TMI BlogTDS and International Transactions: Categorization of Payments under the ambit of "royalty" or "fees for included services (FTS)"X X X X Extracts X X X X X X X X Extracts X X X X ..... ion revolved around the categorization of payments made by the assessee to its US-associated enterprise (US-AE). The primary question was whether these payments constituted royalty or fees for included services under the India-US Double Taxation Avoidance Agreement (DTAA) and whether the assessee had a TDS liability under Section 195 of the Income Tax Act. Section 195 of the Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sential to establish whether the payments were for the use of intellectual property rights. Fees for Included Services: Article 12(4) of the DTAA introduces the concept of fees for included services, encompassing payments for services that make available technical knowledge, experience, skill, know-how, or processes. Distinguishing between services and fees for included services is pivo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zation of payments, it was pivotal to determine whether TDS liability under Section 195 would apply. The ITAT's finding that the payments did not fall within the definition of royalty or fees for included services had significant implications. Conclusions and TDS Implications: Based on the detailed analysis: The payments made by the assessee to US-AE did not meet the criter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nor fees for included services under the DTAA, the decision relieves the assessee from the obligation to withhold tax at source on these payments. This has substantial financial implications, as non-compliance with TDS provisions could lead to penalties and legal consequences. Furthermore, this case underscores the importance of a precise interpretation of tax treaties and the need for stron ..... X X X X Extracts X X X X X X X X Extracts X X X X
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