Delhi Tribunal rules that in absence of fixed place of business in India, income in the nature of FTS is taxable on gross basis

In the facts of the case, MTR Corporation Ltd. [1] (Taxpayer) a tax resident of Hong Kong, entered into a contract with an Indian company (I Co) in tax year 2011 -12 for providing engineering, project management and consultancy services in respect of metro line being constructed by I Co. The Taxpayer classified income from such contract as fee for technical services (FTS) and offered it to tax in India on a gross basis @10% as per Section (S.) 9(1)(vii) read with S. 115A of the Income Tax Act (ITA). The taxpayer contended that it was the only contract in India and tenure of such contract was not extendable and after the completion of the contract, the Taxpayer will withdraw from India and, hence, it has no business connection in India.

However, the tax authority contended that, for following reasons, the Taxpayer had a fixed place of business or fixed base in India and, hence, its income was taxable on net basis as per S. 44DA of the ITA at the rate of 40%.

• The Taxpayer was provided with space and various other facilities in the premises of I Co, free of charge.
  
• 90% of the onshore employees of the Taxpayer stayed in India for more than 183 days. 
• The Taxpayer seconded certain employees to I Co for the completion of the project, and their salary was paid by the Taxpayer itself.

Based on the following observations, the Delhi Tribunal held that the Taxpayer did not have a fixed place of business in India and, hence, in absence of a fixed place of business, income earned on account rendering technical services would be taxable on gross basis u/s 115A of the ITA: 

• S.44DA requires existence of a fixed place which should be at the disposal of the taxpayer and the business of the taxpayer should be carried on through such fixed place. 
  
• In the present case, the Taxpayer did not have any fixed premises at its disposal through which its business was carried on. Further I Co’s premises was also held as not being at the disposal of the Taxpayer as the Taxpayer did not have the right to use the said place nor did it have any control over the premises of I Co, but merely an access to carry on the project. Reliance was placed on the Supreme Court ruling in the case of E-Funds IT Solutions [(2017) 86 Taxman 240 (SC)] wherein it was held that merely giving access to a place to the enterprise for the purpose of project will not amount to putting the premise at the disposal of the enterprise. 
• Further, the tax authority could not produce any corroborative evidence to demonstrate that the taxpayer carried on business in India wholly or partly through a fixed place of business.   

[1] TS-261-ITAT-2023(DEL)