TaxTMI 
TaxTMI 
2023 (7) TMI 1152
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....he addition made to the returned income of the Appellant, thereby violating the principles of natural justice and rendering the order passed as bad in law. 3. That on the facts and circumstances of the case and in law, the Id. AO has erred in completely misconstruing the concept of 'business income' and holding that the Appellant's receipts from customer constitutes 'other income'. 4 That on the facts and circumstances of the case and in law, the Id. AO, having accepted that Appellant's service revenue does not constitute Fee for Technical/Included Services under the Income-tax Act, 1961 as well as under the India-US tax treaty, erred in not holding that these service revenues cannot be taxed in absence of Permanent Establishment in India. 5 Without prejudice, that on the facts and circumstances of the case and in law, the Id. AO has erred in holding that receipts amounting to INR 4,15,02,000 from customer constitutes income arising in India and hence are chargeable to tax in India as other income in terms of Article 23 of India-US tax treaty. 6. Without prejudice to the above grounds, the Id. AO has erred in charging surcharge and education cess on the applicable tax rate ....
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.... income: In this case, the assessee company has performed certain services for providing talent to Indian payers. In particular, the assessee has provided the services of Artiste - Maroon 5 for a live musical performance at a private event held in India. Apparently, such services are neither expressly covered under the definition of "fees for technical services" under Explanation-2 to section 9(1)(vii) nor under Article 12(3) of India-USA DTAA relating to "Fees for Inclusive services". The question is then whether such services are of the nature of business receipts. Under Tax Treaty framework, taxing right is allocated to the contracting states on the basis of categorization/characterization of income: Active or passive income. Generally, with regard to passive income such as dividend, interest, Royalty and FTS or capital gains, both the contracting states have right to tax such income. However, in respect of active income (business income), the source country has a right to tax only when the non-resident has a PE in that state. The threshold of PE under DTAAs and "business connection" under Income-tax Act cover situations where the business activities of non-resident satisfy ....
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....iness of the non-resident outside India and the activity in India, would furnish a strong indication of 'business connection' in India. The courts in India including Apex court had several occasions to deal with what constitute business income or investment income. There is unanimous view that regularity, continuity, frequency, volume are the basic attributes of a business activities. These attributes signify substantial involvement of a taxpayer. In the instant case, the transaction between the Assessee Company and Indian user does not satisfy these criteria. Therefore, it is absolutely clear that the assessee's case is that of "business with" in India as against "business in". In view of this, consideration received by the assessee company from Indian payers is not business income. Therefore, the consideration paid to the assessee company shall be taxable under the residual category of income i,e income from other sources under section 56 of the Income-tax Act. The courts have held that payments which are revenue receipts and arise in the course of business but do not fall under any of the heads of income specified u/s 14 of the Income-tax Act are to be taxed under se....
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.... consideration under India-USA DTAA: Article 23 of the India- USA DTAA deals with the allocation of taxing rights and scope of taxation in respect "other income. As per paragraph 3 of Article 23 any items of income of a resident of a Contracting State not dealt with in the foregoing articles of this Convention and arising in the other Contracting State may also be taxed in that other State. The Article is reproduced as under: "ARTICLE 23 OTHER INCOME 1. Subject to the provisions of paragraph 2, items of income of a resident of a Contracting State, wherever arising, which are not expressly dealt with in the foregoing Articles of this Convention shall be taxable only in that Contracting State. 2. The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph 2 of Article 6 [Income from Immovable Property (Real Property)], if the beneficial owner of the income, being a resident of a Contracting State, carries on business in the other Contracting State through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the income is....
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....not have a PE therein. The Ld. AO has erroneously arrived at a conclusion that an enterprise can be said to be engaged in business only if it carries on such business through a PE in India. It is however not the case of the Ld. AO that there is a PE of the assessee in India. Since the assessee is engaged in business catering to global customers, the impugned receipts have been erroneously covered within the ambit of Article 23 'Other Income' of the India-USA DTAA. 6. The Ld. DR on the other hand supported and relied upon the order of the Ld. AO/DRP. 7. We have heard the Ld. Representative of the parties and perused the material on record. It is an undisputed fact that the assessee is engaged in the business of brand and talent booking agency services and inter alia acts as a mediator, to and in connection with several worldwide event management companies for arranging live performance by renowned artistes from around the world. During the relevant assessment year it entered into an agreement to make the services of "Maroon 5" available to the Customer for a live musical performance in India. It is also an undisputed fact that the assessee has no PE in India. It is a tax resident ....