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2015 (10) TMI 954 - AAR - Income TaxTaxability of income - amount of service fee received/receivable by the applicant from Usha International Limited in terms of Agreement dated 16.11.2012 for providing services in connection with procurement of goods by Usha International Limited from vendors in China and other related services provided in China - whether is taxable in India and the applicant is liable to pay tax thereon in India? - Double Taxation Avoidance Agreement between Government of India and People‟s Republic of China - whether the payment received by the applicant from the Indian company for services rendered in China is taxable in India under Article 12(4) of DTAA between India and China? - contrast with China-Pakistan tax Treaty - Held that:- Since the applicant's counsel has sought to make a distinction between India-China DTAA and Pakistan-China DTAA, we notice that Pakistan-China DTAA refers to”provision of rendering of any managerial, technical or consultancy services‟ whereas India-China DTAA refers to”provision of services of managerial, technical or consultancy nature‟. The distinction between these two DTAAs clearly points out that the scope of”provision of services‟ as in India-China Treaty is much wider than scope of”provision of rendering of services‟ as in Pakistan-China Treaty. Based on this distinction this Authority had held in the case of Inspectorate (Shanghai) Limited that”provision of services‟ will cover the services even when these are not rendered in the other contracting state (i.e. India in this case) as long as these services are used in the other contracting state (i.e. India in this case). The ITAT Mumbai Bench in the case of Ashapura Minichem [2010 (5) TMI 523 - ITAT, MUMBAI ] had also reached at the same conclusion saying that if at all the contrast with China-Pakistan tax Treaty shows something, this contrast shows that the India-China tax Treaty intends to follow the source rule, while China-Pakistan tax Treaty gives up the source rule for fee for technical services. Appendix A to the service agreement in this case makes it very clear that the applicant had the skill, acumen and knowledge in the specialized field of evaluation of credit, organization, finance and production facility of an organization, in conducting market research, in giving expert advice for improvement of high quality of standards, advising on new development in China with regard to technology/product/process up gradation. The UIL asks for advice from the applicant and refer to the source of information provided by the applicant. The nature of these services in a specialized field mentioned in Appendix A would surely come within the ambit of the term ”consultancy services". The amount of service fees received by the applicant from UIL for providing consultancy services are taxable in India. The service fee received by the applicant is chargeable to tax to the extent of full amount received by it. Service fee received by the applicant chargeable to tax in India - whether same is chargeable to the extent of full amount received by it or only to the extent of mark up received @ 10% over and above the actual cost incurred by it in providing services in China? - Held that:- Similar issue had come up before the Authority in the case of DANFOSS Industries Private Limited (2004 (5) TMI 58 - AUTHORITY FOR ADVANCE RULINGS) wherein the thrust of the argument of the applicant was that there was no income element in the service fee and that it was only reimbursement of the cost. It was held therein by this Authority that the entire sum will be chargeable to tax and can be assessed to tax under the Act and that such sum might be income or income hidden or otherwise embedded therein and that the scheme of tax deduction by source applied not only to amount paid which would wholly bear income character such as salaries, dividends, interest on securities etc. but also to gross sums, the whole of which might not be income or profit of the recipient, such as payments to contractors and sub-contractors and the payment of insurance commission. In the case of Timken India Limited (2004 (12) TMI 12 - AUTHORITY FOR ADVANCE RULINGS ) also it was decided that entire amount was liable to be taxed in India and accordingly the applicant was obliged to withhold Income-tax at appropriate rate. We respectfully follow the same ruling in this case also. The rate of tax is 10% on the gross amount under the DTAA.
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