Treaty taxation of service receipts denied where no included services and no permanent establishment in India
Receipts from services were held not to constitute "included services" under Article 12(4) of the India-US DTAA, following earlier co-ordinate bench decisions on materially similar facts. As the non-resident had no permanent establishment in India, the receipts also could not be taxed as business profits under Article 7. The treaty position therefore excluded Indian taxability on both bases, and the relief granted by the appellate authority was confirmed.
Issues: (i) Whether the services rendered by the assessee constituted 'included services' within the meaning of Article 12(4) of the India USA DTAA; (ii) Whether, in the absence of a permanent establishment in India, the receipts could be taxed as business profits under Article 7 of the India USA DTAA.
Issue (i): Whether the services rendered by the assessee constituted 'included services' within the meaning of Article 12(4) of the India USA DTAA.
Analysis: The issue was covered by earlier orders in the assessee's own case and by other co-ordinate bench decisions on materially similar facts. Following those consistent views, the Tribunal treated the receipts as not falling within the scope of 'included services' under Article 12(4).
Conclusion: The issue was decided in favour of the assessee and against the Revenue.
Issue (ii): Whether, in the absence of a permanent establishment in India, the receipts could be taxed as business profits under Article 7 of the India USA DTAA.
Analysis: Once the receipts were held not to be taxable as 'included services', they were to be considered under the business profits article. On the admitted position that the assessee had no permanent establishment in India, Article 7 did not permit taxation of the receipts in India.
Conclusion: The issue was decided in favour of the assessee and against the Revenue.
Final Conclusion: The common reasoning resulted in confirmation of the relief granted by the appellate authority, and the Revenue's batch of appeals failed.
Ratio Decidendi: Where receipts from services do not fall within 'included services' under the treaty and the non-resident has no permanent establishment in India, the receipts cannot be taxed in India as business profits.
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