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CIT vs. Grup ISM P. Ltd (Delhi High Court)
June, 02nd 2015

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.

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