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Tax Publishers Ecorys Nederlands BV v. ADIT [ITA No. 6494/Del/2016, dt. 11-11-2020] : 2020 TaxPub(DT) 4818 (Del.-Trib.) Project related expenses debited whether subject to TDS under section 40(a)(iii) read with Article 15 (Dependent Personal Services - DPS) of Indo-Dutch DTAA Independent Personal Services paid to individual consultants read as Fee for technical services (FTS) -- TDS obligations under section 40(a)(i) read with Article 14 (Independent Personal Services) of Indo-Dutch DTAA Payments received by assessee outside India related to project consulting -- Whether force of attraction is possible in relation to the business income of the Project office in India of the assessee *Facts:* (A) Assessee a Dutch resident who was involved in a road contract with the Punjab Govt. had a Project PE (Permanent Establishment) office in India. The following expenses were incurred by the assessee in relation to the Project PE -- 1. Amounts of employees who had worked from Netherlands to this project for less than 183 days was debited by the Head office to the assessee's Project office and paid to the parent. Revenue alleged that these were Dependent Personal Services and since the expenditure was not borne by a PE/fixed place as envisaged under Article-15(2)(c) of Indo-Dutch DTAA the assessee was held to be in default under section 40(a)(i) (a wrong section as alleged by the assessee) instead of section 40(a)(iii) and thus disallowance was made in the PO PE's hands for non-deduction of TDS. Assessee's plea was that the said expenditure was incurred for the exclusive operations of the PO/PE but from outside India and thus no TDS obligations were triggered besides these falling in the scope of DPS where in the 183 day test was also not met for trigger of TDS obligations. 2. Assessee had to pay to independent consultants in Netherlands to avail certain professional consultancy services. It was the revenue's case that these constituted Fee for technical services (FTS) and thus no TDS was done on the same hence the same was also disallowed. Assessee's plea was these payments did not fall in the FTS clause of Indo-Dutch DTAA but rather fell in the IPS Article-14 of Indo-Dutch DTAA. None of the consultants breached the 183 day presence test as per the said Article. On appeal by the assessee -- (B) Assessee was in receipt of certain incomes from another Dutch entity outside India for some consultancy which was done outside India. It was the revenue's stand that the said amount be taxed attributing it to the Project PE in India. Assessee's counter was it was not relevant to the Project PE at all and the "force of attraction rule" of the DTAA cannot be pressed to tax this remote amount received by them not even in the context of the said Project PE. On higher appeal Held in favour of the assessee -- (A) On Expenses met by the assessee -- 1. The amounts attributable to the employees who worked on the project and charged from overseas on the Project PE were held to be DPS and not taxable in India. Since no tax obligations arose in India no TDS was warranted so the disallowance was annulled. Mother Dairy Fruit, Vegetables (P) Ltd. v. CIT in ITA No. 980/2009 order of Delhi High Court, dated 19-10-2010 : 2011 TaxPub(DT) 0553 (Del-HC) applied. 2. The amounts paid to independent consultants were IPS and cannot fall in the scope of FTS and thus no TDS was warranted on the same and disallowances of lower authorities were negated. Grant Thornton India LLP of ITA No. 6489/Del/2016 vide Order, dated 25-7-2019 Delhi ITAT applied. (B) On the Income part received by assessee outside India and on force of attraction rule - The case was remanded back to the Commissioner (Appeals) for the assessee to establish with documentation as to why the said income cannot be brought into tax in India and how it was alleged to be not relevant to the Project PE in India.

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Ecorys Nederlands BV v. ADIT [ITA No. 6494/Del/2016, dt. 11-11-2020] : 2020 TaxPub(DT) 4818 (Del.-Trib.)

Project related expenses debited whether subject to TDS under section 40(a)(iii) read with Article 15 (Dependent Personal Services - DPS) of Indo-Dutch DTAA

Independent Personal Services paid to individual consultants read as Fee for technical services (FTS) -- TDS obligations under section 40(a)(i) read with Article 14 (Independent Personal Services) of Indo-Dutch DTAA

Payments received by assessee outside India related to project consulting -- Whether force of attraction is possible in relation to the business income of the Project office in India of the assessee

Facts:

(A) Assessee a Dutch resident who was involved in a road contract with the Punjab Govt. had a Project PE (Permanent Establishment) office in India. The following expenses were incurred by the assessee in relation to the Project PE --

1. Amounts of employees who had worked from Netherlands to this project for less than 183 days was debited by the Head office to the assessee's Project office and paid to the parent. Revenue alleged that these were Dependent Personal Services and since the expenditure was not borne by a PE/fixed place as envisaged under Article-15(2)(c) of Indo-Dutch DTAA the assessee was held to be in default under section 40(a)(i) (a wrong section as alleged by the assessee) instead of section 40(a)(iii) and thus disallowance was made in the PO PE's hands for non-deduction of TDS. Assessee's plea was that the said expenditure was incurred for the exclusive operations of the PO/PE but from outside India and thus no TDS obligations were triggered besides these falling in the scope of DPS where in the 183 day test was also not met for trigger of TDS obligations.

2. Assessee had to pay to independent consultants in Netherlands to avail certain professional consultancy services. It was the revenue's case that these constituted Fee for technical services (FTS) and thus no TDS was done on the same hence the same was also disallowed. Assessee's plea was these payments did not fall in the FTS clause of Indo-Dutch DTAA but rather fell in the IPS Article-14 of Indo-Dutch DTAA. None of the consultants breached the 183 day presence test as per the said Article.

On appeal by the assessee --

(B) Assessee was in receipt of certain incomes from another Dutch entity outside India for some consultancy which was done outside India. It was the revenue's stand that the said amount be taxed attributing it to the Project PE in India. Assessee's counter was it was not relevant to the Project PE at all and the "force of attraction rule" of the DTAA cannot be pressed to tax this remote amount received by them not even in the context of the said Project PE. On higher appeal

Held in favour of the assessee --

(A) On Expenses met by the assessee --

1. The amounts attributable to the employees who worked on the project and charged from overseas on the Project PE were held to be DPS and not taxable in India. Since no tax obligations arose in India no TDS was warranted so the disallowance was annulled. Mother Dairy Fruit, Vegetables (P) Ltd. v. CIT in ITA No. 980/2009 order of Delhi High Court, dated 19-10-2010 : 2011 TaxPub(DT) 0553 (Del-HC) applied.

2. The amounts paid to independent consultants were IPS and cannot fall in the scope of FTS and thus no TDS was warranted on the same and disallowances of lower authorities were negated. Grant Thornton India LLP of ITA No. 6489/Del/2016 vide Order, dated 25-7-2019 Delhi ITAT applied.

(B) On the Income part received by assessee outside India and on force of attraction rule -

The case was remanded back to the Commissioner (Appeals) for the assessee to establish with documentation as to why the said income cannot be brought into tax in India and how it was alleged to be not relevant to the Project PE in India.