India taxability of Sri Lanka marketing services rejected; remuneration and reimbursements were held outside Indian withholding tax.

Remuneration, retainer fees and directly connected reimbursements paid to a Sri Lanka resident for sales promotion and marketing work performed in Sri Lanka were not taxable in India. The services were held not to be managerial, technical or consultancy services and therefore did not constitute fees for technical services under Explanation 2 to section 9(1)(vii) of the Income-tax Act, 1961. As the recipient was resident in Sri Lanka and the income also fell within Article 14 of the India-Sri Lanka DTAA, no tax deduction at source was required on the payments.

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Issues: Whether remuneration, retainer fees and related reimbursements paid to a Sri Lanka resident for services rendered in Sri Lanka were chargeable to tax in India and liable to tax deduction at source.

Analysis: The services were found to be essentially sales promotion and marketing activities carried out in Sri Lanka for improving the publisher's market share and brand image. They did not amount to managerial, technical or consultancy services within the meaning of fees for technical services under Explanation 2 to section 9(1)(vii) of the Income-tax Act, 1961. The recipient was resident in Sri Lanka, the services were rendered outside India, and the payments were made in Sri Lanka. The income also fell within Article 14 of the India-Sri Lanka DTAA and was not taxable in India. The reimbursements for storage space, telephone, internet, local conveyance and outstation tour expenses were directly connected with the same services and stood on the same footing.

Conclusion: The payments were not taxable in India under the Income-tax Act, 1961 or the India-Sri Lanka DTAA, and no tax was deductible at source.

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