9911796707
TMI Blog2012 (6) TMI 717X X X X Extracts X X X X X X X X Extracts X X X X ..... as not taxable in India in respect of such fees; and (b) whether or not the CIT(A) was further justified in holding that non deduction of tax at source under section 195, from such payments, will result in disallowance under section 40(a)(i) of the Act. 3. The material facts are not in dispute. The assessee is engaged in the business of trading and export of sea foods. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had claimed a deduction of Rs 3,00,22,646 in respect of consultancy charges paid to a Singapore based company by the name of Global Maharaja Pte Ltd (GMPL, in short). In response to Assessing Officer's requisition for further details, it was submitted by the assessee that during the relevant financial period, the assessee had carried out huge volume for currency derivative transactions, and that, in terms of agreement with the GMPL, the assessee was required to pay consultancy charges @ 1% of the total transacted volume of forex derivatives, futures and options - subject to a profit realization of at least Indian Rs 3.50 per U S Dollar. It was further submitted that, out of the total amount of Rs 3,00,22,646, the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in India, and in the light of Hon'ble Supreme Court in the case of GE Technology Centre Pvt Ltd Vs CIT (327 ITR 456), the assessee did not have any obligation to deduct tax at source in India; and (v) that since there was no lapse of non deduction at source by the assessee, the impugned disallowance of Rs 3,00,22,646 was to be deleted. The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us. 5. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position. 6. There is no, and cannot be any, dispute with the basic legal position, as inherent in the scheme of the Indian Income Tax Act under section 90, that the provisions of a duly notified double taxation avoidance agreement will override the provisions of the Income Tax Act, unless, and to the extent, the latter are beneficial to the assessee. As Late Prof. Klaus Vogel, in his oft referred book 'Klaus Vogel on Double Taxation Conventions', had observed that, "the treaty acts like a stencil that is placed over the pattern of domestic law and covers over certain parts". Dr. Vogel's perception on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly technology contained therein. The services were simply consultancy services which did not involve any transfer of technology. The amounts received by the GMPL could not be taxed as 'fees for technical services either. As a matter of fact, learned Departmental Representative submits that the CIT(A) was quite justified in holding that the income in the hands of the GMPL is neither taxable as a business income under article 7 of as fees for technical service under article 12, even though learned Director of Income Tax (International Taxation) Shri Sanjay Kumar, who was present in the court room in connection with some other case, immediately got up to disown this argument and submit that the views so expressed by the learned Departmental Representative are quite at variance with the stand being taken by the directorate of international taxation in all other cases. That does not make any difference to our decision on this issue, because even without this benevolence of the learned Departmental Representative, we will still come to the same conclusion. The reason is this. There are at least two non-jurisdictional High Court decisions, namely Hon'ble Delhi High Court in the case of DI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agrave;-vis the DTAA between India and Singapore". Learned Departmental Representative goes on to state that "the assessee has preferred the tortuous (path) over the straight". Learned Departmental Representative has also laid lot of emphasis about, what he perceives as, learned CIT(A)'s categorical finding that the payments made to GMPL were in the nature of 'other income' and, therefore, should be taxed under article 23 of the Indo Singapore tax treaty. 8. As for learned Departmental Representative's reference to the alleged finding of the CIT(A) regarding the amount having been paid to GMPL falling within category of the "other sum", it is important to note that the CIT(A) had stated that "Section 40(a)(i) of the Income Tax Act provides that in computing income of an assessee under the head 'profits and gains of business', deduction will not be allowed for any expenditure being royalty, fees for technical services and other sum chargeable under the Act, if it is payable outside India, or in India to a non resident, and on which tax is deductible at source under Chapter XVII B and such tax has not been deducted", and it was in this context that the CIT(A) noted that though the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 95 are concerned and, therefore, going by this logic, even a business income, when not taxable under article 7, can always be taxed under article 23. That is clearly an absurd result. A tax treaty assigns taxing rights of various types of income to the source state upon fulfilment of conditions laid down in respective clauses of the treaty. When these conditions are satisfied, the source state gets the right to tax the same, but when those conditions are not satisfied, the source state does not have the taxing right in respect of the said income. When a tax treaty does not assign taxability rights of a particular kind of income to the source state under the treaty provision dealing with that particular kind of income, such taxability cannot also be invoked under the residuary provisions of Article 23 either. The interpretation canvassed by the learned Departmental Representative, if accepted, will render allocation of taxing rights under a treaty redundant. In any case, to suggest that consultancy charges, brokerage and commission can be taxed under article 23, as has been suggested by the learned Departmental Representative, overlooks the fact that these incomes can indeed be taxe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the enterprise resides. Permanent Establishment test is irrelevant under article 8. Hence, a separate article. As far as the profits from international operation of ships are concerned, it is an integral part of business profits; at the same time, they are excluded from the business profits - article for the obvious reason that it is not intended to be covered by the Treaty. That income has been left to the care of domestic law under which the burden of taxation on such income has been minimized (vide section 172 of Income-tax Act). We are of the considered view that a particular species of income which is specifically referred to in article 7 and deliberately left out of its genus, namely business profits, cannot be said to be an item of income not dealt with under article 7. The expression 'deal with' is a comprehensive expression having different shades of meaning. In the New Chambers Thesaurus, the meanings of 'deal with' are given thus : "1. deal with a situation, attend to, concern, see to, manage, handle, tackle, cope with, get to grips with, take care of, look after, sort out, process." In Collins Cobuild English Language Dictionary, it is stated thus : "If a book ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
