This Tax Alert summarizes a recent ruling of the Cochin Income Tax Appellate Tribunal (ITAT) in the case of Device Driven (India) Pvt. Ltd. (Taxpayer) on the taxability of export commission earned by a nonresident (NR) Service Provider (SP) from outside India when such SP was also a director of the Taxpayer.
The ITAT observed that the SP was responsible for securing orders and to assist the Taxpayer in all respects including identifying markets, making introductory contacts, arranging meeting with prospective clients, assisting in preparation of presentations for target clients etc. Accordingly, the services rendered cannot be treated as “pure” commission-based services but were in the nature of technical services chargeable as such, under the Indian Tax Laws (ITL). Further, the SP was a director of the Taxpayer and the office of the Taxpayer in India could be treated as a “fixed base” regularly available to the SP for the purposes of Article 14 of the India–Switzerland Double Taxation Avoidance Agreement (DTAA) dealing with Independent Personal Services. Therefore, payment to the SP was taxable in India under the ITL and the DTAA and, accordingly, the Taxpayer was required to withhold taxes.
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