23 April 2009
An agreement entered into by a resident company with a non-resident foreign company situated in Dubai(UAE) for providing management consultancy/technical services by later for a project to be undertaken in India.
Whether remittances to the non-resident foreign company that does not have a permanent establishment in India impose TDS liability on the payer in light of section 195,Double taxation avoidance agreement with UAE & section 115A of Income Act
24 April 2009
The Treaty between India and UAE does not contain a clause on taxation of Technical Consultancy paid by resident of one contracting state to the resident of another contracting state. The article 22 of the treaty between India and UAE provides that the income which has not been expressly dealt in the treaty provisions that income of the resident of contracting state where ever arising will be taxable in the state where he is tax resident unless the income is from immovable property or the recipient of such income, carries on business in the other Contracting State through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the income is paid is effectively connected with such permanent establishment or fixed base. In such a situation the income effectively connected to a permanent establishment will be taxed in the contracting state where the permanent establishment is situated.
The section 9 of income tax create a deeming fiction on the taxation of certain incomes of the non residents in India. The income of non residents prescribed in the section 9 are deemed to accrue and arise in India irrespective of where ever arising. The payment received by a non resident by way of fees for technical consultancy is one of the such income which are deemed to accrue and arise in India. Thus there may be a plea that income which accrue and arise in India within the meaning of section 9 may be taxed in India.
However in the light of article 22 of the treaty an argument may be taken in the courts that since the article provides immunity from tax in the state of accrue and arise and permits the taxation in the country of residence of the recipient of income, to the extent being beneficial, the provisions of section 9 does not apply. Accordingly in your query the it is very much possible to contend that no income is taxable here in India.
Section 115A provides the rate of tax at which such incomes will be taxed in India, in case of technical fees it is 10%. Since tax is not deductible in your case the rate becomes irrelevant,
The above reply is a reply to your queries is with the limited fact available with me in your case and is not intended to provide a legal opinion of your queries. You should approach an expert for further clarification.
ARTICLE 22 - Other income - 1. Subject to the provisions of paragraph (2), items of income of a resident of a Contracting State, wherever arising, which are not expressly dealt with in the foregoing articles of this Agreement, shall be taxable only in that Contracting State. 2. The provisions of paragraph (1) shall not apply to income, other than income from immovable property as defined in paragraph (2) of Article 6, if the recipient of such income, being a resident of a Contacting State, carries on business in the other Contracting State through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the income is paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply.
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