TMI Blog2019 (5) TMI 1591X X X X Extracts X X X X X X X X Extracts X X X X ..... r services mentioned in articles 14 and 15 of this convention. In the present case, article 14 is applicable and therefore, the receipt of these three persons cannot be considered under article 12(3)(b) and as a consequence, the same is taxable in the country of resident, i. e., Uganda and therefore, no TDS was deductible u/s 195 and consequently, disallowance u/s 40(a)(i) is not justified - I. T. A. No. 943/Bang/2017 - - - Dated:- 5-4-2019 - Arun Kumar Garodia Accountant Member And Pavan Kumar Gadale Judicial Member For the Assessee : B. R. Sudheendra, Chartered Accountant For the Department : T. N. Prakash, Additional Commissioner of Income-tax (Departmental representative) ORDER A. K. GARODIA (ACCOUNTANT MEMBER) .- 1. This appeal is filed by the assessee and the same is directed against the order of the learned Commissioner of Income-tax (Appeals), Mysore dated June 30, 2016 for the assessment year 2011-12. 2. The grounds raised by the assessee are as under : 1. The order passed by the learned Commissioner of Income-tax (Appeals), Mysuru to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present case regarding the disallowance of ₹ 13,92,346, it was submitted by the learned authorised representative of the assessee that this issue was decided by the Commissioner of Income-tax (Appeals) as per para No. 7.5 of his order in which this is the basis of the order of the Commissioner of Income-tax (Appeals) that in the present case, article 12 of the Double Taxation Avoidance Agreement between India and Uganda is applicable. He submitted that this article of treaty is available on page No. 81 of the paper book and it was pointed out that as per this article 12(3)(b), the term fees for technical services , i. e., fees for technical services is defined and it is stated in this article that fees for technical services means payment of any kind in consideration for the rendering of any managerial, technical or consultancy services including the provision of services by technical or other personnel but it does not include payments for services mentioned in articles 14 and 15 of this Convention. He submitted that therefore, before applying article 12(3)(b), it has to be seen as to whether article 14 is applicable or not. He submitted that article 14 is also availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... twenty-eighth and twenty-ninth grounds pertain to the payment made by the appellant to the following non-residents amounting to ₹ 13,92,346, which was claimed as a deduction but disallowed by the Assessing Officer. As per the admitted facts of the case, during the previous year relevant to the assessment year 2011-12, the appellant made the followings payments : Name of the person Place of business Amount remitted (Rs.) Saabwe Paul Kisitu Uganda 8,20,851 Nicholas Lugonjo Uganda 3,84,540 Timothy Nsubuga Uganda 1,86,955 Total 13,92,346 As the aforesaid non-residents were residents of Uganda, it was submitted that the appellant did not deduct taxes at source before making the aforesaid payments amounting to ₹ 13,92,346. At paragrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits' may be applied, since article 12 dealing with 'royalty and fees for technical services' is not applicable. The appellant-company submits that it is a settled principle that business profit of a resident of a contracting State is not chargeable to tax in the other contracting State unless the non-resident carried out the business through a permanent establishment in India. In the absence of a permanent establishment in India, the business profit of the non-resident is not taxable in India. Accordingly, it is submitted that the payments made to M/s. Saabwe Paul Kisitu, Nicholas Lugonjo and Timothy Nsubuga, the residents of Uganda, during the assessment year 2011-12, as retainer fees was also not chargeable to tax in India and therefore there was no liability to deduct tax at source in respect of this payment, under section 195 of the Income-tax Act, 1961. Alternatively, it is submitted that the payments of ₹ 38,71,485 towards retainer fees were actually made during the previous year and there was no amount payable as on March 31, 2011 and hence no disallowance under section 40(a)(i) of the Income-tax Act, 1961 can be made. We rely on the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy services. Clauses (1) and (2) of article 12 of the Convention between the Government of the Republic of India and the Government of the Republic of Uganda for the Avoidance of Double Taxation and for the prevention of fiscal Evasion with respect to taxes on income State as follows : '1. Royalties or fees for technical services arising in a contracting State and paid to a resident of the other contracting State may be taxed in that other State. 2. However, such royalties or fees for technical services may also be taxed in the contracting State in which they arise, and according to the laws of that State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10 per cent. of the gross amount of the royalties or fees for technical services.' 7.3 When a resident of Uganda earns income from a source in India, the possibility of double taxation arises because India taxes that income on the source principle whereas Uganda may tax it on the residence principle. Generally, following the source based taxation, the source country is allocated the right to ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n subjected to deduction taxes at source because the permanent establishment (PE) was located in India. 6. From the above paras reproduced from the order of the Commissioner of Income-tax (Appeals), it is seen that he has discussed only article 12 and section 9(1)(vii) of Income-tax Act and there is no discussion regarding article 14. Hence for the sake of ready reference, we reproduce articles 12 and 14 of the Double Taxation Avoidance Agreement between Uganda and India from pages 81 and 82 of the paper book. Article 12 Royalties and fees for technical services (1). Royalties or fees for technical services arising in a contracting State and paid to a resident of the other contracting State may be taxed in that other State. (2) However, such royalties or fees for technical services may also be taxed in the contracting State in which they arise, and according to the laws of that State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10 per cent. of the gross amount of the royalties or fees for technical services. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (6). Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties or fees for technical services, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each contracting State, due regard being had to the other provisions of this Convention. Article 14 Independent personal services (1). Income derived by a resident of a contracting State in respect of professional services or other activities of an independent character shall be taxable only in that State except in the following circumstances, when such income may also be taxed in the other contracting State : (a) if he has a fixed base regularly available to him in the other contracting State for the purpose of pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be said that article 14 is not applicable. As per the Tribunal order cited by the learned authorised representative of the assessee having been rendered in the case of Poddar Pigments Ltd. v. Asst. CIT (supra) also, similar issue was decided in favour of the assessee. Para 14 of this Tribunal order is relevant and hence, the same is reproduced hereinbelow for ready reference : 14. According to article 12 of the Double Taxation Avoidance Agreement, if the 'fees for technical services' is arising in India but paid to resident of Germany than such income may be taxed in Germany. However, if he is beneficial owner of fees for technical services, then such income may also be taxed in India and according to the laws of India but not more than 10 per cent. of the gross amount. In the present case, the characterization of income of Dr. Thiele is correctly made as 'fees for technical services' and he is the beneficial owner of such consideration. There fore, if the income falls under article 12, then it is chargeable to tax at 10 per cent. in India. Further, if the income as per article 14 is arising out of the fix base in India and if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a view we find support from the decision of the honourable High Courts in CIT v. Copes Vulcan Inc. [1987] 167 ITR 884 (Mad) ; [1987] 30 Taxman 549 (Mad), [2004] 267 ITR 209 (Karn) in AEG Aktiengesllschaft v. CIT. Furthermore, we also draw support from the Authority for Advance Rulings in the case of Dieter Eberhard Gustav Von Der Mark v. CIT [1999] 235 ITR 698 (AAR) where it ruled that, if the applicant's case falls under a more beneficial provision, it would be futile to stretch the interpretation to bring it under some other provision of the treaty or the Income-tax Act. This position is too well established to require any further elaboration. In this case the Authority for Advance Rulings was rendering advance ruling in identical case where the issue of interpretation of treaty between India and Germany was involved wherein article 12 does not specifically exclude income covered article 14 of the Double Taxation Avoidance Agreement. Further the learned authorised representative has relied up on the decision of the co-ordinate Benches in the case of [2003] 86 ITD 384 (Kol) in the case of Graphite India Ltd. v. Dy. CIT and another decision in the case of ITO (International Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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