Due to no FTS clause in India-Greece DTAA, fee received held non taxable as FTS.
Due to no FTS clause in India-Greece DTAA, fee received held non taxable as FTS.
Assessee Greece Co. entered into internat'nl transaction with its Indian Associated Ent'prise. It provided assistance as borrowed service to its AE for which it received consideration. AO held it taxable as Fees for Technical services ('FTS') u/s 9(1)(vii) & under India-Greece DTAA. On appeal ITAT held fees received by assessee could not be taxed in India as FTS in absence of FTS clause in India-Greece DTAA & it was taxable as business receipt.-000031
Facts in Brief:
1. Assessee a Greece company entered into international transaction with its Indian Associated Enterprise (AE).
2. It had provided assistance in form of borrowed service to its AE for which it had received consideration.
3. AO held that income taxable as Fees for Technical services ('FTS') under Section 9(1)(vii) of the Income-tax Act (the Act) and also under provisions of India-Greece DTAA.
4. On objection DRP held that just because DTAA was silent on particular type of income, it could not be said that such income would be qualify as business income.
On appeal Tribunal held in favor of assessee:
5. The Tribunal relying upon case of McKinsey & Company (Thailand) Co. Ltd. v. Dy. DIT (International Taxation) [2013] 36 taxmann.com 375 (Mumbai - Trib.) held that fees received by assessee could not be taxed in India as FTS in absence of FTS clause in India-Greece DTAA and it was taxable as business receipt .
The relevant part of the judgment is as follows.
6. In case of McKinsey & Company, following observations were made by the Mumbai ITAT:
The assessee was earning income by rendering services which were in course of its business. Ordinarily, such income would remain under Article 7 of India-Thailand DTAA, unless specifically dealt with by other articles. Article 12 of DTAA deals only with 'royalties and fee for included services, and not FTS, thus, application of Article 12 was ruled out.
Thus, such income would remain included under Article 7 and would not move in the lap of Article 22, which dealt with items of income not expressly dealt with in the other Articles of DTAA. As the nature of income was such which was otherwise specifically covered under Article 7, it could not be considered in the residual provision of Article 22.
The opinion of authorities of including income under Article 12 and Article 22 of India-Thailand was not sustainable. The amount would fall under article 7 as business profits and, hence, not chargeable to tax because of the absence of any PE in India.
7. If a particular item of income is taxable under the Act, then it shall cease to be taxable in India, if the DTAA provides exemption in respect of such income. However, if there is no specific provision in the DTAA concerning a particular aspect, then the Act would apply. As we were dealing with a situation in which India had entered into a DTAA with Thailand and the nature of receipt was covered under Article 7 but in the present circumstances it was not chargeable to tax in India, patently the consideration of the provisions of the Act was ruled out.
Case Reference-McKinsey Business Consultants Sole Partner Limited Liability Company MEPE v. Deputy Director of Income-tax (IT)-4(1)
[2015] 54 taxmann.com 300 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'L'
