Dhrunil Bhatt (Chartered Accountant) 31 August 2018
A foreign company, lets say "X Pte.", provides consultancy services (FTS) to an indian company (registered under Companies Act, 2013) "Y Ltd". This X Pte has a branch in India. The branch is considered to be a permanent establishment of the foreign company in India.
On reading of the service contract between X Pte and Y Ltd, it is clear that there is no such specific clause between the parties to the contract which clarifies that whehter the services would be provided by the foreign company from foreign country or from its branch (being PE) from India.
Below are the questions for which I have given my views also.
Question 1 : Whether such a PE of a foreign company in India, makes the PE a resident?
Answer 1 : No. Having PE in India doesnot make the entity resident in India. The status of the company would still be a non resident. Even if the services would have been provided by the indian PE, TDS u/s 195 would get attracted and not TDS u/s 194J.
Question 2 : Whether the income (i.e. Fees for technical services) can be said to be chargeable to tax in India?
Answer 2 : Yes, considering the provisions of Section 9(1)(vii) read with Explanation to Section 9(2).
Question 3 : Whether TDS is required to be deducted under Section 195?
Answer 3 : Yes. As the income is chargeable to tax in India (Refer Answer 2), therefore TDS is deductible under section 195.
Question 4 : Whether the benefit of concessional rate of TDS would be applicable considering the DTAA between the two contracting states?
Answer 4 : Yes. The beneficial rate of TDS @ 10% would apply where DTAA agreement exist provided the non resident entity provides its Tax Residency Certificate (TRC).
Kindly support your suggestions (if different from mine) with relevant provisions of law. Provide me the Section Number.
Thanks and Regards,