The Delhi bench Income Tax Appellate Tribunal ( ITAT ) held that Income from providing business support services to Indian group entities are not taxable as Fee for Technical Service ( FTS ) on absence of Permanent Establishment In India Under India -Thailand Double Taxation Avoidance Agreement ( DTAA ).
The Assessee, Solvay Asia Pacific Pte. Ltd.is a company incorporated in Thailand and is a tax resident of Thailand. During the year under consideration , the assessee has rendered services to its group entities in India and received Rs. 11,99,47 ,943/- from its Indian group entities.
During the assessment proceedings the assessee submitted that these are all Business Support Services and therefore Business Income, and therefore its taxability will be covered under article 5 read with article 7 of DTAA with Thailand.
Aggrieved by the order assesee filed an objection before the Dispute Resolution Forum ( DRP ). After examining the submission of the assessee the DRP held that “Since both India and Thailand have not agreed to taxability o f FTS under relevant DTAA , the assessee cannot claim benefit o f absence of FTS clause in the DTAA to its advantage. The tax treaties do not levy tax but allocate the taxing rights among the contracting states. Further the income of nature o f FTS is clearly sourced from India and such income has to be taxed in India in the absence o f specific benefit under DTAA”
Accordingly the AO passed an assessment order by treating the amount received by the assessee as FTS . Aggrieved, the assessee filed appeal before the Tribunal
During the adjudication Anuj Kisnadwala, the counsel for assessee argued that in the absence of any clause for taxability of FTS even in the residuary clauses, the amount cannot be taxed in India.
P. Praveen Siddharth, Department representatives strongly supported the order of the ld. DRP and the order of the Assessing Officer.
The tribunal observed that the India-Thailand DTAA do not have a provision of taxing of FTS under any o f the Article of the treaty and also cannot be treated as miscellaneous income under any residual clause . Hence , the assessee cannot be made liable tax in India
Furthermore in case of Bharti Airtel Ltd. it was held that where there is no FTS clause available in the treaty with a country, then the income in question would be assessable as business income and it can be taxed in India only if there is a permanent establishment in India and the income is attributable to activities or functions performed by such permanent establishment.
After analyzing the submission of both parties, the bench comprising Saktijit Dey, ( Vice President )and Dr. B. R. R. Kumar, ( Accountant Member ) held that income which has been earned in this case in absence of FTS clause in DTAA would fall as business income. Their nature would not change to be that o f other income . Hence the same cannot be taxed in India in absence of a PE.
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