Article 5(6) & Article 12 of India-Singapore DTAA; Explanation 2 to section 9(1)(vii) of the Act – Presence of employees is to be tested separately for each type of service for computing Service PE threshold; Application of beneficial provisions of the Act for one source of income and treaty for another source of income is permissible

10.
TS-604-ITAT-2018 (Mum)

Dimension Data Asia Pacific Pte Ltd.
vs. DCIT Date of Order: 12^th October, 2018 A.Y.: 2012-13

Article 5(6) & Article 12 of India-Singapore DTAA; Explanation 2 to
section 9(1)(vii) of the Act – Presence of employees is to be tested separately
for each type of service for computing Service PE threshold; Application of
beneficial provisions of the Act for one source of income and treaty for
another source of income is permissible

Facts

Taxpayer, a private limited company incorporated in
Singapore, was engaged in the business of providing management support services
to its group entities in Asia Pacific region. Taxpayer had a wholly owned
subsidiary in India (ICo). During the years under consideration, Taxpayer sent
its employees to render following services to ICo in India.

·        
            Management
support services

·        
            Technical
assistance and guidance to ICo in relation to setting up of internet data
centres (IDCs) in India.

The duration of
stay of the employees in India during the relevant year was as follows:

Taxpayer
received consideration in the form of management fee for management support
services and a separate service fee for providing technical services for
setting up of internet data centres (IDCs) in India.

Taxpayer conceded that service fee qualified as Fee for
Technical Services (FTS) under the Act as well as the DTAA and offered it to
tax in India. However, Taxpayer contended that management support fee qualified
as business income. Since the presence of employees for rendering management
support services in India was less than 30 days, Taxpayer contended that such
presence did not result in creation of a PE in India. Hence, management support
fee was not taxable in India.

The Assessing Officer (AO), however, aggregated the
number of days of presence of Taxpayer’s employees in India and held that the
Taxpayer has a service PE in India. Thus, AO taxed the management fee as well
as service fee as business Income in India.

On appeal, the Dispute Resolution Panel (DRP) upheld AO’s
order. Aggrieved, the Taxpayer appealed before the Tribunal.

Held

·        
In cases of multiple sources of income, a taxpayer has an
option to choose the provisions of the Act for one source while applying the
provisions of the DTAA for the other source of income. Reference in this regard
was made to Bangalore ITAT decision in the case of IBM World Trade
Corporation vs. ADIT (2015) 58 Taxmann.com 132 and IBM World Trade Corporation
vs. DDIT (IT) (2012) 20 taxmann.com 728.

·        
            Taxability
of Management Support Fees:

   
        •           There
is no dispute that the management support fee qualifies as business income
under Article 7 of the India-Singapore DTAA. However, such income would be
taxable only if the Taxpayer had a PE in India under Article 5 of the DTAA.

   
         •          Since
the employees’ presence in India for rendering management support services was
less than 30 days, such presence of employees did not create a Service PE for
the Taxpayer in India. Hence, management support fee received from ICo is not
taxable in India. Presence of employees in India for rendition of technical
services is not to be reckoned for calculation of service PE duration.

   
       •            Taxpayer’s
employee had the requisite expertise in the field of IDCs and they were sent to
India to assist and provide guidance to ICo in setting up of IDCs. Thus, the
services rendered by the employees of the Taxpayer made available technical
knowledge and skill to ICo. Hence, the fee paid for such services qualified as
FTS under Article 12 of DTAA. Therefore, such service fee was taxable in
India. 

   
         •          Once
the income qualified as FTS under Article 12 of DTAA, owing to exclusion in Article
5 with respect to services covered under Article 12 of DTAA, the same fell
outside the scope of Article 5 of DTAA dealing with PEs. Hence, evaluation of
whether there was a service PE became academic