CIT vs. Grup ISM P. Ltd (Delhi High Court)

DATE: May 29, 2015 (Date of pronouncement)
DATE: June 1, 2015 (Date of publication)
AY: 2004-05
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S. 9, Article 12: Meaning of expressions "consultancy services" and "independent personal services" in the context of a DTAA explained

(i) It is evident that “consultancy services” would mean something akin to advisory services provided by the non-resident, pursuant to deliberation between parties. Ordinarily, it would not involve instances where the non-resident is acting as a link between the resident and another party, facilitating the transaction between them, or where the non-resident is directly soliciting business for the resident and generating income out of such solicitation. Indeed, as held by this Court in Director of Income Tax v. Panalfa Autoelektrik Ltd., (2014) 272 CTR 117, since Section 9 is a deeming provision, the interpretation cannot be overly broad in nature. In the case at hand, at the outset, this Court clarifies that the mere fact that CGS International confirmed that it received consultancy charges from the assessee would not be determinative of the issue. The actual nature of services rendered by CGS International and Marble Arts & Crafts needs to be examined for this purpose.

(ii) It is evident that in the transaction between the assessee and Marble Arts & Crafts, the former (non-resident) acted as an agent of the assessee for the purposes of the latter’s dealings with the Works Department, Abu Dhabi, which included coordinating with the authorities in the said department and handling invoices for the assessee. As far as CGS International is concerned, it acts as a liaisoning agent for the assessee, and receives its remuneration from each client that it successfully solicits for the assessee. Facially, such services cannot be said to be included within the meaning of “consultancy services”, as that would amount to unduly expanding the scope of the term “consultancy”. Therefore, this Court does not accept the revenue’s contention that the services provided were in the nature of “consultancy services”. Consequently, the remittances made by the assessee would not come within the scope of the phrase “fees for technical services” as employed in Section 9(1)(vii) of the Act.

(iii) This question involves a determination of whether the services provided by the UAE entities are in the nature of “independent personal services” defined in Article 14 of the DTAA. The two requirements for the applicability of Article 14, as applied in this case, are: a) income must be of a resident of the Contracting State (herein, UAE); and b) income must be in respect of professional services or other independent activities of a similar character. Article 4(1)(b) of the DTAA defines “resident of a contracting state” in the context of UAE to mean any person who under the laws of that State is liable to tax therein. Article 3(e) defines “person” to include a company. Therefore, the CIT(A) rightly rejected the revenue’s contention that Article 14 is inapplicable for the reason that the services in question were provided by companies, as opposed to individuals. Since the income of CGS International and Marble Arts & Crafts can only be classified under Article 14 or Article 22 of the DTAA – both of which provide that the income shall be taxable in the State of residence (UAE)–the issue as to whether the services provided by the two UAE entities fall within the scope of “professional services” under Article 14 is irrelevant to the outcome of this case. Their incomes would necessarily be taxable in UAE, whether by virtue of Article 14 or Article 22. For this reason as well, the assessee was not obligated to deduct tax on the remittances made to CGS International and Marble Arts & Crafts.

3 comments on “CIT vs. Grup ISM P. Ltd (Delhi High Court)
  1. what kind of worthies are in indian revenue services, besides in other staff officers…what your govt does when it had already entered to DTAA with UAE, WHEN so how great revenue men do as job for which they are employed, if not suitable, after three chances remove them that would be sane operation of governance

    • RAJKUMAR says:

      Dr balkrishnan

      this issue i.e what would constitute consultancy, is still open……If a selling agent advises his principal as to what modifications need to be made for getting orders, or how to approach a market, that advice may constitute consultancy services and not merely services of a selling agent….and one may need to make an apportionment between the two types of services….

  2. true. even then AOs need to follow at least their laid down statutory duties, he cannot make his own free interpretation after all there is some thing called ‘taxation jurisprudence’ like constitutional jurisprudence, that every parliamentary legal draftsman should know simply he cannot be great YESman of the minister in the government r even legislators…see that way AG need to be but what you see in AG of govt of india, he is just subservient to his so called masters called the govt but in fact he has to be an officer of the court only and he could never be a servant to any government any where. But his subserviency is sad and his arguments in NJAC matter reflects his political slant but he cannot have such slants but he has to be officer of court only even though he is AG.

    HE SEEMS to have forgotten the constitutional principles like separation of powers that way judiciary cannot be under any obligation to the govt executive or the legislature, as judiciary need to look after the interests of citizens so too govt and legislature need to function in their allotted domains only in the interest of citizens, that means AOs need to work with n the realm of taxation Act only as every fact is peculiar and he needs to have meaningful application knowledge of the tax laws only.

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