ITAT rules against IT department on technical services fee
No provision in the Indo-UAE Double Taxation Avoidance Agreements
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has deleted a disallowance made by the Income Tax (IT) Department. It held that since there was no provision in the Indo-UAE (India-United Arab Emirates) double tax treaty regarding the Fee for Technical Services (FTS), the tax could not be withheld.
The IT department, during the assessment proceedings against the assessee, Chadha Power, disallowed reimbursement of expenses made to the two non-resident entities - Chadha Projects JLT, Dubai for Rs.1,30,51,568 and Chadha Power, South Africa for Rs.21,33,805.
The assessee explained that the reimbursement of expenses of both entities was for carrying out the market research. This was for the feasibility and expansion of the trade in neighboring countries, particularly the Gulf and the African region.
It also required day-to-day coordination in activities for the assessee. These included negotiation and procurement of orders, securing of material, supply and distribution of material to the destination sites, logistics support and follow-up and liaising for the projects under execution.
The two-member bench comprising ITAT President G S Pannu and judicial member Amit Shukla held that sans any adverse material, the assessing officer could not question the wisdom and business expectancy as regards the evidence.
"The documents referred to in the first appellate order clearly show that both Dubai-based and South Africa-based entities had assisted in the business development as well as procurement of huge business orders. It was in line with the assessee's business. Therefore, we do not find any reason to uphold the addition on the ground that there are no commercial activities," the bench said.
For the disallowance made under the Act, the ITAT added, "The assessing officer held that the reimbursement of expenses was for the technical services fee. But there is no FTS clause in the India-UAE Double Taxation Avoidance Agreements (DTAA). Therefore, the question of withholding the tax does not arise."