TMI Blog2012 (6) TMI 717X X X X Extracts X X X X X X X X Extracts X X X X ..... s, which cannot be taxed under article 7, 12 or 14 because conditions laid down therein are not satisfied, cannot be taxed under article 23 either. It is also only elementary that when recipient of an income does not have the primary tax liability in respect of an income, the payer cannot have vicarious tax withholding liability either. Hence, CIT(A) was justified in holding non-taxability of such fees in India and non-existence of assessee's tax withholding obligation - Decided against Revenue. - I.T.A. No.: 1412/Kol/2011 - - - Dated:- 19-6-2012 - Pramod Kumar, Shri George Mathan, JJ. D J Mehta and Sanjay Kumar for the appellant D S Damle for the respondent ORDER Per Pramod Kumar: 1. By way of this appeal, the Assessing Officer has challenged the correctness of CIT(A) s order dated 11th July 2011, in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2008-09, on the following ground: Whether on the facts and in the circumstances of the case, the learned CIT(A) was correct in holding that consultancy fees paid to Singapore based foreign company were not chargeable to tax in India, as well as the applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced by the Finance Act 2010, it is no longer relevant whether the non resident has rendered services in India or outside India and whether the non resident has place of business or business connection in India or not. As long as the services are used in India, according to the Assessing Officer, the fees for such technical services will be taxable in India. Accordingly, the Assessing Officer proceeded to hold that amounts paid or payable by the assessee to GMPL were taxable in India, and that the assessee having failed to discharge his tax deduction obligation under section 195, the entire amount paid and payable to the said company, aggregating to Rs 3,00,22,646 is liable to be disallowed under section 40(a)(i) of the Act. 4. Aggrieved, assessee carried the matter in appeal before the CIT(A). Learned CIT(A), in a very erudite and detailed order, held (i) that the provisions of the India Singapore Double Taxation Avoidance Agreement (209 ITR Statute 1), being beneficial to the assessee vis- -vis the provisions of the Indian Income Tax Act, will override the provisions of the Income Tax Act; (ii) that the consultancy fees paid by the assessee to GMPL is not covered by the scope of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts could not be taxed in India. The taxability under the source state under Article 7 of the applicable tax treaty, therefore, clearly fails. We further find that so far as taxability under Article 12, i.e. with respect to Royalties and fees for technical services is concerned, we find that Article 12(4) provides that, The term fees for technical services as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property information for which a payment described in paragraph 3 is received ; or (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein ; or (c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. A plain reading of this provisions makes it cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 (i.e. business profits) or under Article 12, these amounts were taxable under article 23 of the applicable tax treaty. He invites our attention to Article 23 which provides that (i)tems of income which are not expressly mentioned in the foregoing Articles of this Agreement may be taxed in accordance with the taxation laws of the respective Contracting States. His interpretation of the scope of this provision is that when taxability fails under all articles of the applicable tax treaty, the taxability automatically arises under this provision. In other words, for example, when a business profit is not taxable under Article 7, this non taxability is not the end of the road so far as taxability in the source state is concerned, because, according to the learned Departmental Representative, the taxability of business profit in such a situation, though not taxable under article 7, automatically shifts to the taxability under article 23, effectively under the domestic laws of the source state. He has also filed a note, though more little carefully worded than his arguments in the court room, which also lays lot of emphasis on the scope of article 23, as also the fact that the foreig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act. Let us now turn to the provisions of Article 23 of the applicable tax treaty. As we have noted earlier, this treaty provision provides that items of income which are not expressly mentioned in the foregoing Articles of this Agreement may be taxed in accordance with the taxation laws of the respective Contracting States . Learned Departmental Representative s argument is that consultancy charges, brokerage, commission, and incomes of like nature which are payments which are covered by the expression other sums as stated in Section 40(a)(i) and chargeable to tax in India as per the Income Tax Act, and also liable to tax as per taxation laws of Singapore are squarely covered by Article 23 of the India Singapore tax treaty. This argument proceeds on the fallacious assumption that other sums under section 40(a)(i) constitutes an income which is not chargeable under the specific provisions of different articles of India Singapore tax treaty, whereas not only this expression other income is to be read in conjunction with the words immediately following the expression chargeable under the provisions of this (i.e. the Income Tax Act 1961) Act , it is important to bear in mind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to items of income which can be classified under sections 6-22 whether or not taxable under these articles, and the income from consultancy charges on is covered by Article 7, Article 12 or Article 14 when conditions laid down therein are satisfied. Learned Departmental Representative s argument, emphatic and enthusiastic as it was, lacks legally sustainable merits and is contrary to the scheme of the tax treaty. While dealing with the scope of residuary article of income under the tax treaties, and in support of the above conclusions, we may also refer to certain observation, with which we are in most respectful agreement, made by the Hon ble Justice P V Reddi, articulating the views of the Authority for Advance Ruling in the case of Gearbulk AG (318 ITR 66), and in his felicitous words as follows ..The question is whether the profits from the shipping operations in international traffic can be said to be "an item of income" "not dealt with" in the previous articles of DTAA ? We do not think so. Among the various items of income in the foregoing articles, business profits into which the shipping income falls has been dealt with under article 7. Profits from the internationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accept this contention. Allocation of taxing right to the source State can well be done by such a process of exclusion. There is no particular manner or methodology of achieving that result. The expression dealt with does not necessarily mean that there should be a detailed or elaborate treatment of the subject 10. Clearly, therefore, the income from consultancy services, which cannot be taxed under article 7, 12 or 14 because conditions laid down therein are not satisfied, cannot be taxed under article 23 either. It is also only elementary that when recipient of an income does not have the primary tax liability in respect of an income, the payer cannot have vicarious tax withholding liability either. This position is independent of the payer having moved an application under section 195 or not, or on the payer or the payee having obtained an advance ruling in their favour or not. The law is now very well settled in this regard by Hon ble Supreme Court s judgment in the case of GE India Technology Centre Pvt Ltd Vs CIT (supra) wherein Their Lordships have categorically held that, where a person responsible for deduction is fairly certain, then he can make his own determination ..... X X X X Extracts X X X X X X X X Extracts X X X X
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