FTS service not taxable in India in absence of PE as FTS clause doesn’t exist in India-UAE tax treaty

DCIT Vs Kalpataru Power Transmission Ltd. (ITAT Ahmedabad)

ITAT Ahmedabad held that in absence of FTS (Fees for Technical Service) clause in the India UAE Tax Treaty, payment for the FTS services cannot be taxed in India, unless it is established that the overseas company i.e. Oilstone UAE has a permanent establishment (PE) in India.

Facts- The assessee is an Indian Company engaged in the business of Engineering, Procurement and Construction (EPC) Contracts relating to infrastructure facilities comprising high power transmission line, transmission and distribution, laying of electrification of railway lines, cross country laying of oil & gas pipelines etc.

In one of the EPC Project executed by the assessee’s Branch Office in Uganda, the assessee has made payment for services of towers design including designing of its foundation and structural drawing to Oilstone Technologies DMCC of UAE (Oilstone UAE) and no tax has been deducted at source on such payment by the assessee on the ground that such payment was not chargeable to tax in India.

On verification, it was found by the TDS Officer that TDS was not deducted against certain payments made outside India. The assessee was issued show cause notice as to why the assessee should not be treated as “assessee in default” u/s.201(l) and u/s.201(lA) for non-deduction of tax on payments made to Oilstone UAE.

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