TMI Blog2021 (12) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... has given a certificate that there is no fixed place of business/PE in India, more particularly placed at page 40-41 of paperbook. Nothing has been brought on record by the revenue to establish that the non resident payee has any fixed place of business PE in India. In that view of the matter, the income ceases to be taxable in India. - Decided in favour of assessee. Entitled to interest on refund of tax deposited u/s 195 - Hon ble Supreme Court in case of UOI vs Tata Chemicals Ltd. [ 2014 (3) TMI 610 - SUPREME COURT] held that, deductee is entitled for interest on refund tax deposited under section 195. The Ld..AR placed reliance on CBDT Circular No.11/2016 allowing interest on refund under section 244A on excess TDS deposited under section 195 of the Act. Nothing contrary has been brought on record by the Ld.CIT DR. Respectfully following the decision of Hon ble Supreme Court, we hold that the deductee is entitled to interest on refund of tax deposited under section 195 of the Act. Taxability of payment made by assessee in India to the non residents - payee is a non resident and assessee filed application under section 248 seeking declaration that payments made to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and consequently not liable for TDS u/s 195. 2.0 Payments to non residents were not chargeable to tax under the DTAA 2.1 The learned CIT(A) 12, Bangalore has erred in construing legal services provided by non resident vendor as training services and further erred in applying Article 13 instead of applying Article 15 of India - Poland DTAA 2.2 The learned CIT(A) 12, Bangalore has erred in not appreciating that the payments to non residents were not chargeable to tax under the DTAA and consequently not liable for TDS u/s 195. 3.0 Rate of 20% u/s 206AA is not applicable for grossing up u/s 195A 3.1 The learned CIT(A) 12, Bangalore has erred in not appreciating that the rate of 20% as per section 206AA is not applicable for the purposes of grossing up of income and payment of TDS under section 195A. 3.2 The learned CIT(A) 12, Bangalore has erred in not appreciating that the grossing up under section 195A is required to be made at 'rates in force' and not at the rate of 20% as per section 206AA. 3.3 The learned CIT(A) 12, Bangalore has erred in not appreciating that section 206AA is not applicable in the context of section 195A a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 206AA. 3.3 The learned CIT(A) 12, Bangalore has erred in not appreciating that section 206AA is not applicable in the context of section 195A as grossing up u/s 195A does not involve deduction of tax at source from the amount payable to the payer. 4.0 Grant of interest on refund 4.1 The learned CIT(A) 12, Bangalore has erred in not allowing interest on refund of TDS paid by the appellant out of its own funds. 4.2 The learned CIT(A) 12, Bangalore has erred in not appreciating that interest on refund of TDS is to be allowed as per CBDT Circular No. 11 of 2016 dated 26.4.2016 read with the decision of the Supreme Court in the case of UOI v TATA Chemicals Ltd [2014] 43 taxmann.com 240 (SC) The appellant prays accordingly. Brief facts are as under: 4. The assessee is an Indian company engaged in the business of providing business process outsourcing services. It is submitted that assessee made following payments to non-residents in USA and Poland during the year under consideration. Assessee grossed the invoice amount and TDS was deducted under section 195A of the Act. Payments made to the non-resident in USA was towards retain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Following were the issues on which declaration was sought: A. The Ld.CIT(A) observed that assessee made payments to a Law firm in Poland, a limited partnership firm. It was observed that payments were made to the law firm, who was tax resident of Poland. Assessee submitted copies of certificates of tax residence of the shareholders in support. The Ld.CIT(A) examined the payment under Article 13 of India Poland DTAA dealing with Royalties and Fees for Technical Services . A.1. The Ld.CIT(A) was of the opinion that the payment made by assessee came under the ambit of Royalties and fees for technical services as defined in para.4 of Article13. He held at the payments to nonresident in Poland was chargeable to tax in India under section 9(1)(vii) of Income tax Act, as well as Article 13(4) of DTAA between India and Poland. The Ld.CIT(A) therefore denied declaration to assessee on this issue. B. Another issue on which assesse sought declaration from the LdCIT(A) that tax deducted at higher rate under section 206AA was not applicable, when the payments were made to non-resident in the absence of permanent account number. B.1. On this, the Ld.CIT(A) observe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. The Ld.AR referred to Article 1 of the Model Tax Convention as under:- The Ld.AR thus submitted that in the present facts, the partners were taxable in respect of their shares of income in Poland, were entitled to the treaty benefit. It is submitted that nither the Law firm of the partners have a place of business of PE in India. He placed reliance on the declaration by the Non resident Firm placed at page 40-41 of paper book. 9. He emphasised that, in the present facts as per India-Poland DTAA the resident state has the right to tax the income of the partnership, irrespective of the fact that the same is taxed in the hands of the partners/shareholders. The partnership firm has to be treated as fiscal domicile of that state(Poland) as per Article 4 of India Poland DTAA. He thus submitted that, payments made to the non resident