International Taxation

CA. Hinesh Doshi

M/s Denso (Thailand) Co. Ltd vs. Assistant Commissioner of Income Tax, Circle 1(2)(2), International Taxation, New Delhi [TS-396-ITAT-2024(DEL)] dated 31st May, 2024

Facts:

  • Assessee, a Thailand based company engaged in providing business administration, material engineering and development services to its Indian AE (Denso India) received Rs. 16.60 Cr which was claimed as business income in absence of FTS clause in India-Thailand DTAA.

  • During assessment, Revenue accepted that the nature of services is FTS, however, held that in absence of FTS clause, the income would fall under Article 22 of the India-Thailand DTAA as ‘other sources’ and accordingly, taxed at 10% as per Section 5(2) r.w. Section 9(1)(vii).DRP also rejected assessee’s objections.

  • Aggrieved, the assessee filed an appeal with the ITAT.

Issue:

  • Whether the technical services provided to its Indian AE will be taxable in absence of FTS clause in India-Thailand DTAA?

Held:

  • ITAT opined that Article 22 of India-Thailand DTAA is a residuary article which is incorporated to make taxable items of income which is not otherwise dealt in the DTAA and at the same time Article 7, lays down taxability of profits of an enterprises.

  • ITAT observed that the income earned by the Assessee are in the regular course of their business and therefore clearly dealt by Article 7, however in absence of PE the same cannot be brought to tax.

  • Relying on coordinate bench ruling in “Paradigm Geophysical” wherein it was held that in case it is found that the provisions of Income Tax Act are not applicable, then items of income would have to be considered in Article taxing business income.

  • Also relying on coordinate bench ruling in “Bharti Airtel” as well as “GE Precision Healthcare LLC” wherein it was held 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.

  • Thus, ITAT ruled in the favour of the assessee.

M/s Salesforce.com Singapore Pte Ltd. vs. Assistant Commissioner of Income Tax, International Taxation-Circle -3(1)(2), New Delhi [TS-351-ITAT-2024(DEL)] dated 17th May, 2024

Facts:

  • Assessee, a Singapore based entity is engaged in providing CRM services to its customers/subscribers in various countries including India, which enables them to systematically record, store and act upon business data and to help businesses manage customer accounts, track sales leads, evaluate marketing campaigns and provide better post sales service.

  • Assessee does not have any data centre or business premises of its own in India and it provides services through internet.

  • During the impugned AYs 2018-19 to 2021-22, assessee received Rs. 297.07 Cr. from Indian customers for rendering CRM services.

  • Revenue passed the draft assessment order holding that the said receipts are liable to tax in India as they are in the nature of FTS under Section 9(1)(vii) as well as under Article 12(4) of India-Singapore DTAA. DRP rejected the objections filed by the Assessee.

  • Aggrieved, the assessee filed an appeal with the ITAT.

Issue:

  • Whether the CRM services provided by assessee is in the nature of Royalty or FTS ?

Held:

  • ITAT observed that the right of subscription to a cloud-based software cannot possibly be said to be equivalent to the ‘use’ or ‘right to use’ any industrial, commercial or scientific equipment. This more so since the respondents sought to place the consideration received under Article 12 (4)(b) and which is specifically excluded from sub-article (3)(b).

  • Article 12(4)(b) would have been applicable provided the appellants had been able to establish that the assessee had provided technical knowledge, experience, skill, knowhow or processes enabling the subscriber acquiring the services to apply the technology contained therein but in this case, the customer is merely accorded access to the application and it is the subscriber which thereafter inputs the requisite data and takes advantage of the analytical attributes of the software. This would clearly not fall within the ambit of Article 12(4)(b) of the DTAA.

  • ITAT referred to coordinate bench ruling in assessee’s own case for AY’s 2010-11 to 2016-17 and AY 2017-18 wherein it was held that CRM services do not constitute royalty in terms of Section 9(1)(vi) or Article 12(3) of India-Singapore DTAA.

  • Relying on SC judgment in Engineering analysis and it was held that that receipts from CRM services were neither in the nature of royalty nor FTS.

  • Thus, ITAT ruled in the favour of the assessee.

M/s LX Pantos India Private Limited vs. Assistant Commissioner of Income Tax, Circle-13(1), New Delhi [TS-345-ITAT-2024(DEL)] dated 17th May, 2024

Facts:

  • “LX Pantos India Private Limited (‘Pantos India’) is an Indian company engaged in the business of providing logistic services. For this purpose, Pantos India has entered into a ‘Co-operation Agreement’ with overseas logistics companies for providing transportation and customs clearing services in their respective countries.

  • Assessee had not deducted TDS on overseas payment as the same were in the nature of shipment, clearing and forwarding services.

  • Revenue held that the services rendered would be considered as consultancy services falling under Section 9(1)(vii) and as tax was not deducted at source under Section 195, disallowed the same under section 40(a)(i).

  • Aggrieved, the assessee filed an appeal with the ITAT.

Issue:

  • Whether the services rendered by the assessee will be considered as Consultancy Services?

Held:

  • ITAT noted order of CIT(A) wherein (i) observed that the word “consultancy” means providing some advice or opinion, etc and excluded actual execution, (ii) Revenue had not disputed the fact that freight and logistics services were provided by the non-residents, (iii) held that the payment was wholly and exclusively for the execution in the shape of transport, procurement, customs clearance, delivery, warehousing and picking up services and hence, the same could not be treated as payment for consultancy services.

  • CIT(A) held that payment made to overseas parties do not fall within the ambit of Section 9(1)(vii) and the overseas parties had rendered “International Services” outside India hence, outside the purview of Section 9(1)(i).

  • Relying on coordinate Ruling in Indiar Carriers where on identical facts, the bench held that payment made to freight forwarding agent is covered by Circular No. 715 dt Aug 8, 1995 and, therefore, it was not for managerial services and the expenditure was in the nature of business expenses.

  • Thus, ITAT ruled in the favour of the assessee.