| The Tax Publishers2023 TaxPub(DT) 784 (Del-Trib) INCOME TAX ACT, 1961
Section 195
Where Indo-Mauritian DTAA applicable to the relevant assessment year did not contain any provision defining FTS and taxability of FTS, only with effect from 1-4-2017, provision relating to FTS in the shape of article 12A was introduced to the DTAA, thus, prior to 1-4-2017, the DTAA did not include FTS. However, article-22(3) was introduced to the DTAA with effect from 1-4-2017, hence, could not be made applicable to the concerned assessment year. Thus, provisions of DTAA applicable to the concerned assessment year, being more beneficial to the assessee, would govern. That being the factual and legal position, no disallowance under section 40(a)(i) could be made.
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Tax deduction at source - Under section 195 - Payment made to non-resident treated as fee for technical services (FTS) - Applicable DTAA not containing FTS for the concerned assessment year
Assessee paid an amount of Rs. 3,83,00,000 to Duet India Hotels Assets Management Services, Mauritius. Being of the view that payment made was in the nature of fee for technical services [FTS], AO sought to disallow deduction for want of TDS under section 195. Assessee contended that in the Indo-Mauritian DTAA applicable to the concerned assessment year, FTS was not included. FTS was brought within the purview of DTAA w.e.f. 1-4-2017. However, referring to article 3(2) of the DTAA, AO has held that a term, not defined in the agreement would have the meaning it has in the law in force of that contracting State. Thus, taking recourse to article 3(2), AO held that definition of FTS in the domestic law would apply.Held: Admittedly, Indo-Mauritian DTAA applicable to the relevant assessment year did not contain any provision defining FTS and taxability of FTS. Only with effect from 1-4-2017, provision relating to FTS in the shape of article 12A was introduced to the DTAA . Thus, prior to 1-4-2017, the DTAA did not include FTS. Therefore, impugned payment could either have fallen in the category of business profit under article 7 or other income under article 22 of DTAA. In absence of any PE of recipient in India, amount paid could not have been assessed as business profit in India. In so far as taxability of the amount as other income, it could have been brought to tax in India under article 22(3), in case, it was not dealt with in any other provision of the DTAA. However, article-22(3) was introduced to the DTAA with effect from 1-4-2017, hence, could not be made applicable to the concerned assessment year. Thus, provisions of DTAA applicable to the concerned assessment year, being more beneficial to the assessee, would govern. That being the factual and legal position, no disallowance under section 40(a)(i) could be made.
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2015-16
IN THE ITAT, DELHI BENCH: D NEW DELHI
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