The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) upheld the Commissioner of Income Tax(Appeals)[CIT(A)] ruling that the income received by a non-resident entity should be classified as business income and not taxable in India.
The Revenue appellant filed an appeal against the CIT(A) order dated March 27, 2023. In this case Transkor Global Pte Ltd, the respondent-assessee,a non-resident entity registered in Singapore, which provided non-invasive inspection services for offshore pipelines. The assessee declared a total income of Rs. Nil for Assessment Year(AY) 2019-20, supported by a tax residency certificate and Form 10F, asserting it had no permanent establishment in India.
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During the year, the assessee received payments totaling Rs. 8,98,36,327 from Indian companies, claiming these were taxable only in Singapore. The assessee argued that the receipts did not qualify as “fees for technical services” (FTS) under the India-Singapore Double Taxation Avoidance Agreement (DTAA) and did not meet the “make available” clause.
The assessee sought a refund of ₹90,70,600, asserting that all services rendered were strictly non-invasive assessments without imparting technical knowledge or skills.
The Assessing Officer (AO) treated the receipts as taxable under “other income” at 40% plus applicable surcharges and cess, neglecting the DTAA benefits. The AO also failed to consider the Nil Withholding Tax certificate granted to the assessee, which indicated that the receipts should be subject to withholding tax at only 4%.
The CIT(A) requested a remand report from the AO regarding the assessee’s claims. In the report submitted on December 21, 2022, the AO recognized the assessee as a tax resident of Singapore under Article 4 of the India-Singapore treaty but classified the receipts as “other income” under Article 23 of the DTAA.It noted that the AO based his conclusion on non-compliance without verifying the nature of the receipts, which were detailed in Forms 15CA and 15CB.
The CIT(A) concluded that, while the services were technical, they did not meet the “make available” clause of Article 12(4)(b). Therefore, the receipts were classified as business income under Article 7 of the DTAA. Since the assessee had no permanent establishment in India, the CIT(A) granted relief.
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The tribunal noted that in AY 2020-21, the AO taxed similar receipts as fees for technical services and questioned the Limitation of Benefits (LOB) clause. The assessee contended that the LOB clause applied only to capital gains. The CIT(A) confirmed that the assessee had no permanent establishment in India and remained a tax resident of Singapore.
The tribunal observed that the facts were similar to AY 2019-20, with the only difference being that part of the work had been subcontracted to a Russian company. The CIT(A) granted relief, concluding that while the receipts could be classified as fees for technical services, they did not satisfy the “make available” clause of Article 12(4)(b) of the India-Singapore Treaty.
Consequently, the receipts were treated as business income and not taxable in India due to the absence of a permanent establishment.
The two member bench comprising Saktijit Dey (Vice President) and M.Balaganesh(Accountant Member)dismissed the revenue’s appeal, upholding the CIT(A)’s ruling that the nature of the receipts did not constitute FTS, thereby confirming the classification of the income as business income and supporting the respondent-assessee’s claim for relief.
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