The Delhi bench of the Income Tax Appellate Tribunal has ruled that payments received by UTAC, an independent French technical organization, from Indian car maker Maruti Udyog for quality control testing are subject to withholding taxes in India.
UTAC tests the quality of components in the automobile industry. Maruti remitted certain amounts to UTAC for tests conducted on its cars to ensure compliance with safety standards. When Maruti applied for a certificate of zero tax withholding, the Indian tax authorities took the view that the payments received by UTAC were in the nature of fees for technical services under domestic tax law and hence would be subject to applicable withholding taxes in India.
The tribunal acknowledged the relevance of the provision under the protocol to the India-France treaty which allows a French resident to benefit from lower tax rates or a narrower ambit of technical service. It also noted the relevance of the restricted provisions regarding fees for technical services that figure in treaties with the US and the UK.
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The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.
