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2018 (3) TMI 1992 - AT - Income TaxIncome taxable in India - Fees for Technical Services(FTS) - consideration for the services in the nature of managerial, technical, or consultancy, and that same would be subject to tax under India-Singapore tax treaty provisions - assessee engaged Fractal Singapore(FS), its wholly owned subsidiary, for providing marketing and business development services to it and the assessee had entered in to an agreement with FS for providing Customer Coordination Services on its behalf, that the Singapore entity did not have the authority to conclude any agreements or make any commitments on behalf of the assessee. HELD THAT:- We hold that requirement of Article 12 of India-Singapore tax treaty-i. e. making available of services in the nature of managerial, technical or consultancy-was not satisfied. We find that in the case before us, the services availed by the assessee were in the nature of marketing, business development and customer co-ordination support services provided by FS and those services were rendered by employees of FS outside India, that the assessee was not enabled to independently perform such functions and had only consumed the services of FS, that the expertise and knowledge would still remain with FS. Assessee was only reaping the rewards of the functions carried out by FS and was making payment for availing such services and not towards the skill of business development or marketing as such skills had not been made available to the assessee by the non-resident entity. So, we hold that payment made by it to FS was business income of FS, that FS did not have PE in India, that services were rendered outside India, that payment received by the FS was not taxable in India. We further hold that as per the law prevailing at the time in force no income was arising in India by virtue of these services, so, the provisions of Section 195 for withholding of taxes on such remittance were not applicable. In the case of Virola International [2014 (2) TMI 653 - ITAT AGRA] Tribunal has held that a retrospective amendment in law would not change the tax withholding liabilities with a retrospective effect, that the withholding obligations from payments made to non-residents would depend on the law as it stood on the date obligation to withhold tax arose. We hold that SG Business Development expenses paid to FS, amounting to Rs. 1. 18 crores, was neither taxable in India as FTS under Article 12 of India-Singapore tax treaty nor was it taxable as Business Income under Article 7 of India-Singapore DTAA, that there was no liability of the assessee to withhold taxes on such payments made to FS and it was not a disallowable expenditure u/s. 40(a)(i) r. w. s. 195 of the Act. First two grounds of appeal are decided in favour of the assessee. Disallowance of business expenses - Scope of Circular 23 of 1969 dated 23/07/1969 - AR argued that the Circular was effective during the year under consideration, that withdrawal of the circular at a later date could not be held to be retrospective, that the benefit of the provisions laid down by the circular were available to the assessee, that the income of FS was not taxable in India, that no tax was required to be deducted on the payment made by the assessee - HELD THAT:- We find that identical issue was deliberated upon and decided by the honorable Delhi High Court in the case of Angelique International Ltd. [2013 (10) TMI 17 - DELHI HIGH COURT] wherein it was held that withdrawal of the circular and 2009 could not be held to be retrospective and could not be classified as explaining or clarifying the earlier circular issued in 1969, that the circular was in force till it was withdrawn. Respectfully following the above judgment, we decide GOA 3 in favour of the assessee.
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