The Income Tax Appellate Tribunal (ITAT), New Delhi before Shri N K Billaiya, AM and Ms Astha Chandra, JM held that Payments made on the business profit of non-residents without PE are not taxable in India under Article 7 of DTAA, Tax deduction at source TDS is not sustainable on such payment.
The appellant is the proprietor of M/s. Quantum Solutions India is a contract research organisation and specializes in the area of pharmacovigilance (drug safety) services where the assessee has remitted amounts to various parties outside India without deducting tax at the source. It was stated that the nature of services as rendered by a non-resident agent who is carrying out business activities in another contracting state falls within the scope of Article 7 of the Double Taxation Avoidance Agreement (“DTAA”). It was emphasised that the impugned payments were purely like the commission and no fees for technical services.
It was observed that the CIT(A) has referred to the word “consultant” used in the MSA to conclude that the payments made to the GBAs are like FTS. The payees are referred to as consultants in the MSA and stated that the nature and scope of services rendered by GBAs/BDAs and the services rendered by these parties are purely for the promotion of sales and soliciting new clients. CIT(A) failed to appreciate the exact nature of services rendered by GBAs/ BDAs.
The GBAs/BDAs are not paid for rendering any managerial, technical or consultancy services but only for promoting a sale on behalf of the appellant and therefore such payments are business income of the payees which falls under Article 7 of the respective DTAAs relating to ‘business profits’. It is an undisputed fact that the GBAs/ BDAs located overseas are non-residents and do not have PE in India. Hence, the payments to GBAs/ BDAs being the business profit of the GBAs/ BDAs are not taxable in India in the absence of PE. The assessee is therefore not liable to withhold any tax on such payments.
The Tribunal observed that business profits are not taxable in the hands of GBAs/BDAs in India in the absence of PE by Article 7 of the DTAA, no tax is required to be deducted at the source on such payments and allowed the appeal. Shri Harish Nayyar and Shri Sanjay Kumar appeared on behalf of the appellant and respondent respectively.
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