Section 9(1)(vii) of the Act; Article 5, 12, India-
Germany DTAA – in absence of a building or construction site owned or
operated by German company, mere rendition of supervisory services will
not constitute supervisory PE; the payment for such services should be
taxable as Fee For Technical Services (FTS).
Facts:
The
taxpayer was a company incorporated in Germany. It was engaged in
supervision, erection and commissioning of plant and machinery for steel
and allied plants in India. During the relevant tax year, it had
rendered technical and supervisory services to several Indian companies
by engaging experienced foreign technicians at the work sites and other
locations in India to carryout technical and supervisory services. The
taxpayer categorized the receipts for such services as FTS u/s.
9(1)(vii) of Act, as also under Article 12 of India-Germany DTAA .
The
total stay of technicians for one of the project in India exceeded 183
days. The AO contended that PE of the taxpayer was constituted in India
in terms of Article 5(2)(i) of India-Germany DTAA as the activities of
the taxpayer in India continued for a period exceeding 6 months.
Further,
since the activities were effectively connected with the PE, in terms
of Article 12(5) read with Article 7, receipts from the services was
taxable as business profits and consequently, in terms of section 44DA
was chargeable to tax @40%.
Held:
As regards the Act
Relying
on the decision of Andhra Pradesh High Court in Clouth Gummiwerke
Aktiengesellschaft vs. CIT [1999] 238 ITR 861 (AP), the Tribunal held
that payments received for the supervisory activities carried out in
India were taxable in terms of section 9(1)(vii) of the Act as FTS.
Further,
as the taxpayer had rendered the services at the project sites of its
clients and since it did not own and operate such sites independently,
they did not constitute the fixed place PEs under the Act.
As regards India-Germany DTAA
Relying
on the decision of Special Bench of the Tribunal in Motorola Inc vs.
DCIT [2005] 95 ITD 269 (Delhi)(SB) and the decision of Mumbai Tribunal
in Airlines Rotables Ltd vs. JDIT [2011] 131 TTJ 385 (Mum), the Tribunal
held that the taxpayer did not have a fixed place PE in India under
Article 5(1).
Supervisory activities by themselves cannot
constitute PE under Article 5(2)(i) if they were not in connection with
building, construction or assembly activities of the taxpayer. In the
present case, since the taxpayer was merely providing supervisory
services, without having a building or construction site or fixed place
at its disposal,it did not constitute a PE.
Thus, the activities
being technical in nature, they were clearly covered under the FTS
definition of the India- Germany DTAA and the same were not ‘effectively
connected’ to a PE as the taxpayer did not have a fixed place of
business through which its activities were carried out.
Relying
on Valentine Maritime (Gulf) LLC vs. ADIT [2011] 45 SOT 359 (Mum), the
Tribunal also observed that unless the contracts are otherwise linked
with each other they should be considered individually for the duration
test.
