to JCB India, but was to depute its technical personnel on assignment basis - the supply of personnel on assignment basis is a part and parcel of the overall TTA read with IPAA and not de hors. Relying upon Dit (International Taxation) Versus Morgan Stanley And Company Inc. [2007 (7) TMI 201 - SUPREME Court] - there is no quarrel on the duration of stay of such personnel of the assessee which admittedly is more than ninety days within the twelve-months period - This position was duly admitted by the assessee before the Assessing Officer and such position has not been denied - all the requisite conditions for attracting the mandate of Art.5(2)(k)(i) stand satisfied inasmuch as there is furnishing of services including managerial services and such services are other than those taxable under Article 13 (Royalties and fees for technical services) - such services are rendered within India - services are rendered by the assessee through its employees and activities continued for a period of more than ninety days within twelve months period - JCB India constituted a service P.E of the assessee in India – the order of the CIT(A) set aside and the matter remitted back to the AO. Whether royalties/fees for technical services is taxable under Article 7 as held by the AO or Article 13(2) – Held that:- The amount of royalty and consideration for rendering of services by the employees of second category do not fall in para 6 of Article 13 and are hence chargeable to tax as per para 2 of Article 13 of the DTAA - As both these amounts make up the total consideration, its splitting into two parts, viz., towards royalty and employees of the second category has become academic, which would otherwise have been required if one of such components had fallen under para 6 of Article 13 for the computation of income as per Article 7 of the DTAA - In so far as fees for technical services for rendering of services by the employees of the first category is concerned, this falls under para 6 of Article 13 - Once the amount falls under para 6, it would automatically stand excluded from para 2 of Article 13 and would find its place under Article 7 of the DTAA. The amount of royalties or fees for technical services assumes the character of 'Business profits' on its arrival in Article 7 - Such amount will intermingle with other business profits, if already available as per Article 7 and will shed its character of royalty or fees for technical services in so far as the computation of income and its taxation under the DTAA is concerned - It is totally misleading to construe the amount of royalties and fees for technical services coming through Article 13(6) to Article 7 as retaining the same character as was there under Article 13 - the consideration for rendering of services by the employees of the first category is chargeable to tax under Article 7 of the DTAA and as such the provisions dealing with the computation and the taxation as provided under Article 7 shall apply pro tanto - separate details of receipts and actual expenses incurred for earning them are not available on record – thus, the matter is remitted back to the AO for fresh determination of the amount of income in terms of Article 7. The services rendered by the employees of the first category, being eight deputationists, constituted service PE of the assessee in India - The order holding is overturned and the view taken by the AO is restored - The second ground about the direction of the CIT(A) that the entire amount should be considered as royalty and not as business income is partly allowed – Decided partly in favour of Revenue. Levy of Interest u/s 234B of the Act – Held that:- The decision in DIT v. Jacabs Civil Incorporated [2010 (8) TMI 37 - DELHI HIGH COURT] followed - as the assessee included the amount of royalty and fees for technical services in its total income – the assessee is relieved from any interest liability u/s 234B of the Act – Decided in favour of Assessee.
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