October 2018

4 Article 12 & Article 14 of India-Germany DTAA – Article 14 applies to payments made for obtaining scientific services from a non-resident individual; Article 14 being more specific provision applicable to professional services rendered by individuals shall prevail over Article 12

Geeta Jani , Dhishat B. Mehta, Chartered Accountants

TS-492-ITAT-2018

Poddar Pigments Limited vs. ACIT

A.Y: 2008-09; Date of Order: 23rd August, 2018

 

Article 12 & Article 14 of India-Germany DTAA – Article 14 applies to payments made for obtaining scientific services from a non-resident individual; Article 14 being more specific provision applicable to professional services rendered by individuals shall prevail over Article 12

 

Facts

The Taxpayer, an Indian company, was engaged in the business of manufacturing master batches and engineering plastic compounds. During the year, the Taxpayer entered into a technical services agreement with a German scientist (Mr. X). As per the agreement, Mr X was required to invent different processes of polymers by applying different chemistry to raw materials used by the Taxpayer.

 

The Taxpayer contended that payments made to Mr X was in the nature of independent scientific services and hence, it qualified as independent personnel services (IPS) under Article 14 of India-Germany DTAA. Since Mr X did not have a fixed base in India and his stay in India did not exceed 120 days, payments made to Mr X were not taxable in India as per Article 14 of India –Germany DTAA.

 

The AO rejected the Taxpayer’s contention and held that the payments were in the nature of ‘fees for technical services’ under Article 12 of DTAA as well as ITA. Hence, they were subject to withholding of tax. Since the Taxpayer made payments to Mr X without withholding tax, AO disallowed such expense u/s. 40(a)(i) of the Act.

The CIT (A) upheld AO’s contention. Aggrieved, the Taxpayer filed an appeal before the Tribunal.

 

Held

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