2013 (12) TMI 1737

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.... raised following three substantive grounds of appeal: 1) "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that Article 24 of the DTAA between India and Singapore is not applicable in the case of the assessee. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not holding that the payment in question was in the nature of Royalty under the respective DTAA. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the Royalty has not arisen in India having regard to the provisions of Article 12(7) of the Indo-Singapore DTAA." 3. At the very outset, the Ld. Counsel for the assessee submitted that the grievances of the Revenue have ....

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....in India, since the payer is not a resident of India. Such royalties under the first limb of Article 12(7) of the Treaty arise in Singapore since the payer (i.e. the assessee) is a resident of Singapore. The second limb of Article 12(7) of the Treaty deals with a scenario where the payments are made by a non-resident, where such non-resident has a PE in India. However, a mere existence of a PE in India cannot lead to a conclusion that royalties arise in India. In addition to the existence of PE, for royalties to arise in India under Article 12(7) of the Treaty, it is essential that liability to pay such royalties has been "incurred in connection with" and is "borne by" the PE of the payer in India. Based on an analogy from paragraph 26 an....

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.... 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, a statutory body or a resident of t. Where, however, the person paying the royalties or fees for technical services, whether he is a 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 royalties or fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixe....

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....cle 12(7) because the payer (SET Singapore) is a resident of Singapore. Paragraph 26 of the OECD Commentary to Article 11 states: "This paragraph lays down the principle that the state of source of the royalties is the state of which the payer of royalties is resident". In this case, the state of source of royalties is Singapore as the payer is a resident of Singapore. The royalties are not therefore "income from sources in India which under the laws in force in Singapore are subject to tax by reference to the amount therefore which is remitted to ….. Singapore". 21.4 Furthermore, as the Learned Counsel pointed out the Treaty specifically mentions cases where an income is exempt from tax in a Contracting state. There is a distincti....