Electrical material Center Co. Ltd. Vs DDIT (International Taxation) (ITAT Bangalore)
No Permanent Establishment Created as Engineers Stayed Less Than 182 Days in India; FTS Not Taxable in India Without Specific DTAA Clause; ITAT Rejects Man-Day Calculation for PE Determination Under Tax Treaty; Service Income Held Non-Taxable in India Due to Absence of PE Under DTAA; ITAT Distinguishes Virtual Service Cases While Deciding PE Issue; Taxability of Technical Service Fees Sent Back to AO Due to Lack of Work Details; Residual Article in India-Saudi Arabia DTAA Bars Taxation of FTS in India
The Bangalore ITAT partly allowed the appeal filed by the assessee for Assessment Year 2010-11 concerning the taxability of payments received for services rendered in India. The primary issues before the Tribunal were whether the assessee had constituted a Permanent Establishment (PE) in India under the India-Saudi Arabia Double Taxation Avoidance Agreement (DTAA), whether the receipts constituted royalty or fees for technical services (FTS), and whether such receipts were taxable in India.
The Revenue’s case was that the receipts constituted royalty taxable under section 115A of the Income-tax Act and the India-Saudi Arabia DTAA at the rate of 10%. The Assessing Officer also held that the assessee had a service PE in India because four service engineers were present in India for 90 days each. According to the Revenue, man-days of services rendered were to be considered for determining PE existence, leading to a conclusion that the threshold under the DTAA was crossed.
