TaxTMI 
TaxTMI 
2025 (10) TMI 1421
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..... During the impugned assessment year, the assessee received a sum of Rs. 13,54,32,392/- from its Indian Group Companies on account of management fee and application cost. The consideration received by the assessee for rendering the services was held to be Fee for Technical Services (FTS) u/s. 9(1)(vii) of the Act. The Assessing Officer (AO) held that in absence of FTS Clause in the treaty, the income would fall under Article 22(3). Whereas, the case of the assessee is that in the absence of FTS Clause in the treaty, income would fall under Article 7 as income from business, as the services are rendered in the normal course of business. 3. Shri Vishal Kalra, appearing on behalf of the assessee at the outset submits that is not pressing ground no. 2 of appeal assailing validity of assessment order on the ground of limitation. He further submitted that the assessee in present appeal has assailed the action of AO in taxing receipts amounting to Rs. 14,91,92,253/- as FTS under the provisions of section 9(1)(vii) of the Act and invoking the provisions of Article 22(3) of India-Thailand DTAA. He pointed that similar issue arose in assessee's own case in the preceding assessment year i....
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....ly if, it is dealt in said DTAA. He further mentioned that DTAA never confers a right to tax any income, as right to tax and its chargeability is always derived from domestic Act. DTAA, as per the authority provided by parliament, can only serve limited four purposes as mentioned under section 90 of the Act. Accordingly the AO has held that in the absence of FTS clause in treaty, receipts of Appellant would be taxed under provisions of the Act in view of Article 22 of DTAA. 4.2 Ld. Counsel has countered the same by submitting that Section 90 of the Act provides an option to the Appellant to be governed under the provisions of the Act or the provisions of the double taxation convention entered into by India (with the country in which the other party is a resident), to the extent it is more beneficial to the taxpayer. Reliance in this regard is placed on the decision of special bench of Delhi Tribunal in case of Motorola Inc. vs. DCIT: [2005] 95 ITD 269 (DELHI)(SB), wherein the tribunal inter alia observed that, "DTAA is only an alternate tax regime and not an exemption regime" and, therefore, "the burden is first on the Revenue to show that the assessee has a taxable income....
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....T: I.T.A. No.49/Viz/2022 ● Paramina Earth Technologies Inc v. DCIT: [2020] 116 taxmann.com 347 (Visakhapatnam - Trib.) ● Zynga Game Networks India (P.) Ltd. v. ACIT: [2018] 97 taxmann.com 44 (Bangalore - Trib.) ●DCIT v. M/s. Kalpataru Power Transmission Ltd.: ITA No. 35/Ahd/2021 ● DCIT v. IBM India (P.) Ltd.: [2018] 100 taxmann.com 230 (Bangalore - Trib.) ● ABB FZ-LLC v. ITO: [2016] 75 taxmann.com 83 (Bangalore - Trib.) 8. It further comes up that before AO, Hon'ble Madras High Court in case of Bangkok Glass Industry Co. Ltd. v. ACIT (supra) was relied by the appellant, but same was distinguished by AO for which, Ld. Counsel has given a counter, by way of following submissions; AO's observation Rebuttal Judgement relates to year 2013 i.e. before the year in which India-Thailand treaty was got amended. No such amendment made in the India-Thailand treaty contrary to what was held by Hon'ble Madars High court in its order. Furthermore, the said judgement has not been overruled yet and applicable in the present case as well. Jurisdictional Tribunal has also relied upon the said decision give....
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....that the services provided by the Appellant have been rendered in normal course of its business: a) Copy of MOA (certified by the Department of Business Development, Ministry of Commerce) (available on Page 109 to 111 of the Paperbook); b) Certificate outlining the nature of business activities of the Appellant issued by the Department of Business Development, Ministry of Commerce (available on Page 112 to 117 of the Paperbook); c) Copy of entrustment of service agreement entered by the Appellant with its Associated Enterprises ("AEs")( available on Page 118 to 152 of the Paperbook); and d) Copy of Invoices raised by the Appellant for provision of services(available on Page 153 to 182 of the Paperbook). 11. Ld. Counsel has submitted that there is direct nexus with the services in respect of which income has been earned by the Appellant from India and the business activities of the Appellant, therefore, FTS should be covered by Article 7 of the DTAA. Ld. Counsel has submitted that AO's contention that in order to consider receipts as business receipts said activity should be part of Appellant's primary business, is not supported by any ju....
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.... 15. Thus, once the assessee raises a claim that the source of its revenue is out of "profits of an enterprise", under Article 7 of DTAA, then Article 22 would not be applicable. If at all AO wants to invoke any other provision of the Act or the DTAA, then the said activity, which gives rise to item of income should be examined to establish that same does not fall in any other Article and then only Article 22 may be invoked. 16. Here in the case in hand AO has invoked Article 22 of DTAA by making an allegation that FTS is not the primary business activity of the assessee and as there is no specific Article to cover FTS, residuary Article 22 can be invoked. This conclusion about FTS not being primary business is drawn on the basis of the assessee's web portal information. The first thing is that it is the Memorandum of Association of an assessee which is actually relevant to give a finding about the nature and scope of the business activity which the enterprise can enter into and the web portal in no way is an evidence of the business activities of an assessee. 17. Then, in the case in hand, apart from several pieces of evidence about services being rendered in no....
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....owever, on a perusal of the documentary evidences filed and taking into consideration the nature of services provided by Assessee, we would concluded that the services provided by the assessee to the Indian AEs are in the nature of technical, managerial or consultancy, which, themselves together as FTS, do not fall in any Article of the DTAA, can very well be part of business income. Thus for the applicability of Article 7 assessee had brought on record the evidence which establish that FTS, actually is part of business activity and assessee does not have a PE in India. So benefit of Article 7 is to be extended. AO had all the opportunities to examine the business activity and to give a conclusive finding as to what is primary business activity of assessee and why operations of the assessee in providing FTS, is not part of business income. That being not done, then by recourse to Article 22, FTS income could not have been brought to tax. 20. In light of the aforesaid, we are inclined to allow the Grounds raised by the Assessee. The appeal is allowed and the impugned addition quashed." 6. No distinguishing feature was brought before us, in the impugned assessment year. W....