PAYMENT TDS foreign consultant
Is TDS applicable to foreign consultants, which serves outsideIndia (ie the USA). Consultant abroad is based in the United States and has no PE in India.
• points before us for consideration is whether the income of the international law firm in India is taxable or not?
a. In accordance with the recent amendment of Article 9 of the Act on Income Tax 1961proposed by the Finance Act 2010, as adopted by Loksabha April 29, 2010, all payments made to a non-resident outside India shall be taxable in India irrespective of the fact that if the services were rendered in India or not. He is the situs of the payer and situs of use of services that are useful now and not the situs of the service.
The extract amendment is as follows:
In section 9 of the Law on Income Tax, for the explanation occurring after sub-section (2), the following explanation should be replaced and will be deemed to have been substituted with effect from 1st day of June 1976, namely: -
"Explanation-For removal of doubts, it is said to the purposes of this section, the income of a non-resident is deemed to accrue or arise in India under clause (v) or clause (vi) or clause ( vii) of sub -section (1) and must be included in the total income of the non-resident, whether or not, -
(I) the non-resident has a residence or place of business connection or business in India or
(ii) the non-resident has rendered services in India. ".
Payment is made by the company at the International Law Firm falls squarely in the edit field above, as it is a payment for technical services as defined in explanation to clause 2 ( vii) of subsection (1) of section 9 of the Income Tax Act.
The relevant part of Article 9 which refers to "income deemed to accrue or arise inIndia is as follows:
"Explanation: For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any management, consulting or technical services (including provision of technical or other), but does not include consideration for any construction project, assembly, mining or as initiated by the recipient or consideration which would be returned to the beneficiary under the head "Salaries". "
b. A Another point to note here is that the DTAA provisions for granting relief to non-resident comes into picture, not in deciding the taxability of non-residents in India, but in deciding the rate / relief available tohim. If the income is taxable under Indian law, then the non-resident can opt for the provisions of the DTAA of extinction or marginalizes the debt thus created
Given the above discussion, it is clear that the international law firm is taxable in Indiaand is therefore responsible for deducting tax at source on all payments received by it. The implications of the above conclusion are as follows:
a. The international law firm is required to produce his income tax return in India
b. It is necessary for the Indian company to take a certificate as a certified public accountant certification 15CB the rates at which TDS on such payments has been deducted. Thereafter, he will have to download a form online 15CA. 15CA The signed form (commitment) and Form 15CB (certificate) will be submitted in duplicate to the Reserve Bank of India / dealer. The Reserve Bank of India / authorized dealer to turn a copy of the certificate and the company concerned assessing officer
second point to consider is what should be the rate at which TDS should be deducted? •
Section 195 talks about income tax Tax deducted at source on payments to non-residents. It reads:
"Any person liable to pay a non-resident, not a company or a foreign company, any interest or other amount payable under the provisions of this Act (not being income chargeable under the head "Salaries") shall,upon the credit of such income to the beneficiary or at the time of payment in cash or by issuing a check or draft or by any other mode, whichever is earlier, deduct income tax at rates about current "
rates should be decided in accordance with the provisions of the DTAA. The rate of income tax law by or under DTAA, as is beneficial to the assessee shall prevail.
Now, according to the terms of the Indo-US DTAA, the payments for professional / legal services are covered by Article 15 which reads as under:
"Article 12
Royalties and fees for included services
... ... .... 5. Notwithstanding paragraph 4, "fees for included services" does not include amounts paid:
... ... ... (E) an employee of the person making the payment or to any person or group of persons (other than a company) for professional services as defined in Article 15 (Independent).
The Article 15
INDEPENDENT
1. Income received by a person who is an individual or group of persons (other than a company) who is a resident of a Contracting State from the performance in other State professional services or other activities of an independent character shall be taxable only in that State, except in the following cases where the income is taxed in the other Contracting State:
(A) if that person has a fixed base to him in the other Contracting State for the conduct of its business, in this case, only so much income that is attributable to that fixed base may be taxed in that other State, or
(B) if the person stays in the other Contractor is for a period or periods equal to or greater than the total 90 days in the relevant taxation year.
2. The term "professional services" includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of doctors, surgeons, lawyers, engineers, architects, dentists and accountants. "
Where tax treaties define IPS to mean services provided by a "resident", the term could include, among others, individuals, corporations, etc. [c. MSEB DLCI 83 TTJ 325 ( Bom ) ]
Since the international law firm have a fixed base available to him in India, or its period of stay in India exceeds 90 days, it is not necessary to deduct TDS from payments made to it.
Another important point to • consider is that if the international law firm is required to apply for a PAN in India under Article 206A?
The implications of the above conclusion is that there is no obligation for the international law firm to apply for PAN in India as 206A section does not apply to it. In this regard, the decision of the Bombay Court ofHon'ble High in the case of CIT vs Aktiongesellschaft Siemens [310 ITR 320] deserves consideration. In the case says he was tried by a unilateral change in the law, it is not possible to tax the income that would otherwise only was not subject to the tax under the tax treaty.
