TaxTMI 
TaxTMI 
2026 (8) TMI 539
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....ment years 2020-21 and 2021-22 seeking to reverse the learned lower authorities' action holding it's revenue derived from M/s ONGC Ltd. for undertaking construction activities for converting the latter's oil rig namely "Sagar Samrat" into a Mobile Offshore Production Unit (MOPU) in Dubai, involving varying sums as fee for technical services ("FTS") and taxable in India u/s. 9(1)(vii) of the Act. 4. Both the parties vehemently reiterate their respective stand against and in support of the foregoing assessment of the assessee's revenue derived from M/s ONGC Ltd. The assessee/appellant is admittedly is a company incorporated under the United Arab Emirates ("UAE") laws and stated to be a tax resident thereof. It is engaged in the business of providing services to oil and gas industry with respect to fabrication and construction solutions for small and medium, larger scale products. And that the learned Assessing Officer is himself very fair in his assessment(s) framed in assessment year 2020-21 is not rebutting the assessee's claim that it was required to convert the above oil rig "Sagar Samrat" for established utilization and conversion thereof to an "MOPU" for the purpose of rende....
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....s of the agreement between Dubai Leading Technologies and the assessee (at pages 11 to 13 of the assessment order), the Ld. AO arrived at a conclusion that services of technical nature are being provided for the development of an android app which when becomes the property of the assessee which in turn sells the solution to its clients. iii) The payment schedule is linked milestones in development of the software, which once develop using the technical services of Dubai Leading Technologies, is owned by the assessee as the agreement does not mention of any licence being given by Dubai Leading Technologies to the assessee or any ownership rights or copyright being retained with itself. iv) The India-UAE Double Taxation Avoidance Agreement ("India-UAE DTAA") does not have a clause on FTS and relying on the decision of the Chennai Tribunal in the case of DCIT vs. TVS Electronics Limited (TS-421ITAT-2012) wherein the Tribunal has observed that in the absence of any specific clause for FTS in the India-UAE Treaty, the taxability will not be determined as per the residuary clause 22 of the Treaty but by the Income Tax Act. 6. The Ld. AR supported the order of t....
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....n the context of the above submissions of the appellant needs to be evaluated in the context of findings given by the AO. The deductibility of TDS will depend on the provisions of DTAA and other relevant factors. 7. Analysis of payment made to Dubai Leading Technologies (UAE):- The nature of transaction is with respect to payment made towards an 'application software'. The nature of the agreement is described as under:- 7.1. Nature of agreement:- PROVIDER shall perform the services within the scope listed below. Following services shall be comprised within the scope of work (the "Services"). Development of mobile app for school process automaton focused on school and other academic provide mobile app developing services for use by contractor its clients. Phase 1: Mobile App will be developed on Android. It will be having following functionality: - Integration with calendar. -Event Management and Notifications -Appointment management with teacher and principal -Able to connect to school's other sub-systems like attendance marking, assignment submission -Geo Tagging. -School News -Help button....
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....would be relevant to look at the basis for treatment of payment for development of computer Software'. In order to treat the payment for development of mobile application which is akin to payment for development / purchase of computer software as "royalty", the said payment must refer to payments of any kind received as a consideration for the use of, or the right to use any 'copyright of literary, artistic or scientific work including cinematograph films, or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience but do not include royalties or other payments in respect of the operation of mines or quarries or exploitation of petroleum or other natural resources. 7.5 It is evident from the assessment order that the AO has not disputed that there is no specific clause for fees for technical services in the DTAA between India and UAE. The judicial precedents discussed hereinabove establishes the fact that payment made y towards ....
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....ce cannot be brought within the ambit of FTS in view of the absence of a specific clause relating to FTS in the DTAA and the settled position of law that in the absence of a clause in DTAA not dealing with a particular item of income, the payment should not be regarded as residuary income but as business income which is not chargeable to tax in India in the absence of a PE of the non-resident in India. The Ld. CIT(A) relying on this decision in para 7.3 (extracted above) of his appellate order held that the impugned remittances/ payments by the assessee to Dubai Leading Technologies cannot be brought within the ambit of FTS. 8.1 The Ld. AO relied on the decision of Chennai Tribunal in TVS Electronics Ltd. (supra) wherein the Tribunal has observed that in the absence of any specific clause for FTS in the India-UAE Treaty, the taxability will not be determined as per the residuary clause 22 of the Treaty but by the Income Tax Act, 1961. It has been brought to our notice that this decision of the Chennai Tribunal has been reversed by the Hon'ble Madras High Court in the case of Bankok Glass Industry Ltd. (supra). The brief facts in this case are that the assessee, a non-resid....
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..... Since the said income does not fall as miscellaneous income, the same cannot be brought under art. 22. 21. Even though learned standing counsel made a submission that the fee paid towards technical services cannot be brought towards business income, yet in the absence of any material to show that the same is not related to the business of the assessee. We have no hesitation in rejecting the said contention. Even assuming for a moment that the assessee is an Indian company given the nature of business of the assessee, if the income earned would qualify for consideration on the normal computation as business income, we do not find that the said character would undergo a change merely on the score that the assessee is not an Indian company. 22. In the light of the above, we allow the assessee's appeals viz, Tax Case (Appeal) Nos. 1187, 1307 and 1342 of 2005, 34 of 2006 and 743 of 2007 and reject the Revenue's appeals viz, Tax Case (Appeal) Nos. 1460 to 1464 of 2005 and set aside the order of the Tribunal as far as its consideration on art. 22 of DTAA is concerned. No costs." 8.2 In ACIT vs. M/s. Chadha Power (ITA No. 3055/Del/2018), the Co-ordinate....
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....and the legal position set-out above, we do not find any infirmity in the order of the Ld. CIT(A) and uphold his finding that the payments made to Dubai Leading Technologies cannot be brought to tax under Article 22 in the absence of a specific clause for FTS in the India-UAE DTAA. The impugned payments are in the nature of business income which are not chargeable to tax in India in the absence of a PE of the payee/remittee in India. We further uphold the finding of the Ld. CIT(A) that there is no obligation to deduct tax at source under section 195 of the Act as the impugned payments are not chargeable to tax in India as held by the Hon'ble Apex Court in GE India Technology Centre (P) Ltd. (supra) and hence the disallowance made by the Ld. AO under section 40(a)(i) of the Act is erroneous. Accordingly, ground No. 1 of the Revenue is dismissed." 7. We conclude in this factual backdrop that both the learned lower authorities have erred in law and on facts in treating the assessee's ONGC revenues' for all it's above services rendered in UAE as taxable in India in the impugned three assessment years 2020-21 to 2022-23 in very terms. The assessee succeeds in it's former twin appeals....