TaxTMI 
TaxTMI 
2018 (8) TMI 1905
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....e appreciated that when the .assessee company is an Indian Company, it ought to have abided by the provisions of Sec.195 of the IT Act , 1961. 2.3. The Id. CIT(A) ought to have appreciated that Clause 6 .of Article 13 of DTAA with Korea specifies "Royalties and 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". 2.4. The decision of the Hon'ble ITAT in the case of PHA India Limited has not been accepted by the department and further appeal has been preferred before the Hon'ble High Court of Madras and has not reached finality''. 3. Facts apropos are that assessee an Indian company engaged in manufacture of automobile parts and accessories had filed its return of income for the impugned assessment year disclosing income of C3,17,67,041/-. During the course of assessment proceedings, it was noted by the ld. Assessing Officer that assessee had claimed expenses in the nature of incurred development fees and royalty, aggregating to C3,12,69,759/-. As per the ld. Assessing Officer, though assessee had deducted TDS on such amount, it did no....
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....ssessee was yet to pay the development fees and royalty, though such expenses were booked in its accounts. He deleted the disallowance made by the ld. Assessing Officer. 6. Now before us, ld. Departmental Representative strongly assailing the order of the ld. Commissioner of Income Tax (Appeals) submitted that royalty and fees for technical services could be taxed in a contracting state, by virtue of clause (2) to Article 13 of the DTAA. Further, according to him, Hon'ble Apex Court in the case of Palam Gas Service vs. CIT, (2017) 394 ITR 300, had held that the word ''payable'' as appearing Section 40(a)(ia) of the Act had to be construed as inclusive of paid amounts. Thus, according to him, assessee was obliged to deduct tax at source on the sum of C3,12,69,759/-. Since, assessee had not done so, as per the ld. Departmental Representative, the ld. Assessing Officer was justified in making a disallowance under section 40(a)(i) and ld. Commissioner of Income Tax (Appeals) fell in error in deleting such disallowance. Ld. Departmental Representative submitted that decisions of this Tribunal relied on the ld. Commissioner of Income Tax (Appeals), were all rendered prior to judgment o....
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....ng State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 15 per cent of the gross amount of the royalties or fees for technical services. 3. The term " royalties " as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph film, or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience. 4. The term " fees for technical services " as used in this Article means payments of any kind to any person, other than payments to an employee of the person making the payments and to any i....
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....lause (1) will include ''payable'' amount also. To buttress this argument, reliance has been placed on the judgment of Hon'ble Apex Court in the case of Palam Gas Service (supra). Said case concerned interpretation of Section 40(a)(ia) of the Act where the word ''payable'' occurred and the word ''paid'' was not mentioned. Their lordships held that word ''payable'' appearing in Section 40(a)(ia) of the Act would include paid amount also. In our opinion, this judgment would not aid the Revenue in interpreting, the word ''paid' as appearing clause (1) of Article 13 of the DTAA. Terms used in treaties are not to interpreted in the manner which terms are used in a legislative edict in the form of a statute or law. Hon'ble Apex Court had noted as under in its judgment in the case of UOI vs. Azadi Bachao Andolan (2006) 263 ITR 706, which throws light on the manner which a treaty is to be interpreted. ''Interpretation of treaties, The principles adopted in interpretation of treaties are not the same as those in interpretation of statutory legislation. While commenting on the interpretation of a treaty imported into a municipal law, Francis Bennion observes : "With indirect enactment,....
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....payment, in the hands of the non-resident, as existing in law If there is no tax liability in the hands of the recipient at the point of time when event triggering tax deduction liability takes place- i.e. at the point of time when credit is afforded and when the payment is made. If the recipient does not tax any tax liability, in respect of the said amount at that point of time, there is no question of tax deduction at source, and, as a corollary to this proposition, if there is a tax liability in respect of that amount at that point of time, the said tax liability is to be withheld by the person crediting or paying the money. Of course, if there is same tax liability in either of the situation, the tax is to be withheld at the point of time when either of these events, whichever is earlier, takes place. We may also, while on the subject, reproduce Article 13 of India Italy DT AA, which deals with taxation of royalty, as below: Article 13 ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and ....
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....or a fixed base in connection with which the obligation to make the payments was incurred and the payments are borne by the permanent establishment or fixed base, then the royalties or fees for technical services shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated. 7. Where, owing to a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties or fees for technical services paid, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the recipient in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such cases, the excess part of the payments shall remain taxable according to the law of each Contracting State due regard being had to the other provisions of this Convention. (Emphasis by underlining, supplied by us) 8. A or the point of time of crediting the amount payable to non resident, i.e. "at the time of credit of such income to the account of payee", the royalty so paid by t....