February 2011
Consideration simplicitor for supervising erection, assembling and commissioning of machinery does not fall within the exclusion clause provided for ‘construction/assembly project’ u/s.9(1)(vii). •Payments for technical services though covered under Artic
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Part C : Tribunal & AAR International Tax Decisions
16 Aditya Birla Nuvo Limited v. ADIT
ITA 7527/Mum./2007
Articles 5, 13 of India-Italy DTAA;
S. 9(1)(vii) & S. 195 of ITA
Dated : 30-11-2010
- Consideration simplicitor for supervising erection, assembling and
commissioning of machinery does not fall within the exclusion clause provided
for ‘construction/assembly project’ u/s.9(1)(vii) of ITA.
- Payments for technical services though covered under Article 13 of DTAA (FTS),
would be excluded from Article 13 if payments are for services that are
effectively connected with a PE or fixed base in India.
-
Non-fulfilment of threshold period of stay would not trigger supervisory PE in
terms of Article 5(2) of the DTAA. In the absence of PE, payment for
supervisory services would not be taxable in India.
Facts :
Taxpayer, an Indian company (ICo), was engaged in the
business of yarn, filament, garments, fertilisers, textiles and insulators. It
entered into an agreement with an Italian company (GTA) for supervising the
reassembling and re-commissioning of machinery at the taxpayer’s factory
premises in India.
Key features of obligations of GTA were as under :
- Supervising job of uninstalling textile plant, located at South Africa and
reinstalling at ICo’s premises in India.
- Deputing skilled engineers for supervision of re-installation/re-commissioning
of plant in India.
- Deputing two engineers to India, who worked for 30 days and 22 days
concurrently.
- All equipments/facilities were provided by ICo. Further actual erection of
machines was to be done by local workers, provided by ICo.
The taxpayer made an application u/s.195(2) of the ITA for
remitting funds, to GTA, without deduction of tax on the basis that payments
would fall under exclusion clause (‘for any construction, assembly, mining or
like project’) of definition of ‘fees for technical services’ u/s.9(1)(vii) of
ITA. In any case, in terms of DTAA, amount would not be taxable in India, as the
services were connected to PE/fixed base of GTA in India.
Though the activities of GTA were mainly supervisory in
nature, its duration did not exceed the time threshold, of six months,
prescribed for constituting a supervisory PE under Article 5 of the DTAA. Hence
payments in relation to such activities would not be taxable in India.
Held :
Under ITA
- The technicians of GTA were in India only for supervising the erection of
machines and giving advice on reassembling, erecting and commissioning of
machinery. Actual erection of machines was done by local workers, supplied by
the taxpayer.
- The payments in question thus could not fall under the exclusion clause of FTS
under ITA as the project of construction/assembly was not of ICo.
Under the DTAA
- The nature of service rendered by GTA was technical, being supervisory in
nature. However Article 13 of the DTAA excludes payments for services
connected to PE or a fixed base in India under Article 5 of DTAA.
- AAR in the case of Horizontal Drilling Inter-national (94 Taxman 142) held
that PE rule and FTS definition of the DTAA must be read harmoniously. Hence,
payments made in consideration for supervision or construction or installation
project should be excluded from purview of FTS taxation.
- Though GTA, by virtue of technicians’ presence in India, would be covered
within supervisory PE in India, since their stay did not exceed time threshold
of 6 months, the same would therefore not constitute PE in India under the
DTAA.
- Once proposed remittance was held as non-taxable, question of considering
taxability of reimbursement of expenditure was not required.
