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Tax payable in India even if Technical Services of Testing is performed outside India: ITAT, Kolkata
CASE LAW DETAILS
CASE NAME: Outotec(Finland), Vs. Dy. Commissioner of Income-tax,(International Taxation)
DATE OF JUDGEMENT /ORDER: 31.05.2019
RELATED ASSESSEMENT YEAR: 2015-16
COURT: ITAT Kolkata
FACTS OF THE CASE:
- The assessee is incorporated in Finland and is a tax resident of the same. The assessee is a worldwide leader in providing innovative and environmentally sound solutions for a wide range of customers in metals processing industries. During the Financial Year 2014- 15, with regard to Indian projects, the assessee has primarily earned revenue from (i) sale of designs and drawings; (ii) rendition of technical services; (iii) license fees; and (iv) testing and other services.
- The assessee company filed its return of income on 26.11.2015 declaring total income of 1, 89, 38,136/-. It offered to tax income from rendition of technical services and income from royalty(license fees)
It did not offer to tax income received from the sale of designs and drawings of Rs. 2,80,87,244/- and income from rendering testing and other services of Rs. 3,36,21,283/-
- The assessee’s case is that, income from sale of designs and drawings is a sale of copyrighted article and the income derived there from is business income and as the assessee does not have permanent establishment in India, and hence the business profits are not taxable in India.
- The assessee relied on Article 12(5) of the India-Finland DTAA and claimed that as the services, in question, had been rendered outside India; the same is not taxable in India.
- The Assessing Officer held that the income from rendering of testing and other services is taxable in India.
- The clause of Article 12(5) if the India Finland DTAA lays down that the royalties or fees technical services shall be deemed to arise in contracting state where payer is located. This is India in our case.
- The second sentence of the clause states that the income shall be deemed to arise in the state in which the right to property is used or the state in which the services were performed. Hence, the income in question is also taxable in India as the right or property for which the royalty was paid, is used in India.
- After hearing both the sides, the Tribunal held that “The assessee argues that the technical services of testing are performed outside the country, i.e. in Finland and hence cannot be taxed in India in view of the exception curved out to Article 12(5) of the India-Finland DTAA.
The exception in question is when the fees are paid for technical services which are performed within a contracting state, and then the income there from is deemed to accrue or arise within the state in which the services were performed.
- In our Tribunal’s view, this Clause does not apply as the payment in question was made for the test results which were used within the contracting state, India. It may be true that the process of testing may have been conducted outside India. But the payment in question is not for the process but was for the results of testing which is used in India.
- The argument of the ld. D/R that these services were availed in India and hence are taxable in India has to be upheld.
- Hence, we agree with the finding of the Assessing Officer as upheld by the DRP on this issue. In the result, this ground of the assessee is dismissed.”