India: Payments to Belgian entities not taxable as fees for technical services

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Recently, the Ahmedabad Bench of the Income-tax Appellate Tribunal in the case of: ITO v. Cadila Health Care Ltd [2017] 78, decided that the payments made to Belgian entities are not taxable as “Fees for Technical Services (FTS)” in view of Most Favoured Nation (MFN) clause under the India-Belgium tax treaty.

According to the case fact, the services provided to the taxpayer by the non-resident parties did not fall within the services/technical services and therefore here was no liability on the taxpayer to deduct tax at source under Section 195 of the Act.

Most of the Indian tax treaties include MFN clause to grant a benefit of a restricted scope or a reduced tax rate available in a subsequent beneficial tax treaty. The Ahmedabad Tribunal in the instant case has provided the benefit of ‘make available’ clause under the India-Canada and India U.S.A. tax treaty to the taxpayer in view of MFN clause under the India-Belgium tax treaty.

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