ITAT Ruling on Taxability of FTS, in absence of specific clause in DTAA

Diamond Manufacturing Management and Consultancy Ltd. Mauritius vs ACIT (ITAT Visakhapatnam)

Background

The ITAT in its recent judgment held that where a company incorporated in Mauritius received fees for entering into a technical collaboration with its Associated Enterprise (AE) in India, aimed at providing technical, process, marketing and sales assistance services outside India, in the absence of specific clause under DTAA not dealing with particular item of income, such fees would be treated as business income instead of residuary income. Further, in the absence of Permanent Establishment in India, such fees would not be chargeable to tax in India.

Brief facts of the case:

1. The Assessee is a tax resident of Mauritius, engaged in the business of of managing diamond factories and facilitating diamantaires to operate economically for high quality diamond factories across the Globe. It had entered into a technical collaboration with its AEs namely M/s. Worldwide Diamond Manufacturers Pvt Ltd and M/s. Worldwide Diamond Sorting Pvt Ltd, in India viz., for providing technical, process, marketing and sales assistance services outside India and received fees for technical services (FTS)

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