Section 195 – payments made to non-residents for rent for office outside India, advertisement in foreign journals and exhibition expenses being business profits are not taxable in India in absence of a PE in India

12.  [2016] 74
taxmann.com 191 (Delhi – Trib.)

ITO vs. Brahmos Aerospace (P.) Ltd.

A.Y.:2011-12, Date of order: 14^th September, 2016

Facts

The Taxpayer had made payments to certain non-residents
(NRs). The payments pertained to rent for office outside India, advertisements
and expenses for participation in exhibition outside India. Mistakenly, the
Taxpayer had withheld tax on the said payments at minimum rates and hence
Taxpayer applied for rectification u/s. 154 of the Act. However, the AO
contended taxes were required to be withheld @ 20% and rejected rectification
application of the taxpayer. The CIT(A) allowed the appeal of the Taxpayer.
Against the order of CIT(A), the revenue appealed to the Tribunal.

Held

–  The payments made to non-residents were in
respect of rent, advertisement and exhibition expenses. Such payments are in
the nature of business receipts of the payee and are taxable in India only if
the NR has a PE in India in terms of the relevant DTAA² .

2   The decision does not mention DTAA of any
specific country and also does not refer to any specific Article (such as,
Article 7 read with Article 5) of any DTAA.

 – Since the NR does not have PE in
India, the receipts from the Taxpayer are not chargeable to tax in India.
Consequently, the Taxpayer is not required to withhold tax on such payments.