ITAT Holds Advisory and Consultancy Services Rendered by a UAE company are not Taxable as FTS

The Income Tax Appellate Tribunal (ITAT) Kolkata held that there was no TDS on payments to a UAE consultant where no technical know-how was made available under the India-UAE DTAA.

The assessee is engaged in the development of the residential project “The 42” in Kolkata, and it has entered into a technical consultancy agreement with Arabian Construction Co. WLL (ACCWLL), UAE, for the review of construction drawings, safety measures, quality control, and other consultancy services.

The assessee paid consultancy charges to the UAE company without deducting tax at source; it treated the receipts as business profits under Article 7 of the India-UAE DTAA since ACCWLL had no PE in India. But the AO held that the payments were fees for technical services under Section 9(1)(vii) of the Income Tax Act and treated the assessee as an assessee in default under Sections 201(1) and 201(1A), making a demand of Rs 35.57 lakh.

The CIT(A) upheld the demand through an ex parte order.

The Tribunal observed that the services provided by the UAE company were only advisory and consultative in nature and did not result in the transfer of any technical knowledge. The Tribunal further held that the India-UAE DTAA does not contain any specific provision for taxation of fees for technical services. Consequently, such income could not be taxed by importing the provisions of Section 9(1)(vii) of the Income Tax Act into the treaty. In the absence of a permanent establishment of the UAE company in India, the payments were taxable only as business profits under Article 7 of the DTAA and, therefore, were not chargeable to tax in India.

Accordingly, the orders of the Assessing Officer and the CIT(A) were set aside, and the Tribunal allowed the assessee’s appeal and deleted the entire demand raised under Sections 201(1) and 201(1A).