AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (10) TMI 833
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....tax Act, 1961 ("the Act") is bad in law. . 2. Taxability of income earned from testing and other services 2:1. That on the facts and in the circumstances of the case and in law, Ld. AO/DRP erred in holding that the income earned from testing and other services is taxable in India under the provisions of Article 12 of he India- Finland DTAA . 2.2. That on the facts and in the circumstances of the case and in law, Ld. AO/DRP erred in not appreciating the contention that income earned from testing and other services performed entirely in Finland would not be taxable in India in view of the provisions of Article 12 of the India-Finland DTAA. 2.3. That on the facts and in the circumstances of the case and in law, Ld. AO/DRP erred in holding that the income earned from testing and other services in Finland is taxable in India because the result of testing was used by customers in India. 3. Levy of surcharge and education cess 3.1. That on the facts and in the circumstances of the case and in law, Ld. AO erred in levying surcharge and education cess on the tax computed at the special rate provided under the provisions of Article 12 of ....
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....to be used for construction and erection of the plants. There is no dispute that in laboratories test and related analytical services are based on technical expertise of the personnel/employee of the assessee working in assessee's laboratories. For the payment of fees for technical services, it is not necessary that the non-resident services provider must have PE or that the services have to be rendered in India. This issue has been discussed at length in para 2 above, while deciding the taxability of payments for designs and drawings. 3.3 In view of the above, assessee's objection is not sustainable and AO's action is upheld." 7. Ld. DRP also noted the fact that Hon'ble ITAT, Kolkata Bench has considered the issue of taxability of testing services as FTS in assessee's own case for AY 2015-16 in ITA No. 2601/Kol/2018, reported in TS-311- ITAT-2019(Kol). The relevant extract of the ITAT order is reproduced below: "18. On the issue of taxability of income from testing and other services, the undisputed fact is that these services were rendered outside the country i.e. in Finland. Article 12(5) of the India Finland DTAA reads as follows. "5. Royalties or ....
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....annot be taxed in India in view of the exception curved out to Article 12(5) of the India-Finland DTAA. The exception in question is, when the fees is paid for technical services which are performed within a contracting state, then the income therefrom is deemed to accrue or arise within the state in which the services were performed. In our view, this Clause does not apply as the payment in question was made for the test results which were used within the contracting state, India. It may be true that the process of testing may have been conducted outside India. But the payment in question is not for the process but was for the results of testing which is used in India. The argument of the Ld. D/R that these services were availed in India and hence are taxable in India has to be upheld. Hence, we agree with the finding of the Assessing Officer as upheld by the DRP on this issue. In the result, this ground of the assessee is dismissed." 8. In the course of hearing before us, Ld. Counsel of the assessee, Shri K.M. Gupta fairly accepted that issue raised on the taxability of income earned from testing and other services vide ground no. 2.1 to 2.3 are covered against the assessee by....
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.... coordinate bench of ITAT Kolkata. We find that in the said decision, coordinate bench has dealt with the same issue as before us relating to levy of surcharge and education cess on the tax payable by the assessee under DTAA. The relevant extract from the said decision are reproduced as under: "5. We find that the provisions of Articles 2, 11 and 12, which are relevant for our present purposes, are as follows: ARTICLE 2 : TAXES COVERED 1. The taxes to which this Agreement shall apply are : (a) in India income-tax including any surcharge thereon (hereinafter referred to as "Indian tax") ; (b)in Singapore : the income-tax (hereinafter referred to as "Singapore tax"). 2. The Agreement shall also apply to any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of the present Agreement in addition to, or in place of, the taxes referred to in paragraph 1. The competent authorities of the Contracting States shall notify each other of any substantial changes which are made in their respective taxation laws. ARTICLE 11 : INTEREST 1. Interes....
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....ns (4) to (10) and as increased by a surcharge for purposes of the Union calculated in the manner provided therein, shall be further increased by an additional surcharge for purposes of the Union, to be called the "Education Cess on income-tax", so as to fulfil the commitment of the Government to provide and finance universalised quality basic education, calculated at the rate of two per cent of such income -tax and surcharge. (emphasis by underlining supplied by us) 8. It is thus clear that the education cess, as introduced in India initially in 2004, was nothing but in the nature of an additional surcharge. It was described as such in the Finance Act introducing the said cess. 9. We have also noted that Article 2(1) of the applicable tax treaty provides that the taxes covered shall include tax and surcharge thereon. Once we come to the conclusion that education cess is nothing but an additional surcharge, it is only corollary there to that the education cess will also be covered by the scope of Article 2. Accordingly, the provisions of Article 11 and 12 must find precedence over the provisions of the Income Tax Act and restrict the taxability, whether in respect....