The TDS Officer held that the assessee had made payment to oilstone UAE for various services as mentioned in the Explanation 2 to Section 9(1)(vi) of the Act and such payment was in the nature of royalty and since the assessee failed to deduct tax on such payment, it was default and liable to the provisions of Section 201(1) and (1A) of the Act. The TDS Officer accordingly raised a demand – under Section 201(1) and (1A) of the Act on the assessee.

Aggrieved with the aforesaid order, the assessee filed appeal before CIT(A) challenging addition made / treatment given by TDS Officer. CIT(A) held that since, the services were provided by oilstone, UAE to the assessee outside India and services were utilised for the purpose of business of the assessee outside India, the case of the assessee was covered by the exclusion clause provided in Section 9(1)(vii)(b) of the Act and the payment was not chargeable to tax in India as “fees for technical services” hence, the Assessing officer was not justified in holding the assessee as an assessee in default under Section 201(1) and (1A) of the Act. The Department filed an appeal before Tribunal against the deletion of additions made by the TDS Officer.Tribunal held that in the absence of fees for technical services clause in the India -UAE Tax-treaty, payment of aforesaid services cannot be taxed in India, unless it is established that the overseas company had a permanent establishment (PE) in India. In the instant case, the assessee had also furnished a declaration regarding “no permanent established in India Tribunal further held that the assessee was not under obligation to withhold taxes on such payments made to Oilstone UAE and did not find any infirmity in the Order of CIT(A). Hence, the appeal of the department was dismissed. (AY. 2018 -19)