In the case of CIT vs. M/s Group ISM P. Ltd. : ITA No.
325/2014 (Del), the assessee had made payments to two UAE
based companies, namely, CGS International, UAE
("CGS") and M/s Marble Arts & Crafts
LLC, UAE ("MAC"), without any deduction
of tax at source. The assessing officer disallowed the said
expenditure under section 40(a) (i) of the IT Act as the assessee
failed to deduct tax at source. On appeal before CIT (A), it was
noted that assessee was awarded project management consultancy by
the Works Department of the Emirate of Abu Dhabi pursuant to
which assessee was required to act as consultant for project
management of marble works for Shaekh Zayed Bin Sultan Al Nahyan
mosque at Abu Dhabi. The contract required the assesse to organize
procurement of marble from India and supervise the processing at
On analysis of the agreements, the CIT(A) noted that MAC
received consideration for assistance in documentation, guidance
and liaison with various departments towards assisting assessee in
its work in UAE and thus were in nature of "liaison services
in Abu Dhabi", while payments to CGS International were made
to procure clients and market assessee's services as
"agent in UAE work" and thus, held that the payments made
by assessee to the two UAE entities would not fall within the
purview of "technical services", as defined in
Explanation 2 to Section 9(1)(vii). The CIT(A) agreed with
assessee's contention that Article 14 of DTAA with UAEPE in
India, and accordingly, the payments to said entities could only be
taxed under section 9 of the Act. The High Court further observed
that actual nature of services rendered by CGS and MAC needs to be
examined for determination of the requirement of withholding tax.
The High Court held that since CGS and MAC acted as agents of
assessee for liaison services and/or soliciting business for
assessee, 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
In so far as the applicability of Article 14 of DTAA with UAE
relating to Independent personal Services was concerned, the High
Court noted that the said Article applied to resident of a relating
to Independent Personal Services was applicable and that the
benefit available under the said treaty cannot be denied on the
sole premise that the two UAE entities were companies. The CIT(A)
further held that since such remittances to non-resident entities
was liable to be taxed in UAE, therefore, no TDS was required
On appeal by the Revenue, the Tribunal upheld CIT(A)'s
order. Aggrieved by the order of Tribunal, Revenue preferred an
appeal before the High Court. Before the High Court, the primary
issue raised for consideration was regarding interpretation of the
phrase "fees for technical services" as defined in
Explanation 2 to Section 9(1) (vii) which defined the same as
managerial, technical or consultancy services and whether the so
called "consultancy services" rendered by CGS and MAC
would fall under the ambit of the said phrase or not. The High
Court noted that CGS and MAC, being UAE entities, were not having
contracting state and that "resident of a contracting
state" as per UAE Treaty is any person under the laws of that
state who is liable to tax therein. It was noted that Article 3(e)
of the India–UAE Treaty included a company and that the payee
companies were liable to tax under Article 14 or Article 22 of the
DTAA in respect of amounts paid by the assessee. It was thus held
that Article 14 of the DTAA was applicable.
The content of this article is intended to provide a general
guide to the subject matter. Specialist professional advice should
be sought about your specific circumstances. The views expressed in
this article are solely of the authors of this article.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Recently the Delhi High Court's in the case of CUB Pty Ltd granted relief to multinationals licensing and registering their intellectual property in India and held that the situs of an intangible asset like IPRs, shall be the situs of the owner of such asset.
Mumbai Income Tax Appellate Tribunal in the case of Praful Chandaria, dealt with the issue of taxability of consideration received by the assessee pursuant to grant of call option in respect of shares of an Indian company.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).