I have a query on TDS u/s 195. A company is required to pay fees for technical services (FTS) to another company in Dubai. The DTAA with UAE does not cover FTS payment. Also the Dubai company does not have any PE in India in any form, but the services for which FTS is paid will be utilized in India.
Now my query is whether TDS is required from FTS payment? I have been told that if a payment doesnot covered under DTAA then TDS is not required. In the given case, FTS is not covered in DTAA with UAE and therefore it will be treated as Business Income and fall under that clause of DTAA. Since for Business Income, PE in India is essential for TDS and in the absence of PE in India, no TDS is required.
Is this correct? or TDS is required to be deducted as 'Other Income' clause, keeping in view of amendments made by Finance Act 2010 in Section 9 by inserting/substituting the foloowing explanation-
[Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non-resident, whether or not,—
(i) the non-resident has a residence or place of business or business connection in India; or
(ii) the non-resident has rendered services in India.]
Please enlighten me on the topic and cases that supports the correct view.
Regards
Sujit Talukder
Quote from: sujittalukder on June 21, 2012, 05:35:42 PM
I have been told that if a payment doesnot covered under DTAA then TDS is not required. In the given case, FTS is not covered in DTAA with UAE and therefore it will be treated as Business Income and fall under that clause of DTAA. Since for Business Income, PE in India is essential for TDS and in the absence of PE in India, no TDS is required.
This understanding is correct. The fees will constitute business profits under the DTAA. In the absence of a PE, the profits are not assessable to tax in India.
The amendment to the Act merely clarifies as to when the income shall be deemed to have accrued
for purposes of the Act. However, this has no impact on the DTAA.
It is well settled that the DTAA will prevail over the Act where it is beneficial to the assessee (s. 90(2)). So, the income will continue to enjoy exemption under the DTAA notwithstanding the amendment to the Act.
Thank you sir for the reply.
This means if my understanding is correct the FTS to Dubai company is taxxable under IT Act but not taxable under DTAA. so no tax is required to be withheld from the payment.
Is my understanding correct?
Also, is there any case law supporting the view in your knowledge..
Thanks and regards
Sujit Talukder
TDS is required to be deducted only when the income of deductee is taxable in India as per Apex Courrt decision reported in GE capital (327 ITR 456), it can safely be concluded that TDS is not required on the payment made provided the payment is not covered in DTAA.
Sujit,
What I think is that FTS to Dubai is itself not taxable in India as the organisation is not having a PE in India.
Thanks for the reply.
This means if FTS is not covered under DTAA it will be construed as business income and as the organization has no PE in India, no TDS liability arises.
Chapter III of DTAA between India and Mauritius did not provide for taxing any fees paid for technical services. Only for a reason that DTAA is silent on a particular type of income, we cannot say that such income will automatically become business income of the recipient. In our opinion, when DTAA is silent on an aspect, the provisions of the Act has to be considered and applied. case of TVS electronics 22 taxmann. com 215 chennai
Sir pl see judgement of Kol Bench of ITAT in DCIT vs. Andaman Sea Food Pvt Ltd (ITAT Kolkata) http://tax2.me/is-fees-for-technical-services-taxable-as-other-income-andaman-itat-kol/
Unfortunately, the judgement in TVS electronics 22 taxmann. com 215 chennai is not considered but seems to be a correct judgement.
Dear All
Even in the TVS case referred, th ematter has been sent to the file of ITO, to determine whether the expenses paid for survey represent fees for tecnical fees or not.
This appears to be a work done by the foreing firm , not having any permanant establishment, and cannot be tken as a tecnical fees to be covered unser secton 9.