February 2020

Article 15 of India-Korea DTAA – Technical advisory services provided by non-resident individual to Indian company were in nature of IPS under Article 15 of India-Korea DTAA which, in absence of fixed base in India, were not taxable in India

GEETA JANI | DHISHAT B. MEHTA
Chartered Accountants

16. TS-803-ITAT-2019 (Ahm.)
J. Korin Spinning Pvt. Ltd. vs. ITO
ITA No. 2734/Ahm/2016
A.Y.: 2015-16
Date of order: 13th December, 2019

Article 15 of India-Korea DTAA – Technical advisory services provided by non-resident individual to Indian company were in nature of IPS under Article 15 of India-Korea DTAA which, in absence of fixed base in India, were not taxable in India

FACTS

The assessee, an Indian company, entered into an agreement with Mr. L, a resident of  South Korea, under which he was required to act as technical adviser and provide technical advice in relation to certain aspects of the production process of the assessee. The assessee paid a consideration to Mr. L for the said services.

According to the assessee, the services provided by Mr. L were in the nature of Independent Personal Services (IPS) in terms of Article 15 of the India-Korea DTAA. Since Mr. L did not have a fixed base available to him in India, consideration for the  services was not taxable in India. Hence, the assessee did not withhold tax u/s 195 from the payments made to him.

The AO, however, contended that the services rendered by Mr. L were industrial in ature since they related to setting up of the assessee’s factory and cannot be categorised as IPS. Hence, they qualified as fee for technical services (FTS) u/s 9(1)(vii) as well as Article 13 (Royalties and FTS) of the DTAA.

The CIT(A) dismissed the assessee’s appeal. Aggrieved, the assessee filed an appeal before the Tribunal.

HELD

  •  Mr. L was a technical expert in certain fields of textiles. He was engaged by the assessee to provide technical advice on some aspects of the assessee’s production process.

  •  Mr. L was an individual and resident of Korea.

  •  The agreement was between the assessee and Mr. L individually and not with any 'firm' or 'company’.

  •  The agreement mentioned Mr. L as ‘Technical Adviser’ to the assessee. Hence, the services rendered by him qualified as IPS.

  •  Mr. L and his technical team were required to fly to India on need basis for rendering services to the assessee. This indicated that Mr. L did not have a fixed base in India.

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