Payment made to Non-Resident not having PE in India not Royalty: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Kolkata Bench held that payment made to non- resident not having permanent establishment in India not royalty.

The assessee, M/s Forum Projects Pvt. Ltd is company registered and incorporated in India and engaged in the business of construction and development of projects during the year. The assessee was engaged in construction and development project called Atmosphere in Kolkata during the instant year. The assessee company entered into agreement with M/s Web Structures Pvt. Ltd. having registered office at 146, Robinson Road, Singapore. M/s Web Structures Pvt. Ltd. is a structural engineering consultancy firm.

During the year, the assessee paid a sum of Rs. 1,52,56,351/- to the said consultancy company as consultancy fee for providing the above services. The said company is a non-resident company and incorporated in Singapore and was not having any permanent establishment in India according to assesse. Since the recipient is non-resident and is not having any permanent establishment in India, the provisions of Section 195(1) of the Act are not applicable.

According to AO, the assessee is liable to deduct tax at source from the payment made to said company as the payment to the said foreign company M/s Web Structures Pvt. Ltd. is covered under Article 12(3)(a) of the Treaty and constitute a payment towards royalty.

Therefore, the entire payment under the Treaty to M/s Web Structures Pte. Ltd. is in the nature of payment for royalty and fee for technical services. The AO observed that since there was no information available about M/s Web Structures Pvt Ltd. being beneficial owner of the payment and received by it under Article 12(2) and consequently domestic tax rates provided and the tax payable was computed.

In the appellate proceedings, the CIT(A) confirmed the order of the AO by holding that the payment made to the foreign company by the assessee falls within the meaning of Article 12 of DTAA between the India and Singapore and therefore liable for deduction of tax u/s 195 of the Act.

A coram consisting of Rajpal Yadav, Vice-President and Rajesh Kumar, Accountant Member observed that “We set aside the order of ld. CIT(A) by holding that the payment made to non- resident recipient not having any permanent establishment in India and also that the services provided are not in the nature of royalty and fee for technical services. Accordingly we direct the AO to delete the demand.”

To Read the full text of the Order CLICK HERE

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