in Poland for legal services rendered is not taxable in India. On the contrary, the Ld.CIT DR submitted that services rendered by the partners of the law firm are in the nature of Fee for technical services as defined under para 4 of Article 13 of India Poland DTAA. We have perused the submissions advanced by both sides in light o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso includes that State and any political subdivision or local authority thereof. This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State . Further as per Article 1(1) of the India Poland DTAA, the treaty can only apply to a person who is resident of one or both the contracting states. Therefore, in view of the provisions of Article 4(1) read with Article (1) and Article 3(1)(e), unless the payee is taxable under domestic laws of Poland, treaty benefits cannot be extended. We are therefore of the view that the Law firm is a non taxable entity as per the domestic laws and therefore treaty benefit cannot be extended to the firm. It is clear that the Law firm is a transparent entity, and cannot be taxed in its own right, but then the profit shares pertaining to its various constituents are taxable whose hands is the question that needs to be addressed. In other words in whose representative capacity the Law firm is to be taxed, and whether those persons are fiscally domiciled in the Poland for them to be 'liable to taxation by reasons of his domicile, residence, place of management or any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the taxable income is determined in relation to personal characteristics of the partners or in the hands of the firm directly. In the year before us, there is no dispute on facts that ultimately tax has been paid either by the said firm or by its partners in UK. No distinction has been pointed out by the Ld. CITDR on facts or law. Under these circumstances, respectfully following the orders of the Tribunal in Linklaters's case for earlier years, we hold that the assessee is entitled to claim benefits of India UK- DTAA. Therefore, Grounds 8 to 8.4 are allowed. Subsequently, Hon ble Mumbai Tribunal analysed similar position in case of ING Bewaar Maatschappij I BV vs.DCIT reported in (2019) 112 taxman.com 21. We also refer to the OECD commentary on this aspect is as under: 8.4 Where a State disregards a partnership for tax purposes and treats it as fiscally transparent, taxing the partners on their share of the partnership income, the partnership itself is not liable to tax and may not, therefore, be considered to be a resident of that State. In such a case, since the income of the partnership flows through to the partners under the domestic law of tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n poland fiscally transparent are partnerships: civil law partnership (spolka cywilna), registered partnership (spolka jawna), professional partnership (splka partnerska), limited partnership (spolka komandytowa). The exception of this rule is limited joint-stock partnership. In accordance with the article 1 paragraph 3 sub paragraph 1 of the CIT Act provisions of this Act shall also apply to limited joint-stock partnership, whose registered office or management lies within the territory of Poland. Based on above discussion, it is clear that the Partners of the Law firm are taxed on the income received by the Partnership Firm in Poland. Now coming to the taxability of the income, we note that revenue treated the receipt by the non resident to be FTS as per Article 13(4) that reads as under: ARTICLE 13 ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royalties and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. 7. Where, by reason of special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of royalties or fees for technical services paid exceeds the amount which would have been paid in the absence of such relationship, the provisions of this article shall apply only to the last-mentioned amount, and 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 Agreement. Paragraph 4 of Article 13 excludes services mentioned in Article 15 16. Since Partners are taxable in Poland as per the Personal Income Tax Act, Article 15 of India Poland DTAA is to looked into. We are therefore of the opinion that services rendered by the non resident Law firm cannot be treated as FTS under Article 13(4). ARTICLE 15 INDEPENDENT PERSONAL SERVICES 1. Income derived b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deductee is entitled to interest on refund of tax deposited under section 195 of the Act. Accordingly these grounds stands allowed. ITA 990/Bang/2017 Ground No.1-2 In the present case Zintro Inc, USA is the payee(refer to table at page 5 of this order) The payee is a non resident and assessee filed application under section 248 seeking declaration that payments made to Zintro is not taxable in India. The Ld.CIT(A) dismissed the application by holding that some payments are in the nature of software licenses and are Royalty in the hands of the non resident. The Ld.CIT(A) held that Zintro received payments towards license subscription fees Platform Cost and expert advice for information concerning industrial, commercial or scientific experience provided by sourcing expert advice and making available to assesse. The Ld.CIT(A) also observed that Zintro provided periodic training of Infosys trainers who would then train new analysts etc. The Ld.CIT(A) thus held that the certain services rendered by Zintro are in the nature of technical services. He relied on the decision of Hon ble Karnataka High Court in case of Samsung Electronics reporte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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