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Case Law Details

Case Name : Denso (Thailand) Co. Ltd Vs ACIT (ITAT Delhi)
Appeal Number : ITA No.1986/Del/2023
Date of Judgement/Order : 31/05/2024
Related Assessment Year : 2020-21
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Denso (Thailand) Co. Ltd Vs ACIT (ITAT Delhi)

The recent case of Denso (Thailand) Co. Ltd vs ACIT before the Delhi ITAT delves into the taxation of technical services provided by Denso to its Indian group companies under the India-Thailand Double Taxation Avoidance Agreement (DTAA). The dispute revolves around whether these services qualify as Fees for Technical Services (FTS) and the implications in the absence of a Permanent Establishment (PE) in India.

Denso, a Thai company, asserted that the services provided were akin to business activities and not subject to FTS taxation under the DTAA, which lacks an explicit FTS clause. The Assessing Officer (AO), however, deemed the income as FTS taxable at 10% under Indian tax law, citing Article 22 of the DTAA. The appeal contested this interpretation, emphasizing that without an FTS clause, the income should be considered business income under Article 7, especially in the absence of a PE.

The ITAT’s decision dissected these arguments, highlighting that while the DTAA provides relief, it does not confer rights to tax. It underscored that FTS, when not defined in the treaty, defaults to domestic tax law, necessitating examination under Section 9(1)(vii) of the Income Tax Act, 1961. Key precedents were cited, including judgments favoring the non-taxability of FTS when considered business income under Article 7.

Ultimately, the ITAT ruled in favor of Denso, asserting that in the absence of a specific FTS clause in the DTAA, and given the nature of services provided by Denso as integral to its business activities, taxation as FTS was unwarranted. This landmark decision clarifies the treatment of similar cases under international tax law, ensuring clarity on taxation principles concerning technical services rendered cross-border.

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July 2024