By GEETA JANI | DHISHAT B. MEHTA
Chartered Accountants
3. [2020]
114 taxmann.com 51 (Mum.)
AGT International GmbH vs. DCIT
ITA No. 7465/Mum/2018
A.Y.: 2015-16
Date of order: 31st January, 2020
Article 12 and Article 5 read with Protocol of India-Swiss
DTAA – Tax in India cannot exceed 10% even if Swiss Co has service PE in India
FACTS
The assessee, a tax resident of
Switzerland, received fees for technical services from an Indian company and
offered the said income to tax @ 10% on gross basis under Article 12(2) of the
India-Swiss DTAA.
The Indian company had withheld tax @
42.024% on the entire amount.
The A.O. was of the view that the
services rendered by the assessee (by rendering services in India) did not
amount to fees for technical services as defined in Article 12 and that the
assessee had a Service PE in India. The A.O. computed the income by allowing
expenditure @ 40% on estimated basis and taxed the remaining 60% amount at the
normal income tax rates applicable to foreign companies. As against 10%, the
assessee was assessed effectively at 24% (being 40% of 60).
Aggrieved by the stand taken by the
A.O., the assessee raised objections before the DRP but without any success.
Being aggrieved, the assessee filed an appeal before the Tribunal.
HELD
The Tribunal referred to the Protocol
of the India-Swiss Treaty which states that furnishing of services covered by
sub-paragraph (l) of paragraph 2 (i.e., Service PE) shall be taxed according to
Article 7 or, on request of the enterprise, according to the rates provided for
in paragraph 2 of Article 12.
In light of the said Protocol, the Tribunal held
that the assessee has a choice to be taxed on gross basis at the rates provided
under article 12(2) or on net basis under article 7. A combined reading of the
above provision of article 5(2)(l) along with the related Protocol clause is
that on Service PE being triggered on account of rendition of services by a
Swiss entity in India, or vice versa, it can never make the assessee
worse off so far as the tax liability in source jurisdiction is concerned.
Unless the assessee has a lower tax on PE profits on net basis under article 7 vis-à-vis
taxability of FTS on gross basis under article 12(2), the PE trigger does not
trigger higher tax.
