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2016 (3) TMI 680 - AT - Income TaxFee for Technical Services - Payment of IUC by assessee to FTOS - Held that:- No hesitation in upholding the submissions of the Ld. Counsel of the Assessee that, the payment in question cannot be considered as “Fee for Technical Services” in terms of section 9(1)(vii) read with Expln. 2 of the Act as inter connection facility and the service of the FTO in picking up, carrying and successful termination the call over their respective network is a standard facility and the and FTO in question does not render any technical services to the assessee under interconnect agreement. Existence of ‘make available clause’ - Held that:- wherever under the DTAA’s. Make available clause is found, then as there is no imparting, the payment in question is not ‘FTS’ under the Treaty and when there is no ‘FTS’ clause in the treaties, the payment falls under Article 7 of the Treaty and is business income. Wherever under the DTAA’s. Make available clause is found, then as there is no imparting, the payment in question is not ‘FTS’ under the Treaty and when there is no ‘FTS’ clause in the treaties, the payment falls under Article 7 of the Treaty and is business income. Payment in question is not ‘Royalty’ as contemplated under the DTAAs. We agree with the submission of the Ld. Counsel for the assessee that the amendments to the Finance Acts cannot be read into the DTAA’s We uphold the order of the Ld. First Appellate Authority that the payment made for FTO for interconnection charges does not fall within the ambit of the definition of ‘Royalty’ under section 9(1)(vi) of the Act or under the definition of ‘Royalty’ under the Treaties. Default u/s 201 - Held that:- We have held that the payment in question for “IUC” to FTOs is neither FTS nor royalty either under the Act or under the Treaties. We have in subsequent paragraphs given reasons as to why the income in question arising from the payment cannot be deemed to accrue or arise in India. Thus the assessee cannot be declared as “assessee in default” as it has not failed in its statutory obligations to deduct tax at source u/s. 195 of the Act. Assessee cannot be held the Assessee in default under section 201 of the I.T. Act. Hence, this issue is decided in favour of the Assessee. Income deemed to accrue or arise in India - Payment made by assessee to "FTO" - Held that:- Even under the DTAA, the payments being in the nature of business income of the FTOs, Article ‘7’ of the relevant DTAA’s governs the same. There is no dispute that the FTOs do not have any Permanent Establishment in India. Under such circumstances, under Article 7 of the Treaty the income cannot be brought to tax in India. Hence, the payment of “IUC” to the FTOS cannot be deemed to accrue or arise in India under any of the clause of Section 9(1) read with Section 5(2) of the Act. Therefore this issue is decided in favour of the assessee. Section 206AA application- prospectively or retrospectively - Held that:- This issue of retrospective applicability is covered in favour of the Assessee and against the Revenue by the decision of the ITAT, Pune Bench in the case of DDIT (IT-II), Pune vs. Serum Institute of India Ltd. [2015 (6) TMI 26 - ITAT PUNE] to hold that Section 206AA cannot be applied retrospectively. The beneficial rate provided in the DTAA override the provisions of Section 206AA of the Act. Thus this issue is resolved in favour of the Assessee.
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