Source for making or earning income of payer of FTS outside India is not taxable in India

HCL Singapore PTE. Ltd Vs ACIT (ITAT Delhi)

ITAT Delhi held that as conditions prescribed in exception to section 9(1)(vii)(b) stand fulfilled, it cannot be taxed as FTS. Further, the source for making or earning any income of the payer of fee for technical services, in the present case, is outside India, and therefore not taxable in India.

Facts- The assessee is a tax resident of Singapore engaged in the business of providing Information Technology (IT) and Information Technology Enabled Services (ITES). A survey operation was carried out in the premises of HCL Technologies Ltd (in short HCLT), Noida u/s 133A of the Act on 22.1.2019 and ended on 28.1.2019. The case of the revenue is that certain remittances were made by HCLT to the assessee. These payments were sought to be categorized as fee for technical services in the hands of the assessee taxable u/s 9(1)(vii) of the Act. These payments were made by HCLT to the assessee without deduction of tax at source.

Conclusion- HCLT is an Indian entity and had paid monies to the assessee (overseas entity). So it falls under the ‘Source Rule’ in clause (b) of section 9(1)(vii) of the Act. In the instant case since both the conditions provided in exception to section 9(1)(vii)(b) of the Act stand fulfilled. Hence it cannot be taxable as FTS under section 9(1)(vii) of the Act.

Held that the payment made by HCLT for onsite services rendered by the assessee is to be construed as FTS, in any event, we find that Section 9(1)(vii)(b) of the Act carves out a second exception to the taxability of FTS paid by a resident, wherein the fee for technical services payable in respect of services utilized for the purpose of making or earning any income from any source outside India is not an income within the ambit of section 9 of the We find that HCLT had concluded its agreements with the customers in the country of the customers which is situated outside India; that the onsite services are rendered by the assessee outside India at the customer’s location and no part of the service/ software program is sent or performed in India ; the services are directly performed on the customer’s server located abroad and delivered directly to them outside India ; and that the payment for onsite services is also received by HCLT from outside India in foreign exchange from the foreign customers. Hence it is very clear that the source for making or earning any income of the payer of fee for technical services, in the present case, is outside India, and therefore not taxable in India.

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