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2023 (4) TMI 939 - ITAT DELHITDS u/s 195 - Disallowance u/s 40(a)(i) - assessee had paid professional fee to various overseas entities without withholding tax at source - payment made to a German entity - Reliance on preceding assessment years - Assessee submitted that the payments made are taxable at the hands of the overseas entities as profit of business and profession - CIT-A observed payment made is consultancy services, hence, has to be treated as FTS under Article 12(4) of India-Germany DTAA - HELD THAT:- On careful reading of the provisions relating to Independent Personal Services in treaties considered by the Tribunal in the preceding assessment years in contrast to Article 14 of India- Germany Treaty, we find a marked difference. While, in all other treaties considered Articles governing Independent Personal Services refer to both individual and partnership firm, however, Article 14 of India- Germany Treaty is quite restricted in its scope as paragraph 1 of Article 14 refers only to income earned by an individual. Decisions of the Tribunal in preceding assessment years would not apply, qua, the payment made to a German entity, which no doubt, is a partnership firm. Therefore, the assessee cannot take the benefit o Article 14 of India-Germany Treaty. Whether the payment made can be treated as FTS under Article 12(4) of the India-Germany Treaty?- From the nature of services for which payment was made, it can very well be said that neither it is managerial, nor technical nor consultancy services. Even, AO has admitted that it is in the nature of professional fee. Thus, undoubtedly, payment made by the assessee to CA firm is for professional services rendered. The fact that payment made for professional services will not fall within the definition of FTS under Article 12(4) of the treaty is evident from putting it under Article 14 of the treaty, though, it applies to Individuals only. Once the payment does not fall either under Article 12 or Article 14, in absence of any other provision in the treaty specifically dealing with such payment, it has to be treated as business profit at the hands of the recipient. Thus in absence of a PE or fixed base, the payment is not taxable at the hands of the recipient. That being the case, there was no obligation on the assessee to withhold tax at source on such payment. Therefore, we delete the disallowance made u/s 40(a)(i) - Assessee appeal is allowed.
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