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2018 (11) TMI 1119 - ITAT BANGALORETDS liability on Reimbursement of Salary paid to the seconded employees - FTS - nature of payment in the form of reimbursement made by IBM India to IBM oversees entities - TDS liability u/s 192 or 195 - India-UAE DTAA provision applicability - Held that:- Article 24(1) of the India- Philippines DTAA, which is similar to Article 25(1) of the India-UAE Treaty, does not confer a right to invoke the provisions of domestic laws for classification or taxability of income which is governed by Article 6 to 23 of the India-Philippines Treaty and that Article 24(1) operates in the field of computation of doubly taxed income and tax thereon in accordance with the domestic laws of each contracting state and is not part of Articles 6 to 23 which deal with the classification of income into different heads. Even where royalties and fees for technical services receive separate treatment under a DTAA, it is the Article relating to computation of business income that would apply where such royalties or fees arise in the course of business carried on by the recipient. The Tribunal came to the conclusion that receipts were in the course of business of the Assessee and were therefore business income falling within Article 7 of the DTAA and would therefore not fall within the ambit of Article 23(1) of the DTAA. Since IBM Philippines did not have Permanent Establishment (PE) in India, the receipt was not chargeable to tax in India. As IBM Philippines received the monies in the course of their business and did not have PE in India and therefore the receipt in question cannot be brought to tax under Article 7 of DTAA as well. In the absence of the provision in the DTAA to tax Fees for Technical Services the same would be taxed as per the Article 7 of the DTAA applicable for business profit and in the absence of PE in India, the said income is not chargeable to tax in India. Consequently, we hold that there is no merit in the appeals by the revenue on this issue. Regarding rate of tax at which TDS has to be deducted in the event of the non-resident payee not obtaining Income Tax PAN in India has been settled by a Special Bench ITAT Hyderabad in the case of Nagarjuna Fertilizers & Chemicals and Another Vs. ACIT (2017 (3) TMI 81 - ITAT HYDERABAD) it is held that the non-obstante clause contained in machinery provision of section 206AA of the Act was required to be assigned restrictive meaning and same could not be read so as to override even relevant beneficial provisions of Treaties, which override even charging provisions of the Income Tax Act by virtue of section 90(2) of the Act. Therefore, an Assessee could not be held liable to deduct tax at higher of rates prescribed in section 206AA in case of payments made to non-resident persons having taxable income in India in spite of their failure to furnish Permanent Account Numbers. There is, therefore, no merit in appeals by the revenue on this issue also. - Decided against revenue
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