Restricted scope of India – USA and India-Portugal DTAA, can be read into the India-France DTAA; Services which does not satisfy ‘make available’ condition do not trigger FTS taxation under India-France DTAA.
Facts:
The Taxpayer is a Branch office (BO) of a Canadian Company (CCo) which is the trade association for the world’s airlines. The BO was established as per the permission of Reserve bank of India for the purpose of undertaking certain commercial activities on no profit basis.
CCo, entered into an agreement through its administrative office in Geneva, with French Company (FCo) for developing certain system (BSP Link). BSP Link enabled the manual operations such as issue of debit notes/credit notes, issue of refund, billing statement and all the information relating to tickets to be carried out electronically for agents as well as airlines which participated in the BSP link to provide information in relation to the booking of tickets and facilitate billing for the tickets.
The BSP link services were provided to the agents and airlines operating in India for which invoices were initially raised by FCo on Geneva Office of CCo which in turn raised the invoices on BO.
BO made an application u/s. 195(2) to the Tax Authority, to make payments to its Geneva office without withholding taxes at source on the ground that no services were being rendered by the Geneva Office. Further it was contended that no tax was deductible on such payments as the branch office and its head office are not separate entities as per the Income-tax Act.
However, the Tax authority contended that, in substance the transactions involved the payments on account of BSP link services provided by FCo in France and as the said services were technical in nature taxes are required to be withheld under the India – France DTAA .
On Appeal, the First Appellate Authority held that the fee for services is not taxable by virtue of MFN clause of the DTAA which incorporates ‘make available’ condition in India France DTAA .
Aggrieved, the Tax Authority appealed to the Tribunal.
Held:
India-France DTAA protocol contained the MFN clause, by virtue of which if India enters into a DTAA or protocol post 01-09-1989 under which it limits its right to tax FTS to a rate lower or scope more restricted than the rate or scope prevalent in the India-France DTAA , the same rate and scope would also apply to India-France DTAA .
India entered into a DTAA with USA and Portugal post 01- 09-1989. The India-USA DTAA and India-Portugal DTAA have provided a narrower scope for taxation of FTS by inserting a ‘make available’ condition.
Thus the restricted scope of India – USA and India-Portugal DTAA , can be read into the India-France DTAA . As there was nothing to show that the BSP Link services make available any technical knowledge, experience, skill, know-how, or processes, it does not trigger FTS taxation under the India-France DTAA .
