Treaty override and no permanent establishment meant Singapore service payments were not subject to Indian withholding tax.

Corporate charges paid to a Singapore entity were examined for Indian withholding tax under section 195 and disallowance under section 40(a)(i). The services were characterised as intra-group managerial, administrative, marketing and business support services that did not make available technical knowledge, skill, know-how or processes, so they were not fees for technical services under Article 12 of the India-Singapore DTAA. In the absence of cogent evidence of a fixed place or dependent agent permanent establishment in India, the recipient's business profits were not taxable under Article 7. On that basis, no tax was deductible at source and the corresponding disallowance was held unsustainable.

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Issues: Whether the corporate charges paid to the Singapore entity were chargeable to tax in India so as to attract deduction of tax at source under section 195 and consequent disallowance under section 40(a)(i), including whether the payments constituted fees for technical services or business profits in the absence of a permanent establishment.

Analysis: The services were found to be intra-group managerial, administrative, marketing and business support services which did not make available technical knowledge, experience, skill, know-how or processes to the assessee. On that basis, the payments did not fall within fees for technical services under Article 12 of the India-Singapore DTAA. Once the treaty applied, its more beneficial provisions prevailed over the Act under section 90. The finding of a permanent establishment in India was held to be unsupported by cogent material, as there was no proof of a fixed place PE or dependent agent PE. In the absence of a permanent establishment, the recipient's business profits were not taxable in India under Article 7, and the payer had no withholding obligation under section 195.

Conclusion: The disallowance under section 40(a)(i) was unsustainable and was deleted, with the result that the assessee succeeded on the merits of the appeal.

Ratio Decidendi: Tax is not deductible under section 195 unless the sum paid to a non-resident is chargeable to tax in India, and where treaty provisions show that the payment is neither fees for technical services nor business profits attributable to a permanent establishment, no disallowance under section 40(a)(i) can be made.

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