Tax payable in India even if Technical Services of Testing is performed outside India: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Kolkata bench has held that tax payable for technical services of testing is performed outside the country if the results of testing are used in India.

The assessee is incorporated in Finland and is a tax resident of the same. The assessee is a worldwide leader in providing innovative and environmentally sound solutions for a wide range of customers in metals processing industries. During the Financial Year 2014- 15, with regard to Indian projects, the assessee has primarily earned revenue from (i) sale of designs and drawings; (ii) rendition of technical services; (iii) license fees; and (iv) testing and other services.

The Assessing Officer held that the income from rendering of testing and other services is taxable in India.

The assessee relied on Article 12(5) of the India-Finland DTAA and claimed that as the services, in question, had been rendered outside India, the same is not taxable in India.

After hearing both the sides, the Tribunal held that “The assessee argues that the technical services of testing are performed outside the country, i.e. in Finland and hence cannot be taxed in India in view of the exception curved out to Article 12(5) of the India-Finland DTAA. The exception in question is when the fees are paid for technical services which are performed within a contracting state, then the income therefrom is deemed to accrue or arise within the state in which the services were performed. In our view, this Clause does not apply as the payment in question was made for the test results which were used within the contracting state, India. It may be true that the process of testing may have been conducted outside India. But the payment in question is not for the process but was for the results of testing which is used in India. The argument of the ld. D/R that these services were availed in India and hence are taxable in India has to be upheld. Hence, we agree with the finding of the Assessing Officer as upheld by the DRP on this issue. In the result, this ground of the assessee is dismissed.”