Under India-UK DTAA, if the services are not managerial, technical or consultancy services and do not involve usage of sophisticated technology, fees are not taxable.
Facts:
The applicant is an Indian company providing solutions in commercial and financial printing, print and mail management, product customisation, logistics, call centres, transactional online services, digital photography, colour services, etc.; high-end support services to the customers identified by its associated enterprises; online data-related services for different kinds of businesses.
RRDUK is a foreign company and is a tax resident of UK (‘UKCo’). UKCo was engaged in the business of communication management. For efficient discharge of service to its customers, the applicant had entered into data processing services agreement with UKCo. As per the agreement, the applicant was to pay fees to UKCo based on the invoice of UKCo.
The applicant raised the following issues before the AAR for its ruling:
(1) Whether amount receivable by UKCo is taxable as FTS under the Income-tax Act and DTAA?
(2) If the amount receivable by UKCo is not taxable in India, whether the applicant is required to withhold tax u/s. 195 of the Income-tax Act?
The applicant contended that the payment made to UKCo was not for technical services and hence, was not taxable in India. Further, in terms of Article 13 of DTAA unless the services are ‘made available’, they cannot be said to be technical services. The applicant also relied on rulings of the AAR in Invensys System Inc. (2009) 317 ITR 438 (AAR) and Intertek Testing Services India P. Ltd. (2008) 307 ITR 418 (AAR)1.
The Revenue contended that the personnel of UKCo periodically visiting India did not stay for more than 30 days and hence, no PE existed in India. However in view of explanation to section 9(2) of the Incometax Act (inserted with retrospective effect by the Finance Act, 2010), the applicant would be liable to withhold tax in India.
Ruling:
The AAR ruled as follows:
(i) The AAR observed that once the knowledge or technical know-how is transferred, no further assistance is required from the services provided. The services mentioned in the agreement are not managerial, technical or consultancy services and as stated by the ap-plicant, they do not involve usage of any sophisticated technology. Hence the fees for these services are not taxable.
(ii) As the fees are not taxable, question of withholding tax u/s. 195 does not arise.
