We have paid Rs 400000/- to a foreign company for providing their engineers for maintenance of a machine purchased from them. My query is Whether TDS (@ 10%/20%/nil) will be deducted. Company does't have any PE in India. FCo does't have Pan no.
18 August 2011
In my view the above referred services should fall under fees for technical servcices (FTS).
Under I T Act, the same shall be taxabale at 20% since PAN is not available.
However some DTAAs define FTS to be FTS only when the Foreign Co. makes avaliable knowledge to the Indian Co., i.e. the Indian Co. should be able to apply the knowledge. If the Indian Co. does get any such knowledge then such FTS shall not be taxable in India. Hence TDS being nil in such case. If not then TDS shall apply.
18 August 2011
Its not something like which NR provide us or not. Knowledge transfer is more like that the recipient of service (i.e., Indian Co.) is in a position to apply the knowledge of the foreign Co.(i.e. NR) after such service is rendered.
Say for example; a NR provides software AMC and as a part of the AMC NR sends mails/phone calls for clarifying the query/trouble/bug in software. So next time when the same query/trouble/bug is faced by the Indian Co., they do not need the help of the NR, as they already know what needs to be done. Hence here in this case some knowledge is transferred from the NR.
Moreover if you can tell which country it is, we can conclude better.
18 August 2011
FTS definition as per DTAA of India-Germany does not have the 'make available' clause element. Hence FTS in your case shall be taxable even as per DTAA.
However DTAA provides only 10% wht rate. Hence apply 10% tds as this is more beneficial.
18 August 2011
We have asked the party to apply for pan.
As per Finance Act Bill, 2009, (ref to this case) if party does't have PAN, tax is required to be withheld at the higher of the following rates: 1) Rates as per specified section 2) Rates as per DTAA 3)Rate of 20%
19 August 2011
You have done the right by asking for PAN from the foreign party. Although legally the TDS Deduction of 20% is questionable from all angels but practically you have to follow the 20% law to safeguard the Indian Party.
19 August 2011
Sec 206AA is very much questionable as the wordings of the section are as such. However on the other hand we have at various times it was held that if there is a conflict DTAA shall prevail over I T Act.
Finally, I too also agree with Anuj Sir that practically to be on safer side it is advisable to apply 20% (if NR does not get PAN) for strict compliance of law. Its upto the Assessee anyway.
CAclubindia
