TaxTMI 
TaxTMI 
2014 (7) TMI 1299
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....t of consultancy charges, deduction in respect whereof was claimed by the assessee. The assessing officer issued a show cause notice as to why the payment should not be treated to have been made towards fees of technical services covered by explanation below Section 9(1)(vii) of the Income Tax Act for which the provisions of Section 95 were applicable for deduction of tax at source. The assessee was also directed to show cause why the expenditure allegedly incurred on account of consultancy charges should not be disallowed under Section 40(a)(i). The assessee replied by a letter dated 22nd November, 2010 whereby the following explanations were furnished: "In response to your above mentioned notice, we state that an amount of Rs. 2,62,25,400/-, being 1% of the total value of forex derivatives was payable to a non resident company M/s. Global Maharaja Pte. Ltd., Singapore, on a/c, of service rendered in relation to Forex Derivative Transacstions. The Global Maharaja Pte. Ltd., rendered services outside India and its income is accrued outside India and payment is made outside India. The company received the show cause notice to explain why the payment should not be t....
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.... Since in the present case transaction was between tax residents of India and Singapore, the tax resident of Singapore had option to avail provisions of the said DTAA if provisions thereof were more beneficial to it. As per the provisions of DTAA the amounts received by GMPL were not taxable in India as "fees for technical services" because these services were outside the ambit of Article 12(4). It is also noted that the services rendered by GMPL were not in the nature of independent personal services either and therefore not covered by Article 14 of DTAA. It is not the AO's case that the services were rendered, performed or provided by the service provider in India. Services provided by GMPL had no connection or nexus with any permanent establishment of the said Singapore Company in India. Under Article 7 of DTAA; income derived from provision of consultancy services in the course of business of the service provider; is taxable as "business profits" in the country where the permanent establishment of the service provider is located. Provision or rendering of consultancy services by GMPL had nexus with its permanent establishment in Singapore. Nothing was brought on record by the A....
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....lared that for the purposes of this section, where income is deemed to accrue or arise in India under clauses (v), (vi) and (vii) of sub-section (1), such income shall be included in the total income of the non-resident, whether or not the non-resident has a residence or place of business or business connection in India." He contended that both the CIT(A) and the learned Tribunal erred in taking a view that the aforesaid payment was not taxable in India. Mr. Murarka, learned Advocate, appearing for the assessee, advanced the following submissions: The Double Taxation Avoidance Agreement, according to him, did not apply to the transaction. He, however, drew our attention to Article 23 thereof, which provides as follows: "ARTICLE 23: INCOME NOT EXPRESSLY MENTIONED: Items of income which are not expressly mentioned in the foregoing Articles of this Agreement may be taxed in accordance with the taxation laws of the respective Contracting States". He contended that although the provisions contained in the Double Taxation Avoidance Agreement did not apply to the transaction in question and Article 23 of the Double Taxation Avoidance Agreement left such matters ....
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.... "90. (2) Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under subsection (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee." The rigour of the Income Tax Act can be lessened only in those cases where the agreement entered into between the Central Government and the Government of any other country outside India is applicable to the transaction. When the agreement admittedly is not applicable to the transaction, the question of avoiding applicable laws of this country cannot legitimately arise. Mr. Murarka wants us to give the benefit of Article 7 of the Double Taxation Avoidance Agreement although the same does not apply to this transaction. When the Contracting States wanted to make provision for profits arising out of business, they also had agreed as to the nature of the transaction to which the agreement arrived at by them shall be applicable. Court can....
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....n in India." Mr. Murarka contended that the explanation added by the Finance Act, 2007 quoted above did not contain the provision "whether or not the nonresident has rendered services in India." We fail to understand how can it be said that the services were not rendered in India in the case before us. It is an admitted position that the services were consumed in India. The nature of service, as already indicated, was providing "expert guidance and consultancy" which may have been communicated from abroad through electronic media. But the service would not be complete until it reached the assessee. Therefore, service must have been received in India. It is, therefore, difficult to see how the argument can be sustained that the services were not rendered in India. The case of the assessee is that the services were rendered from out of the country. That may be true. The process may have originated from out of the country but the process culminated into service in this country only. Any service which never reached the assessee cannot be said to have been rendered to him. Only the service which reached the assessee can be said to have been rendered to him. The assessee does not have....