2015 (8) TMI 751 - AT - Income Tax

Payments to non-resident surveyors not taxable under Double Taxation Avoidance Agreements

The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s decision that payments to non-resident surveyors from countries with Double Taxation ... Non deduction of tax at source u/s 195 - survey fee paid to the non-residence surveyors - CIT(A) held that the said payment did not constitute either FTS or FIS in terms of the respective DTAAs and therefore, the assessee was not required to deduct tax at source - Held that:- As in the assessee’s own case for assessment year 2006-07 conclude that the payments made to the non-resident surveyors of countries with DTAAs having ‘make available’ clause or having MFN clause were not taxable as the non-resident surveyor did not make any technical know-how, etc. available to the assessee company. In coming to such conclusion, the Tribunal also referred to similar findings of the Dispute Resolution Panel (DRP) in assessee’s own case for assessment year 2008-09. Therefore, so far as the payments made to nonresident surveyors of countries with DTAAs having ‘make available’ clause in the Article on ‘Fees for technical services’, the Tribunal deleted the disallowance u/s 40(a)(ia) of the Act. Ostensibly, for the reason that there was no requirement to deduct tax at source on such payments. In so far as the present Grounds of Appeal for assessment year 2005-06 are concerned, the same relate to the payments made to surveyors in UK, Netherland, Singapore which are countries with whom there are DTAAs and their Article on ‘Fees for technical services’ have a ‘make available’ clause. Therefore, we find no error in the part of the CIT(A) in allowing the relief to the assessee. - Decided in favour of assessee. Issues:Assessment of tax liability on survey fees paid to non-resident surveyors under section 195 of the Income-tax Act, 1961 for assessment years 2005-06 to 2009-10.Analysis:1. Background:The appeals by the Revenue challenged the order of the Commissioner of Income Tax (Appeals) holding the assessee as 'an assessee in default' for not deducting tax at source on payments made to non-resident surveyors, directing the assessee to pay a sum of &8377; 34,69,791. The respondent-assessee, a joint venture company, appointed non-resident surveyors for marine and aviation insurance claims outside India.2. Revenue's Position:The Revenue contended that the survey fees paid to non-resident surveyors were taxable under section 9(i)(vii) of the Act as 'fees for technical services' and also under the respective Double Taxation Avoidance Agreements (DTAA). The Assessing Officer held that the technical services provided by surveyors were 'made available' to the assessee, making the payments taxable.3. CIT(A) Decision:The CIT(A) held that the payments did not constitute 'fees for technical services' or 'fees for included services' under the DTAAs. Additionally, it was concluded that since the non-resident surveyors had no Permanent Establishment in India, the payments were non-taxable.4. Tribunal's Analysis:The Tribunal referred to previous decisions in the assessee's case and concluded that payments to non-resident surveyors of countries with DTAAs having a 'make available' clause were not taxable, as no technical knowledge was transferred to the assessee. The Tribunal upheld the CIT(A)'s decision for assessment year 2005-06 and other years involving DTAAs with similar clauses.5. Conclusion:The Tribunal dismissed the Revenue's appeals, affirming the CIT(A)'s decision based on precedents and the non-taxability of payments to non-resident surveyors under DTAAs with 'make available' clauses. The assessee was not liable to deduct tax at source under section 195 of the Act for the payments made to surveyors in the mentioned countries.This judgment clarifies the tax liability on payments made to non-resident surveyors under DTAAs with specific clauses and emphasizes the importance of analyzing the nature of services provided to determine taxability under the Income-tax Act.