The Tribunal held that presence of employees is to be tested separately for each type of service for computing Service PE threshold. The Tribunal further held that application of beneficial provisions of the Act for one source of income and treaty for another source of income is permissible
FACTS
The Assessee is a private limited company incorporated in Singapore. The Assessee had a wholly owned subsidiary in India viz Dimension Data India Ltd. (DDIL). The Assessee was engaged in the business of providing management support services to its group entities in Asia Pacific region. The Assessee sent its employees to India to render following services to DDIL.
- Management support services
- Technical assistance and guidance to DDIL in relation to setting up of internet data centres (IDCs) in India.
The duration of stay of the employees in India during the relevant year was as follows:
| Type of service rendered in India | No. of solar days spent in India during the year |
| Management support fees (not being FTS) | 2 days |
| Technical service fee | 171 days |
| Total days of presence in India | 173 days |
The Assessee received separate consideration for each of above services. The Assessee conceded that technical service fee qualified as FTS both under the Act and DTAA and offered it to tax in India.
With respect to management support fee, the contention of Assessee was that the same qualified as business income. Since the presence of employees in India for rendering management support services was less than 30 days, the service PE was not triggered, and management support fee was not taxable in India.
The AO aggregated the number of days of presence of Taxpayer’s employees in India and held that the Taxpayer has a service PE in India. Thus, AO taxed the management fee as well as service fee as business Income in India. DRP upheld AO’s order. Aggrieved, the Taxpayer appealed before the Tribunal.
HELD
The Tribunal held that in cases of multiple sources of income, a taxpayer has an option to choose the provisions of the Act for one source while applying the provisions of the DTAA for the other source of income. Reliance was placed on Bangalore ITAT decision in the case of IBM World Trade Corporation vs. ADIT (2015) 58 Taxmann.com 132 and IBM World Trade Corporation vs. DDIT (IT) (2012) 20 taxmann.com 728.
Taxability of Management Support Fees:
The ITAT held that the management support fee qualifies as business income under Article 7 of the India-Singapore DTAA. The ITAT held that since the employees’ presence in India for rendering management support services was less than 30 days, such presence of employees did not create a Service PE for the Taxpayer in India. The ITAT held that presence of employees in India for rendering technical services is not to be reckoned for calculation of service PE duration. Therefore, management support fee received is not taxable.
Taxability of Technical Service Fee:
The ITAT held that the services rendered by the employees of the Taxpayer made available technical knowledge and skill to DDIL. Hence, the fee paid for such services qualified as FTS under Article 12 of DTAA. The ITAT concluded that once the income qualified as FTS under Article 12 of DTAA, owing to exclusion in Article 5 with respect to services covered under Article 12 of DTAA, the same fell outside the scope of Article 5 of DTAA dealing with PEs. The income is therefore taxable under Article 12.