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2015 (1) TMI 469 - AT - Income TaxNon deduction of tax at source - TDS u/s 195 on foreign remittances - whether part of the consideration for purchases of plant, machinery or equipment can be attributed to the installation, commissioning or assembly of the plant and equipment, or any supervision activity - Held that:- even if a part of the income, embedded in the impugned payments made to non-resident vendors, can indeed be attributed to the installation, assembly or commissioning activities of the plant, machinery or equipment purchased, such an income, on the facts of this case, cannot be brought to tax as business income under article 7 read with article 5 of the respective DTAAs. Hon'ble Supreme Court in the case of Union of India vs. India Fisheries (P) Ltd. [1965 (4) TMI 52 - SUPREME COURT OF INDIA] has held that, "If there is an apparent conflict between two independent provisions of law, the special provision must prevail." If we are to interpret the FTS and FIS clauses overlapping with PE clause in practice, and apply the FTS and FIS clauses when PE taxation cannot be invoked, the very purpose of PE provisions will stand defeated and it will be contrary to the UN Model Convention Commentary quoted earlier in this order, which, as a coordinate bench has held in the case of Graphite India Ltd Vs DCIT [2002 (10) TMI 232 - ITAT CALCUTTA-C], are in the nature of ‘contemporanea expositio’. Just because the assessee has accepted a taxability in respect of some other transaction, no matter howsoever related, the legal remedies available to the assessee cannot be negated. There cannot be, and there is no, estoppel against the law. In view of the above discussions, in our considered view, in a situation in which there are specific PE clauses in relation to a particular type of services, which are covered in the scope of servi ces covered by the scope of the ‘fees for technical services’ or ‘fees for included services’, the taxability of consideration for such services must remain confined to taxability of profits under the relevant specific PE clause. In our humble understanding, the provisions for taxability as FTS or FIS will not come into play in such cases. Installation, commissioning or assembly of a plant, machinery or equipment , or any supervision activity connected therewith, is ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of such a property i.e. plant, equipment or machinery. Therefore, for this short reason, any consideration for installation, commissioning or assembly activities, or supervision services in respect thereof, of a property, which obviously includes a plant, equipment or machinery, cannot be included in fees for included services under the Indo Swiss tax treaty as well. Accordingly, even if there be any income embedded in the impugned payments, in respect of installation, commissioning or assembly activities, or supervisory activities connected therewith, the same cannot be brought to tax, in view of the provisions of Article 12(5)(a) of Indo Swiss tax treaty, in the hands of the Swiss vendors as well. FTS or FIS provisions cannot be invoked for taxing a nonresident on the basis of accrual of liability, whether credited or not, or on the notions of fiction of an element of FTS or FIS being embedded in the business receipts for sale of plant, equipment or machinery. The receipts in the hands of the vendors are in the nature of business income, and the deeming fiction, as sought to be canvassed by the revenue, has no application in the matter. Demands under section 201 r.w. 195 set aside - Decided in favor of assessee. However, the facts stated by the assessee with regard to the PE of foreign vendors not being in existence may need to be verified, and particularly as the assessee did not make proper submissions, duly supported by the facts on this aspect of the matter, at the assessment or the appellate stage. - Matter remanded back for establishing the facts - Decided partly in favor of revenue.
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