Vijay Mariappan Austin Prakash Vs ACIT (International Taxation) (ITAT Visakhapatnam)
Taxability of Consultancy Income under India–UAE DTAA vis-à-vis Significant Economic Presence (SEP)
In this decision, the Income Tax Appellate Tribunal, Visakhapatnam Bench examined whether consultancy income earned by a UAE tax resident from an Indian company could be taxed in India by invoking the domestic law concept of Significant Economic Presence (SEP). While the Tribunal accepted that the SEP threshold under section 9(1)(i) was crossed, it emphasized that SEP only creates a nexus and does not automatically permit taxation of the entire receipts. Applying the attribution principle, it held that only income attributable to Indian operations can be taxed, and since no services were performed in India, no income was attributable. The Tribunal further held that management consultancy and business advisory services fall within the scope of “professional services” under Article 14 of the India–UAE DTAA, which has an inclusive definition. As the assessee had no fixed base in India and stayed for less than 183 days, exclusive taxing rights vested with the UAE. Accordingly, treaty protection prevailed over SEP, and the consultancy income was held not taxable in India.
I. Core Issue
Whether consultancy services rendered by a UAE tax resident to an Indian company fall within “professional services” under Article 14 of the India–UAE DTAA, thereby granting exclusive taxing rights to the UAE, notwithstanding the domestic law deeming fiction of “Significant Economic Presence (SEP)” under Section 9(1)(i) of the Income-tax Act, 1961?
