August 2019

Article 12(5) India-Finland DTAA Payment made for obtaining test results in India is taxable in India under Article 12(5) of India-Finland DTAA irrespective of whether the testing process is done outside India

GEETA JANI | DHISHAT B. MEHTA
Chartered Accountants

17.  TS-311-ITAT-2019 (Kol.)

Outotec (Finland) Oy, Kolkata vs. DCIT (International Taxation)

ITA No.: 2601/Kol/2018

A.Y.: 2015-16

Date of order: 31st May, 2019

 

Article 12(5) India-Finland DTAA Payment made for obtaining test results in India is taxable in India under Article 12(5) of India-Finland DTAA irrespective of whether the testing process is done outside India

 

FACTS

Taxpayer, a Finnish company, earned income from rendering of testing and other services to Indian customers. Taxpayer contended that the services were carried on from its office / laboratories located outside India and none of its employees visited India for providing these services to Indian customers. Thus, as the services were performed outside India, income from these services was not taxable in India as per Article 12(5) of the India-Finland DTAA.

 

But the AO contended that the services can be said to be performed only when they were used by the beneficiary. Since the intended use of the services tested in the laboratories in Finland was ultimately in India, service can be said to be performed in India and income from such services were taxable in India under Article 12(5) of the DTAA.

 

Taxpayer appealed before the DRP who upheld the AOs order. Still Aggrieved, Taxpayer appealed before the Tribunal.

 

HELD

Article 12(5) of the DTAA provides that the FTS shall be deemed to arise in a contracting state where the payer is located. However, as an exception to this in cases where the services for which the FTS is paid is performed within a contracting state, then it shall be deemed to arise in the state in which the services are performed.

 

For applying the exception to Article 12(5) it is necessary that the payment should be made for services and such services should be performed in the other state (i.e., Finland). In the present case, payment was made not for the testing but for obtaining the

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