The Income Tax Appellate Tribunal (ITAT), Delhi bench has held that the payment made to a Spanish Company for fabric testing would not constitute fee for technical services and therefore, cannot be subject to TDS under Section 195 of the Income Tax Act, 1961.
The assessee is a proprietorship concern engaged in the business of manufacturing and sale of readymade garments in the name and style of ‘Apollo Enterprises’. During the assessment proceedings, the AO noticed that the assessee had paid a sum of Rs.2,80,825/- by characterizing it as ‘fees for technical services’ to one M/s Association de Investigation de la Industria Textil (Aitex), Plaza Emilio Sala, 1, 03801Alcoy, Alicante (Spain).
According to the assessee, the services were rendered outside India was also the payments, as such, the provisions u/s 195 of the Income-tax Act, 1961 are not attracted. It was further submitted that the respondent had shown this amount as a business receipt and would have paid taxes as per Spanish law.
The question before the Tribunal was that whether in view of the Protocol to India-Spain DTAA, a restrictive meaning of the “Fee for Technical Services’ has to be read in the context of Indo-Spain DTAA or not.
The Tribunal noted that the India-UK Treaty was entered into force on 26.10.1993 and because it is after 1.1.1990, the restricted scope provided in Indo-UK Treaty has to be read in the context of Indo-Spain DTAA.
“In this case, a similar protocol is there vide clause 7 in Indo-France DTAA pursuant to which the restricted meaning of ‘fee for technical services’ appearing in the Indo-UK DTAA was sought to be read as forming part of Indo-France DTAA as well. The Hon’ble Delhi High Court after considering the provisions of the DTAA of Indo –France, which are similarly worded as that of Indo-Spain held that less restrictive definition of expression ‘Fee for Technical Services’ appearing in Indo-UK DTAA, must be read as forming part of Indo-France DTAA as well,” the Tribunal said.
“We are, therefore, of the considered opinion that the decision of the Hon’ble Delhi High Court in Steria (India) Ltd., vs. CIT (2016) 386 ITR 390 and para 7 of the Protocol between India and Spain, the restrictive meaning of ‘Fee for Technical Services’ appearing in Article 13(4) (c ) Indo-UK DTAA must be read as forming part of Indo-Spain DTAA as well and, therefore, the payment made by the assessee to the Spanish company for fabric testing would not constitute fee for technical services and consequently, section 195 of the Act has no application to such a receipt,” the Tribunal added.
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