Ruling in favour of IQOR India Services Pvt. Ltd., the Delhi Bench of the Income Tax Appellate Tribunal (ITAT), held that, the income classified as business profits or Fees for Technical Services (FTS) are not taxable in India without a Permanent Establishment (PE) in India as per the India-Philippines DTAA and Section 195 of the Income Tax Act, 1960.
An amount of Rs. 9,22,52,255/- was shown in the financial statement of the employees as contractual employees cost, as paid to an Overseas Entity viz., IQOR Philippines. The Assessing Officer (AO) called upon the assessee to explain why the said amount should not be disallowed under Section 40(a)(i) of the Income Tax Act, 1960. The Assessee raised the point that in absence of any Fee for Technical Services (FTS) clause in the India-Philippines Double Taxation Avoidance Agreement (DTAA), the payment made by assessee is to be treated as business profit. Therefore, in absence of a Permanent Establishment (PE) of the payee in India, the amount cannot be taxed.
The AO, contended that the payment made by the assessee was in the nature of FTS. He relied on the lack of FTS clause in the India-Philippines DTAA and held that the domestic law would prevail. The CIT(Appeals) held, in favour of the assessee that the other provisions of the DTAA, namely Article 7, classifying the income as business profits will prevail and is not taxable in India.
On behalf of the Appellant-Revenue, Shri Sanjay Kumar, Sr. DR relied on the observations of the AO and contended that the income was taxable as it was in the nature of FTS and tax was to be withheld by Section 195 of the IT Act in this instant appeal. The counsel for the Respondent-Assessee, Ms. Rano Jain, Adv. relied on the ruling of CIT(A).
The Tribunal comprising G S Pannu (President) and Saktijit Dey (Judicial Member) observed that the matter is settled in the favour of the assessee in several decisions of the co-ordinate benches, namely Jynga Game Networks India (P) Ltd. vs. ACIT, in which it was held as “As far as the case of the assessee that the payment in question is in the nature of ‘FTS’ and since the recipient of payment was a tax resident of Philippines and since there is no FTS clause in the said DTAA, the sum in question can be charged to tax only under Article 7 of DTAA as business profits and since Startpoint does not have a PE in India, even under Article 7, the sum in question cannot be brought to tax. We therefore hold that the sum in question cannot be taxed as FTS in India. Consequently, there was no obligation on the part of the assessee to deduct tax at source u/s 195 of the Act.”
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