Since section 206A was inserted by a unilateral change, it can not replace the rates prescribed in the treaty.
• points before us for consideration is whether the income of the international law firm in India is taxable or not?
a. In accordance with the recent amendment of Article 9 of the Act on Income Tax 1961proposed by the Finance Act 2010, as adopted by Loksabha April 29, 2010, all payments made to a non-resident outside India shall be taxable in India irrespective of the fact that if the services were rendered in India or not. He is the situs of the payer and situs of use of services that are useful now and not the situs of the service.
The extract amendment is as follows:
In section 9 of the Law on Income Tax, for the explanation occurring after sub-section (2), the following explanation should be replaced and will be deemed to have been substituted with effect from 1st day of June 1976, namely: -
"Explanation-For removal of doubts, it is said to the purposes of this section, the income of a non-resident is deemed to accrue or arise in India under clause (v) or clause (vi) or clause ( vii) of sub -section (1) and must be included in the total income of the non-resident, whether or not, -
(I) the non-resident has a residence or place of business connection or business in India or
(ii) the non-resident has rendered services in India. ".
Payment is made by the company at the International Law Firm falls squarely in the edit field above, as it is a payment for technical services as defined in explanation to clause 2 ( vii) of subsection (1) of section 9 of the Income Tax Act.
The relevant part of Article 9 which refers to "income deemed to accrue or arise inIndia is as follows:
"Explanation: For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any management, consulting or technical services (including provision of technical or other), but does not include consideration for any construction project, assembly, mining or as initiated by the recipient or consideration which would be returned to the beneficiary under the head "Salaries". "
b. A Another point to note here is that the DTAA provisions for granting relief to non-resident comes into picture, not in deciding the taxability of non-residents in India, but in deciding the rate / relief available tohim. If the income is taxable under Indian law, then the non-resident can opt for the provisions of the DTAA of extinction or marginalizes the debt thus created
Given the above discussion, it is clear that the international law firm is taxable in Indiaand is therefore responsible for deducting tax at source on all payments received by it. The implications of the above conclusion are as follows:
a. The international law firm is required to produce his income tax return in India
b. It is necessary for the Indian company to take a certificate as a certified public accountant certification 15CB the rates at which TDS on such payments has been deducted. Thereafter, he will have to download a form online 15CA. 15CA The signed form (commitment) and Form 15CB (certificate) will be submitted in duplicate to the Reserve Bank of India / dealer. The Reserve Bank of India / authorized dealer to turn a copy of the certificate and the company concerned assessing officer
second point to consider is what should be the rate at which TDS should be deducted? •
Section 195 talks about income tax Tax deducted at source on payments to non-residents. It reads:
"Any person liable to pay a non-resident, not a company or a foreign company, any interest or other amount payable under the provisions of this Act (not being income chargeable under the head "Salaries") shall,upon the credit of such income to the beneficiary or at the time of payment in cash or by issuing a check or draft or by any other mode, whichever is earlier, deduct income tax at rates about current "
rates should be decided in accordance with the provisions of the DTAA. The rate of income tax law by or under DTAA, as is beneficial to the assessee shall prevail.
Now, according to the terms of the Indo-US DTAA, the payments for professional / legal services are covered by Article 15 which reads as under:
"Article 12
Royalties and fees for included services
... ... .... 5. Notwithstanding paragraph 4, "fees for included services" does not include amounts paid:
... ... ... (E) an employee of the person making the payment or to any person or group of persons (other than a company) for professional services as defined in Article 15 (Independent).
The Article 15
INDEPENDENT
1. Income received by a person who is an individual or group of persons (other than a company) who is a resident of a Contracting State from the performance in other State professional services or other activities of an independent character shall be taxable only in that State, except in the following cases where the income is taxed in the other Contracting State:
(A) if that person has a fixed base to him in the other Contracting State for the conduct of its business, in this case, only so much income that is attributable to that fixed base may be taxed in that other State, or
(B) if the person stays in the other Contractor is for a period or periods equal to or greater than the total 90 days in the relevant taxation year.
2. The term "professional services" includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of doctors, surgeons, lawyers, engineers, architects, dentists and accountants. "
Where tax treaties define IPS to mean services provided by a "resident", the term could include, among others, individuals, corporations, etc. [c. MSEB DLCI 83 TTJ 325 ( Bom ) ]
Since the international law firm have a fixed base available to him in India, or its period of stay in India exceeds 90 days, it is not necessary to deduct TDS from payments made to it.
Another important point to • consider is that if the international law firm is required to apply for a PAN in India under Article 206A?
The implications of the above conclusion is that there is no obligation for the international law firm to apply for PAN in India as 206A section does not apply to it. In this regard, the decision of the Bombay Court ofHon'ble High in the case of CIT vs Aktiongesellschaft Siemens [310 ITR 320] deserves consideration. In the case says he was tried by a unilateral change in the law, it is not possible to tax the income that would otherwise only was not subject to the tax under the tax treaty.
Since section 206A was inserted by a unilateral change, it can not replace the rates prescribed in the treaty.
