Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2022 (5) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (5) TMI 1274 - AT - Income TaxTDS u/s 195 - withholding of tax - Income accrued to India - PE in India - payments were made to the consultant which are covered under section 9(1)(vii) - as per AO payments made by the assessee to GBAs were in the nature of fees for technical services (“FTS”) and do not fall within the scope of Article 7 of DTAA and that “make available” clause is applicable to the assessee - AR submitted that the payments made to GBAs are in the nature of commission for sales promotion services rendered by them on which no tax is required to be deducted at source as the same constitutes business income of the payees which is not taxable in India in the absence of PE of the payees in India - whether services rendered by GBAs were in the nature of business support services and not in the nature of managerial or technical or consultancy services? - HELD THAT:- As nature of business carried out by the assessee, arrangement with the GBAs/ BDAs, nature and scope of services rendered by these GBAs/BDAs discussed above it is obvious that the services rendered by these parties is purely for promotion of sales (of services) and soliciting new clients. The scope of service and the nature of services rendered by these parties have been very illustratively defined in the MSAs with these parties and cannot be subject to any kind of different interpretation. While arriving at his conclusion, AO/ CIT(A) failed to appreciate the exact nature of services rendered by GBAs/ BDAs. Just by naming these parties as ‘consultant’ in the MSAs who are actually engaged in carrying out activities for sale promotion and in lieu thereof getting commission cannot be the basis of concluding that the sums paid to these parties are in the nature of FTS and therefore liable to be taxed in India having accrued in India. In our view the entire payments to the GBAs/ BDAs in all the three assessment years under consideration are not FTS for the reasons that no specialised technical services are rendered to the assessee and that the assessee did not have any personal interaction with these service providers and that these service providers acted within the scope defined in the MSA. GBAs/BDAs are not paid for rendering any managerial, technical or consultancy services but only for promoting sale on behalf of the assessee and therefore such payments are business income of the payees which squarely falls within the scope of the Article 7 of the respective DTAAs relating to ‘business profits’. It is an undisputed fact that the GBAs/ BDAs located overseas are non-residents and do not have PE in India. Hence, the payments to GBAs/ BDAs being the business profit of the GBAs/ BDAs are not taxable in India in the absence of PE. The assessee is therefore not liable to withhold any tax on such payments. There is plethora of judicial precedents wherein it has been held that commission payments to non-resident agents/ service providers for services like sales promotion, marketing, publicity, procuring sales order etc. are not FTS but business profit in the hands of the service provider to which Article 7 of the DTAA is applicable. Payments made to the GBAs/ BDAs are not FTS but business profits not taxable in the hands of GBAs/BDAs in India in the absence of PE by virtue of the Article 7 of the DTAA, no tax is required to be deducted at source on such payments. In the case of GE India Technology Centre Pvt. Ltd. [2010 (9) TMI 7 - SUPREME COURT] held that obligation under section 195(1) to withhold tax arrives only if the payment is chargeable to tax in the hands of non-resident recipient. Therefore, merely because a person has not deducted tax at source from a remittance abroad, it cannot be inferred that the person making a remittance has committed a failure in discharging his tax withholding obligations because such obligations come into existence only when recipient has a tax liability in India. Thus, the payments made to the GBAs/ BDAs are not subject to any withholding tax, such payments being not chargeable to tax in India. Appeal of assessee allowed.
|