The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) has held that no Tax Deducted at Source (TDS) shall be applicable on the payment made to oilstone UAE in the absence of Fees for Technical Services (FTS) provision in Indo-UAE DTAA.
The assessee Kalpataru Power Transmission Ltd., was an Indian Company engaged in the business of Engineering, Procurement and Construction (EPC) Contracts relating to infrastructure facilities. In one of the EPC Project executed by the assessee’s Branch Office in Uganda, the assessee had made payment for services of towers design including designing of its foundation and structural drawing to Oilstone Technologies DMCC of UAE (Oilstone UAE) and no tax had been deducted at source on such payment by the assessee on the ground that such payment was not chargeable to tax in India.
From the details submitted by the assessee, it was noted by the TDS Officer that it had made payment to Oilstone UAE and no TDS was deducted on such payments, even though the payment was based on a service agreement between the assessee and Oilstone UAE and that the payment fell under the nature of royalty under Section 9(l)(vi) of the Income Tax Act 1961.The TDS Officer accordingly raised a demand under Section 201(1) & 201(1A) of the Act on the assessee.
Milin Mehat, on behalf of the assessee submitted that the payments qualified as royalty payments and since the assessee company was based out of India, Ld. CIT(Appeals) erred in holding that in view of the exclusion clause in Section 9 (1) (vii)(b) of the Act, the sum is not chargeable to tax in India and hence the assessee was not under an obligation to deduct tax at source.he also submitted that, the FTS payment was made to an overseas company based out of UAE for earning of income outside India, the payment to Oilstone UAE was not taxable in India as per India-UAE DTAA.
Umesh Sinha,on behalf of the revenue contended that the FTS clause was missing in the India UAE tax treaty and accordingly, this further supported the fact that the services were not chargeable to tax in India as FTS.
The Division Bench of Waseem Ahmed, (Accountant Member) and Siddhartha Nautiyal, (Judicial Member) dismissed the appeal filed by the department holding that the payment for designing of towers made to Oilstone UAE was in the nature of FTS and not royalty. “Since the payment do not qualify as FTS under the India UAE Tax Treaty in absence of FTS clause in the said treaty, we are of the considered view, that there was no requirement for the assessee to withhold taxes on such payments made to Oilstone UAE,” the Bench further observed.
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