DTAA exemption and presumptive taxation: expatriate remuneration, perquisites and off-period salary remained within TDS obligations.
The article examines whether remuneration paid to expatriate technicians was exempt under Article XIV(2) of the France DTAA and how section 44BB affects attribution to an Indian permanent establishment. It explains that the treaty exemption was denied because the remuneration was treated as absorbed in the presumptive computation of PE profits, so tax deduction at source remained applicable and section 201(1) consequences followed. It also notes that the deeming fiction in section 44BB was carried through to expatriate remuneration, while free boarding and lodging were treated as employment perquisites and off-period salary was included for TDS purposes.
Issues: (i) Whether remuneration paid to expatriate technicians was exempt under Article XIV(2) of the Double Taxation Avoidance Agreement with France so as to relieve the assessee from deducting tax at source and from being treated as an assessee in default under section 201(1); (ii) whether the presumptive computation under section 44BB included the remuneration paid to expatriates for the purpose of clause (c) of Article XIV(2); (iii) whether free boarding and lodging provided to expatriate technicians and off-period salary formed part of the taxable emoluments for tax deduction at source.
Issue (i): Whether remuneration paid to expatriate technicians was exempt under Article XIV(2) of the Double Taxation Avoidance Agreement with France so as to relieve the assessee from deducting tax at source and from being treated as an assessee in default under section 201(1).
Analysis: The assessee had a permanent establishment in India, and the remuneration paid to expatriate technicians for services rendered in India had to be examined under clause (c) of Article XIV(2). The relevant question was not whether salary entries were made in the Indian books, but whether the remuneration was deducted in computing the profits of the permanent establishment chargeable to tax in India. On the facts, the income from the relevant contracts had been assessed under section 44BB, and the computation under that provision did not permit the assessee to contend that the salaries had escaped attribution to the Indian permanent establishment.
Conclusion: The exemption under Article XIV(2) was not available, and the assessee was rightly treated as an assessee in default under section 201(1).
Issue (ii): Whether the presumptive computation under section 44BB included the remuneration paid to expatriates for the purpose of clause (c) of Article XIV(2).
Analysis: Section 44BB creates a deeming mechanism for determining income from the relevant business operations. The Court applied settled principles governing legal fictions and held that once income is computed on a presumptive basis, the statutory fiction must be carried to its logical conclusion, including the consequence that the remuneration paid to expatriates is treated as having been absorbed in the allowable computation of profits of the permanent establishment. The absence of a separate deeming provision akin to section 44AD did not alter the effect of the fiction created by section 44BB.
Conclusion: The remuneration was covered by the presumptive computation under section 44BB, and tax deduction at source was required.
Issue (iii): Whether free boarding and lodging provided to expatriate technicians and off-period salary formed part of the taxable emoluments for tax deduction at source.
Analysis: The boarding and lodging facilities were linked to employment and constituted a perquisite for the purposes of tax deduction at source. The off-period salary issue was already covered against the assessee by earlier orders in its own case, and no reason was found to depart from that view.
Conclusion: The additions towards perquisites and off-period salary were upheld for tax deduction at source purposes.
Final Conclusion: The assessee remained liable to deduct tax at source on the expatriates' remuneration and related employment benefits, and the challenge to the order treating it as a defaulter failed in full.
Ratio Decidendi: A statutory deeming provision for computing income must be given full effect, and where remuneration is attributable to a permanent establishment and absorbed in the presumptive computation, it cannot be treated as outside the scope of tax deduction at source under the applicable treaty conditions.
TaxTMI 
AI Drafter ✕
TaxTMI 
