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

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: 31^st 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 AO’s 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
results of the testing which was used in India. Thus, even where testing was
done outside India, the exception of Article 12(5) does not apply.

As services were availed in India, the fee for testing
services was taxable in India.