Raj Ajudhianath Kaul Vs ITO (ITAT Mumbai)
No tax on receipts of professional service of German Tax Resident in India; it was covered under Article 14 of India–Germany DTAA
Conclusion: Receipts earned by a German resident individual from rendering managerial, consultancy and business development services outside India, based on personal expertise and independent professional skill, constituted independent professional services under Article 14 of the India–Germany DTAA and were not taxable in India in the absence of a fixed base or the prescribed period of stay in India. Such receipts could not be taxed as Fees for Technical Services under Article 12 merely because the services involved consultancy or commercial advice.
Held: Assessee, an individual and tax resident of Germany, rendered managerial, consultancy and business development services to Indian companies, including M/s Sajjan India Ltd. and M/s PI Industries Ltd., for identifying business opportunities, expanding commercial operations and establishing business connections in Germany. The services were rendered entirely outside India and the remuneration was received in Germany. Tax was, however, deducted at source under section 195 of the Income-tax Act by the Indian companies. AO treated the receipts as Fees for Technical Services (FTS) taxable in India under Article 12 of the India–Germany Double Taxation Avoidance Agreement (DTAA) and made additions accordingly. Assessee contended that the services rendered were in the nature of independent professional services falling under Article 14 of the India–Germany DTAA, as they were performed in an individual capacity using personal expertise, specialised knowledge and business experience. It was further argued that Article 14, being a specific provision governing independent professional services, prevailed over the general provision relating to FTS under Article 12. Reliance was placed on judicial precedents interpreting the expression “professional services” broadly to include activities predominantly involving intellectual skill and specialised expertise. Revenue contended that the services constituted consultancy and technical services chargeable as FTS under Article 12 and were therefore liable to tax in India. It was held that the expression “professional services” under Article 14 was not confined to traditional professions but extends to services rendered by an individual employing specialised knowledge, intellectual skill, advanced education and personal expertise. Consultancy and business development services aimed at procuring business opportunities, analysing markets and facilitating commercial expansion in Germany constituted independent professional services within the meaning of Article 14. Tribunal observed that the mere fact that the services involved business advice, market analysis or commercial inputs would not convert them into Fees for Technical Services. Where the services were rendered personally by an individual using specialised knowledge and independent skill, Article 14, being a specific treaty provision, override the general provisions of Article 12. Consequently, such receipts cannot be re-characterised as FTS merely because they contain an advisory element. Since the assessee was admittedly a tax resident of Germany, had no fixed base in India, and did not satisfy the threshold of physical presence prescribed under Article 14, the receipts were taxable exclusively in Germany and not in India.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
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