The Kolkata Bench Income Tax Appellate Tribunal (ITAT) ordered no TDS on payment of fees for technical services (FTS) to non-residents not having a Permanent Establishment (PE) in India.
The two-member bench of Rajpal Yadav (Vice President) and Rajesh Kumar (Accountant Member) has observed that the payment made to non-resident recipients 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.
The appellant/assessee is a 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 a construction and development project called Atmosphere in Kolkata during the instant year. The assessee company entered into an agreement with M/s Web Structures Pte. Ltd., having a registered office at 146, Robinson Road, Singapore.
M/s Web Structures Pte. Ltd. is a structural engineering consultancy firm and the services provided to the assessee company were in the nature of concept and schematic design, design development, detailed design, contract documentation, tender and recommendation, and construction etc.
During the year, the assessee paid a sum of Rs. 1,552,56,351 to the consultancy company as a consultancy fee for providing the above services. The said company is a non-resident company and incorporated in Singapore and did not have any permanent establishment in India, according to the assessee. Since the recipient is a non-resident and does not have any permanent establishment in India, the provisions of Section 195(1) of the Act are not applicable.
According to AO, the assessee was liable to deduct tax at source from the payment made to the company. The payment to the foreign company is covered under Article 12(3)(a) of the Treaty and constitutes a payment towards royalty. According to AO, services rendered by M/s Web Structures Pte. Ltd. to the assessee other than the supply of design/drawings are ancillary and subsidiary to the application and enjoyment of rights, property, or information for which payment described in Article 12(3)(a) of the Treaty is made to the foreign company, and thus a portion of the payment relating to the supply of managerial consultancy and technical services under the Agreement between both companies falls under this category.
Therefore, the entire payment under the Treaty to M/s Web Structures Pte. Ltd. is in the nature of a payment for royalty and fee for technical services. The AO observed that since there was no information available about M/s Web Structures Pte. Ltd. being the beneficial owner of the payment and received by it under Article 12(2), consequently domestic tax rates were provided and the tax payable was computed.
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 the DTAA between India and Singapore and therefore was liable for deduction of tax under section 195 of the Income Tax Act.
The assessee submitted that since the assessee did not have any permanent establishment in India and was providing the service only from Singapore, the provisions of Section 195 of the Income Tax Act are not applicable.
The department contended that the assessee has received services in lieu of royalty and fee for taxes paid to the foreign company which are covered under Article 12(4)(a) of Treaty. Therefore, the appeal of the assessee may be dismissed.
The ITAT ruled that the conditions set out in Article 12(4)(a) of the Tax Treaty are not met, and the services are not provided under technical knowledge, skill, etc. by using them independently in the future, nor has any drawing or design been provided to the assessee that can be used independently.
The ITAT directed the AO to delete the demand.
Case Title: M/s Forum Projects Pvt. Ltd. Versus DCIT(IT)
Citation: I.T.A. Nos. 188 & 189/Kol/2018
Counsel For Appellant: Advocate Saumitra Choudhury
Counsel For Respondent: Addl. CIT G.H. Sema