TaxTMI 
TaxTMI 
2019 (5) TMI 1591
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....amounting to Rs. 13,92,346 was liable for TDS under section 195 and consequently liable for disallowance under section 40(a)(i) and the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the learned Assessing Officer. 2.2 The learned Assessing Officer has erred in concluding that the payments made outside India was in the nature of fees for technical services as per Explanation 2 to section 9(1)(vii) of the Act and the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the learned Assessing Officer. 2.3 Further, the learned Commissioner of Income-tax (Appeals) has erred in concluding that the recipients Mr. Saabwe Paul Kisitu, Mr. Nicholas Lugonju and Mr. Timothy Nsubuga being residents of Uganda had a permanent establishment located in India. 2.4 The learned Assessing Officer and Commissioner of Income tax (Appeals) has erred in not appreciating that the provisions of section 40(a)(ia) are applicable only to the amounts of expenditure that were payable on the date of 31st March of every year. 2.4 On facts and in the circumstances of the case and law applicable, disallowance of payme....
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....sessee is having a permanent establishment in the source country, i. e., India in the present case or if the assessee has stayed in the source country, i. e., India in the present year for a period or periods aggregating 183 days or more in any 12 month period commencing or ending in the fiscal year concerned. He also placed reliance on the Tribunal order rendered in the case of Poddar Pigments Ltd. v. Asst. CIT in I. T. A. Nos. 5083-5086/Delhi/2014 dated August 23, 2018. He submitted a copy of this Tribunal order and in particular, our attention was drawn to para. 14 of this Tribunal order and it was pointed out that it was held by the Tribunal in this case that article 12 is an omnibus provisions for such income whereas article 14 is a specific provisions related to individuals and it was also held that article 14 is in parimateria similar to article 7 of the Double Taxation Avoidance Agreement and there is only difference being that article 7 applies to all the enterprises of the States whereas article 14 applies to individual only who earns such income from source State. It was held that article 14 is a more specific article applicable to the impugned income of the non-resident....
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....n Avoidance Agreement with Uganda as per notification : No. G. S. R. 666(E), dated October 12, 2004 issued in terms of agreement for avoidance of double taxation and prevention of fiscal evasion with Uganda will be applicable. As per clause 4 of article 12 regarding 'royalties and fees for technical services', if the beneficial owner of the royalties or fees for technical services being a resident of a contracting State, carries on business in the other contracting State in which the royalties or fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of article 7 or article 14, as the case may be, shall apply. As the nature of services performed by these persons residing in Uganda, to whom the payments have been made are of personal nature, article 14 concerning 'independent personal services' may become applicabl....
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.... members of the Indian teams for the purpose of maintenance, rectification of problems, testing, upgrading/supporting services to customers, content providers, etc., that are in the nature of technical services and therefore the Assessing Officer held that the payments amounting to Rs. 13,92,346 made by the appellant without deduction of taxes at source to Mr. Saabwe Paul Kisitu, Mr. Nicholas Lugonjo and Mr. Timothy Nsubuga, who were the residents of Uganda were in the nature of fees for technical services as defined in Explanation 2 to section 9(1)(vii) of the Act and accordingly subjected the deduction claimed for that expenditure to disallowance under section 40(a)(i) of the Act. The convention between the Government of the Republic of India and the Government of tile Republic of Uganda for the Avoidance of Double Taxation and for the prevention of fiscal evasion with respect to taxes on income states at clause (3)(b) of article 12 as follows: 'The term "fees for technical services" means payment of any kind in consideration for the rendering of any managerial, technical or consultancy services including the provision of services by technical or other personnel but ....
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....In a landmark decision in the case of CIT v. Visakhapatnam Port Trust cited in [1983] 144 ITR 146 (AP), on the subject of 'permanent establishment', the honourable Andhra Pradesh High Court observed as follows (page 162) : 'The words "permanent establishment" postulate the existence of a substantial element of an enduring or permanent nature of a foreign enterprise in another country which can be attributed to a fixed place of business in that country. It should be of such a nature that it would amount to a virtual projection of the foreign enterprise of one country into the soil of another country.' 7.5 In the case of the appellant, though Mr. Saabwe Paul Kisitu, Mr. Nicholas Lugonjo and Mr. Timothy Nsubuga were the residents of Uganda, their source of income for the technical services rendered by them, was located in India. Therefore, as per clauses (1) and (2) of article 12 of the Convention between the Government of the Republic of India and the Government of the Republic of Uganda for the Avoidance of Double Taxation and for the prevention of fiscal evasion with respect to taxes on income, the payments amounting to Rs. 13,92,346 made by the ap....
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.... a resident of a contracting State, carries on business in the other contracting State in which the royalties or fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of article 7 or article 14, as the case may be, shall apply. (5). Royalties or fees for technical services shall be deemed to arise in a contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying such royalties or fees for technical services, whether he is resident of a contracting State or not, has in a contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical services was incurred, and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such ....
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....tive of the Revenue has drawn our attention to a copy of the agreement of the assessee with Mr. Saabwe Paul Kisitu available on pages 129 to 133 of the paper book and it was submitted that as per this agreement, this person was to render services for handling all operations including co-ordinating with Indian teams for maintaining, rectifying problems testing, upgrading/supporting customers, content providers, etc., at Uganda. It was the submission of the learned Departmental representative of the Revenue that the nature of services specified in the agreement is clearly technical services and therefore, article 12 is applicable and not article 14. In our considered opinion, there is no merit in this argument of the learned Departmental representative of the Revenue because article 14 is applicable for individuals and it includes professional services also. As per the services to be rendered by these three persons as per the agreement on record, it cannot be said that the services being rendered by these persons is not professional services. Professional services may be of technical nature also and only because the professional services are of technical nature, it cannot be said tha....
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....9; in article 12(4) of the Double Taxation Avoidance Agreement excludes only income covered under article 15, i. e., 'dependent personal services' and not income covered under article 14 of the Double Taxation Avoidance Agreement. Therefore, if there can be many instances of such incomes derived by the individuals which can be characterized as 'fee for technical services' may also be covered under article 12 as well as article 14 of the Double Taxation Avoidance Agreement. Only distinguishing feature is that article 12 is an omnibus provisions for such income whereas article 14 is a specific provisions related to individuals. Further article 14 is in parimaterial similar to article 7 of the Double Taxation Avoidance Agreement, the only difference being that article 7 applies to all the enterprises of the States whereas article 14 applies to individual only who earn such income from sources State. Therefore, we hold that article 14 is a more specific article applicable to the impugned income of the non-resident, the same shall be applied and not the general provision of article 12 of the Double Taxation Avoidance Agreement. In taking such a view we find support from ....