International Taxation

CA. Hinesh Doshi

Mr. Arun Rangachari vs Joint Commissioner of Income Tax, (IT) (OSD)-4(1)(2), International Taxation, Mumbai [TS-289-ITAT-2024(Mum)] dated 30th April, 2024

Facts:

  • Assessee a tax resident of UAE rendered consultancy services, during the impugned AY 2009-10, from Dubai to two UAE based banks who were executing certain projects in India.

  • The consultancy fee was remitted to two non-resident companies of which Assessee was 100% shareholder as well as Director.

  • Assessee was also shareholder and Director of Dar India, an Indian company where search was conducted and notice under Section 148 was issued to Assessee pursuant to the said search.

  • The Revenue passed the assessment order taxing the consultancy fees of Rs. 325.50 Cr. in the hands of the Assessee considering it as FTS u/s 9(1)(vii) and also made an addition of Rs. 94.49 Cr. under Section 69 in the hands of the Assessee of investment made by certain foreign companies in Indian Companies.

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

Issue:

  • Whether the assessee has PE in India ,Consultancy fees and addition made u/s 69 is taxable in India?

Held:

  • ITAT observes that Revenue presumed that the said premises constituted PE / fixed base of the Assessee merely because Assessee is a Director of Dar India and was present at the premises of Dar India at the time of search.

  • ITAT noted that consultancy fee is paid by a non resident entity to a non-resident company and none of the amount has been credited in any bank account in India either of the Assessee or it is also not the case that these two companies had any bank account in India.

  • ITAT held that there is no FTS clause in India UAE DTAA and the same cannot be taxable u/s 9(1)(vii) and under Article 14. It will be considered as Business profits

  • ITAT held that Assessee stayed only for 110 days so he is not having fixed based/PE in India through which services were rendered.

  • ITAT held that shareholder is separate from company which is a separate legal entity and without lifting the corporate veil and merely based on presumptions and perceptions, investment made by non-resident company cannot be added in the hands of Assessee because Assessee owned 100% of the said companies.

  • In the absence of any information on the source of funds or linking unaccounted funds to Assessee ITAT upholds the deletion of addition under Section 69.

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

Mr Volvo Information Technology vs Deputy Commissioner of Income Tax, International Taxation-Circle -3(1)(1), Delhi [TS-319-ITAT-2024(DEL)] dated 07th May, 2024

Facts:

  • Assessee, a non-resident corporate entity incorporated in Sweden and is a tax resident of that country.

  • It entered into agreement with other entities of Volvo Group with three entities in India for providing various IT facilities for running their business operations.

  • Assessee considered the services provided as FTS as the same were not standard and routine services and same is to be considered under MFN clause.

  • The Revenue made addition as royalty falling under Article 12 of the India-Sweden DTAA and accordingly, passed the draft assessment order. DRP rejected the objections filed by the Assessee against the draft assessment order.

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

Issue:

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

Held:

  • ITAT observed that definition of FTS under Article 12(3)(b) is wide enough to cover all kinds of payments made towards managerial, technical or consultancy services and going by the language used in the said Article “one cannot escape the conclusion that the payments received by the Assessee are in the nature of FTS”.

  • ITAT noted that business application related services, end user services and shared infrastructure facilities, voice support, mobile and fixed voice services, Volvo Corporate Network, business consultancy services cannot be termed as standard and routine services.

  • ITAT observed that revenue made mistakes in earlier years considering as royalty cannot be perpetuated forever.

  • ITAT held that impugned “receipts qua managerial, technical or consultancy services would definitely fall within the ambit of FTS and not royalty”. Relying on Nestle SA regarding applicability of MFN clause will be applicable since Sweden is OECD country.

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

Mr Laserwords US Inc vs The Deputy Commissioner of Income Tax Officer (IT) 1(2), International Taxation, Chennai [TS-333-ITAT-2024(CHNY)] dated 10th May, 2024

Facts:

  • The Assessee, a non-resident company, is a tax resident of the USA. It was engaged in providing services of e-publishing which falls under ITES involving software and digital technology.

  • The Assessee entered into a marketing agreement with its holding company, SPI Technologies India Pvt. Ltd. where under it is responsible for carrying out marketing functions like executing and implementing marketing strategy and providing support in identifying customers, understanding their requirements and liaising between the customers and the company. In consideration for the marketing services provided, the Assessee received sales commission and the same was not taxable in India.

  • Revenue held that the services provided by the assessee is in nature of Fees for Included services under Article 12(4)(b) of India USA DTAA.

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

Issue:

  • Whether the services rendered by the assessee will be considered as Marketing services or FIS?

Held:

  • ITAT observed that Assessee received sales commission as percentage of sales from new customers as well as existing customers on monthly basis and Assessee identified prospective / new customers in USA and once customer is onboard, interacted with the customer on a regular basis to understand their requirements.

  • ITAT observed that Assessee acted as a front-end contact point for the customers and the role of the Assessee is to understand the workflow requirements of the customers and communicate these requirements to the executives of SPI India.

  • ITAT held that the nature of work executed on activities carried out cannot be equated with ‘fee for included services’ as mentioned in 12(4) clause (b) of India-USA DTAA and hence, it cannot be taxed in India

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