FTS taxability under pre-amended Indo-Mauritius DTAA

Facts: Assessee paid Fee for technical services (FTS) to its Mauritian counterpart. It was the case of the revenue that the same was taxable as per Income Tax Act, 1961 as there was no FTS clause in the erstwhile Indo-Mauritius DTAA and since assessee did not effect TDS on the FTS disallowance under Section 40(a)(i) was triggered. CIT(A) held that in the absence of FTS clause the income has to be read as per Article 7 Business profits or under Article 22 Other Income, Since there was no Permanent Establishment (PE) for the Mauritian entity in India Article 7 will not be applicable in this case. Other income clause Article 22(3) was also absent in the erstwhile DTAA thus the FTS is outside the scope of Indian income taxation. (Both these clauses were introduced in the amended DTAA w.e.f. 1-4-2017 - decision pertains to A.Y. 2015-16). Aggrieved revenue went in higher appeal to ITAT -

Held against the revenue that the order of CIT(A) did not require any interference and the said FTS was not taxable in India and the disallowance under Section 40(a)(i) was uncalled for.

Ed. Note: Absence of a clause in DTAA does not mean that the provisions of domestic law has to take over mandatorily. Both states chose to keep such income outside DTAA in their treaty negotiations.

Case: DCIT v. Duet India Hotels (Pune) Ltd. 2023 TaxPub(DT) 784 (Del-Trib)