TaxTMI 
TaxTMI 
2024 (6) TMI 1588
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....ial engineering services, design and development services, testing and technical services of automotive components for the Group and during the year under consideration, the Appellant had earned INR 16,60,43,718, which, as per the claim of appellant is in the nature of Fees for Technical Services ('FTS') on account of services provided to its five Indian group companies. The claim of appellant is that the said receipts are non-taxable in absence of FTS clause in the India-Thailand Double Taxation Avoidance Agreement ('DTAA'/'Tax Treaty'). It was submitted by the appellant before AO that in absence of FTS clause, income can be treated as Business income, as the services are in nature of business activities of Appellant. Therefore, the receipts should not be considered as 'Other income' under Article 22 of DTAA. Further, in absence of permanent establishment ('PE') of appellant in India, business income is not liable to be taxed in India. 2.1 AO has accepted that the receipts from the services rendered by the Appellant are in the nature of FTS. Refer page 15 of the final assessment order. However, the AO was of view that in the absence of FT....
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....receipts earned by the Appellant in relation to provision of technical services is not taxable in India in view of the provisions of the Act read with the India-Thailand DTAA. 6. That on the facts and circumstances of the case and in law, the AO has erred in holding that the receipts earned by the Appellant from the provision of technical services are not in the nature of business income without appreciating the submissions and documents furnished in this regard. The DRP further erred in upholding the action of the AO. 7. Without prejudice to the ground of appeal no. 5, the receipts earned by the Appellant from provision of technical services is in the nature of business income and thus, not taxable in the absence of any Permanent Establishment ("PE") of the Appellant in India in terms of Article 7 of the India-Thailand DTAA. 8. That on the facts and circumstances of the case and in law, the AO has erred in levying interest under sections 234A and 234B of the Act. 9. That on the facts and circumstances of the case and in law, the AO has erred in initiating penalty proceedings under section 270A of the Act." 4. Heard and perused the records. Th....
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....y under the provisions of the Income Tax Act either. He relied Article 3 of the India-Thailand DTAA, to submit that when a term is used in the DTAA but has not been defined therein, the meaning of the said term unless the context otherwise requires shall have the meaning as defined under tax statute of the contracting state. The need of importing the meaning of the term from the tax statute arises only when a term is provided in the agreement but the meaning of the same has not been defined therein. 6. Ld. Counsel has emphasized most on the contention that the absence of the provision for FTS in the DTAA is not an omission but is a deliberate mutual agreement between the contracting states not to recognize/classify any income as FTS for taxation. He submitted that only the income which is not expressly dealt with in any of the Articles of the treaty is required to be taxed under Article 22. He submitted that in case the services are in the nature of business activities, taxability of the same shall be tested first under Article-7 in absence of FTS clause rather directly approaching to Article-22. The services under consideration are in the nature of business activities of ....
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....got amended, and taxing rights of source state further strengthen with a non-obstante clause Certain exceptions are discussed in new article 22(2) of new DTAA, but those exceptions do not include FTS and therefore, taxing such receipts under domestic law by invoking article 22 of DTAA is correct. Non-inclusion of FTS in the exception given in Article 22 does not mean that the amount of FTS would be taxable as per the provisions of the Act. Had it been an intention of the law to tax the FTS, it would be by way of insertion of FTS article in treaty likewise other tax treaty Madras HC has further opined that such receipts be taxable as business receipts only activities are out of normal course of business. However, it is evident that FTS is not the primary business of the Assessee company Hon'ble Madras high court has not emphasized that there should be primary business of the Assessee order to tax the same as business receipts. The court has held that to tax the receipts as business, services should be provided in the normal course of business. In present case, the Appellant has rendered services in the normal course of business 9. We further find that AO h....
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....usiness receipts. The court has held that to tax the receipts as business, services should be provided in the normal course of business. 12. Ld. DR on the other hand, has defended the findings of the tax authorities below. 13. As we appreciate the material before us and the submissions raised, it comes up that there is no dispute on the part of the Revenue that the disputed income of Rs. 16,60,43,718/- by its nature and characteristics is accepted to be Fee for Technical Services (FTS) only. There is also no dispute to the fact, that with regard to FTS, there is no specific provision for chargeability of tax under the India-Thailand DTAA. As we appreciate the India-Thailand DTAA it comes up that Article 22 is a residuary Article which is incorporated to make taxable items of income which are not otherwise dealt in the DTAA. At the same time Article 7, lays down taxability of profits of an enterprise. 14. We will like to initiate the discussion keeping in mind the settled proposition of law, that where the business profits of the non-resident include items of income for which specific or separate provisions have been made in other articles of the tax treat....
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....ing:- - Application works for Products including, but not limited to, design of Products for meeting local automotive vehicle market; - Testing and evaluation of samples of Products, support of localization of parts and / or raw materials of Products; - Coordination with the Company's or Group Company's customers relating, but not limited to, technical presentation to and supports with such customers for fixing technical specifications; - Market research of automotive vehicles and parts thereof necessary for design of Products or review of technology trend; 18. Now Section 9 of the Act enumerates certain incomes to be deemed to accrue or arise in India and Section 9(1)(vii) of the Act provides under what conditions FTS income shall be considered to accrue or arise in India. Explanation 2 to Section 9(1)(vii) of the Act gives definition of FTS and which provides that any service falls within the definition of FTS are either be in the nature of managerial services, technical services or consultancy services. Thus FTS is a species of income with specific definition and components. Thus where a DTAA does not make a reference for taxability o....