25 November 2009
Indian company has agreement with foreign entity for architect servies. A part from architect fees, Indian company will also reimburse travel expenses to foreign entity (USA). No actual supporting are to be produced by foreign company but it is part of architect agreement. However seperate invoice is given for travel expenses.
Please advice whether withholding tax (WHT) is applicable on travel expense as part of architect service agreement? If yes under which section / circular/ notificiation/ case laws on the same?
25 November 2009
U/s 195 TDS is applicable on sums chargeable to income tax and not on sums paid. Normally most of the courts decide that such reimbursements are part and parcel of the fees and accordingly TDS has to be applied.
As you have engaged an architect in USA, if the entity is individual or firm of individuals other than company, you may consider invoking the following Article 15 for Independent Personal Services in the USA India DTAA.
Article 15 - Independent personal services - 1. Income derived by a person who is an individual or firm of individuals (other than a company) who is a resident of a Contracting State from the performance in the other Contracting State of professional services or other independent activities of a similar character shall be taxable only in the first-mentioned State except in the following circumstances when such income may also be taxed in the other Contracting State :
(a) if such person has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other State; or
(b) if the persons stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 90 days in the relevant taxable year.
2. The term professional services includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants.
If you satisfy these conditions, income may not accrue to the architect in India and there will be no question of TDS. However, you will still have to comply with the Form 15CA & 15CB. You will need to approach your CA and based on your agreement with the Architect, he will decide on the nature of services rendered whether any TDS is applicable or not. When you consider point (b) above normally they consider if partners' stay in India is more than 90 days in case of firms.
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