TaxTMI 
TaxTMI 
2026 (6) TMI 147
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....eal are dismissed as not pressed. 3. The ld. Counsel for the assessee submits that in ground no. 3 to 7 of appeal, the assessee has assailed the assessment order in taxing amount received as Fee for Technical Services (FTS) Rs. 17,28,18,072/- under Article 22 of the India-Thailand DTAA and accordingly taxed FTS @10% as per the provisions of section 9(1)(vii) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). 3.1. The ld. Counsel narrating facts of the case submits that the assessee company is incorporated under the laws of Thailand and is a tax resident of Thailand. The assessee is a regional service center of the Denso Group for Asia and Oceanic undertaking business administration, material engineering services, design and development services, testing and technical services of automotive components for the group. The assessee does not have any Permanent Establishment (PE) in India. During the period relevant to assessment year under appeal, the assessee earned following incomes in the nature of FTS, on account of services provided to its Indian Group Companies: S. No. Name of party Nature of transaction Amount (INR) 1 Denso Subros Thermal ....
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....ddition and rejected objections of the assessee. The ld. Counsel submits that in light of consistent view taken by Tribunal in assessee's case, the addition made in the impugned assessment year is liable to be deleted. 3.5. The ld. Counsel submits that in ground no. 9 of appeal, the assessee has assailed charging of interest u/s. 234A and 234B of the Act. The ld. Counsel contended that since, the assessee had filed return of income within time, no interest u/s. 234A of the Act is leviable. 3.6. The ld. Counsel submits that in case, the assessee succeeds on ground no. 3 to 7 of appeal, ground no. 8 of appeal would become academic. 4. Per contra, Shri M.S. Nethrapal representing the department vehemently defending the impugned order prayed for dismissing appeal of the assessee. The ld. DR submits that merely for the reason that the India-Thailand DTAA does not specifically provide for FTS would not mean that the amount received by the assessee as FTS would automatically become business income. Where provisions of DTAA are silent, the provisions of Act would apply. The ld. DR placed reliance on the decision of Tribunal in the case of DCIT vs. TVS Electronics Ltd. 22 taxmann.c....
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.... of the tax treaty, then those provisions would apply to the items. However, in case it is found that those provisions are not applicable then the items of income would have to be considered in Article taxing business income. Reliance for this can be placed on Paradigm Geophysical Pty. Ltd. [2008] 25 SOT 94. Further, that where there is no FTS clause available in the treaty with a country, then the income in question would be assessable as business income and it can be taxed in India only if there is a permanent establishment in India and the income is attributable to activities or functions performed by such permanent establishment. Reliance for same can be placed on reliance is placed on the Hon'ble Delhi Tribunal ruling in the case of Bharti Airtel Ltd. [2016] 67 taxmann.com 223 and GE Precision Healthcare LLC v. Assistant Commissioner of Income Tax, Circle- International Tax -1(3)(1), New Delhi, ITA No.404/Del/2023 Assessment Year: 2020-21 order dated 14.08.2023. 15. Thus, once the assessee raises a claim that the source of its revenue is out of "profits of an enterprise", under Artilce 7 of DTAA, then Article 22 would not be applicable. If at all AO wants to invok....
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....ence for taxability of FTS, as separate item, then Article 22, which vests residuary powers, cannot be invoked. The intention of having residuary powers of taxing an income vested in any of the contracting state is to deal with those incomes which due to lack of regularity, continuity and frequency do not form part of regular business activity of the entity. The residuary provisions of Article 22 will not apply to items of income, which can be classified under other provisions of the tax treaty, but their taxability is subject to fulfillment of conditions mentioned therein. Thus we conclude the fee paid towards technical services can be brought under the item of business income, if there is no material to show that the same is not related to the business of the assessee. That onus lies on AO. 19. In the case in hand AO without examining the business activity of the assessee has drawn an interference on the basis of information available on web portal of the assessee. However, 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 A....
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....arch, 1990 shows that M/s MBDL decided to establish a container glass plant in the Union Territory of Pondicherry in India, and accordingly MBDL entered into an agreement with the assessee herein for transfer of glass technology know-how. Thus, the agreement herein speaks about transfer of know-how relating to engineering, design equipment procurement, operating and manufacturing technology for facilities for the manufacture of glass packing materials and containers. Article I of the agreement states that the assessee agreed to transfer the know-how to the Indian company during the layout planning and erection stage and the assessee company will teach such know-how to MBDL in such manner so as to assist MBDL in successfully operating its future facilities in India in the field of glass packing materials and containers. xxxx 8. In terms of the agreement thus entered into, the assessee was paid technical know-how fees for five years. The assessee contended that the technical know-how fees are not liable to tax as per art. 12 of the DTAA between India and Thailand. The Revenue, however, rejected the said contention and referred to the definition of "royalty" under ar....
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....IT(A) and thus it confirmed the remand order of the CIT(A) to find out whether there was a PE. Having upheld the order of the CIT(A), the Tribunal also held that art. 22 had no relevance as far as the royalty and fee for technical services contemplated under the agreement were concerned and the said article would come into play only when the item of income did not fall for consideration under any of the express provisions of the DTAA. In other words, it held that art. 22 was concerned about miscellaneous income not covered under any of the provisions of DTAA. Thus holding that royalty and fee for technical services contemplated under the agreement were taxable under art. 12 and art. 7 respectively, the Tribunal held that art. 22 could not be invoked. Having stated so, surprisingly, in para 9 of the order, the Tribunal once again considered art. 22 only to hold that the portion of fee for technical services arising in India was to be taxed in accordance with section 115(1)(b). Referring to section 9(1)(vii)(b) of the Act, which deals with income by way of technical services payable by a person who is a resident in India, it held that the portion of fee for technical services arising....
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....nt of technical services in India included the extra months of training, so too the training abroad. In computing the said amount, rightly the CIT(A) arrived at a finding that a sum of 1,12,500 USD and 69,750 USD would be the amount which would be treated as received for technical services rendered by the assessee and the amount of 4,79,640 USD relates to royalty payment, assessable as per art. 12. 19. Even though the Revenue canvassed this issue before the Tribunal, in the absence of any material to read the clauses otherwise, rightly, the Tribunal came to the conclusion that a sum of 4,79,640 USD alone would fall for consideration under art. 12 as royalty income and the other to be assessed as by way of technical services. As already pointed out even herein, with the finding of the assessing authority on the remand order that the assessee had no PE, the said amount cannot be brought under art. 7. In the light of the above, we have no hesitation in confirming the order of the Tribunal. 20. As far as the order in art. 22 is concerned, we do not find any justifiable ground to uphold this portion of the order after the discussion on the extent of income falling for ....