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This is an appeal by the assessee against the order dated 28.06.2019 of learned Commissioner of Income Tax (Appeals)- 37, New Delhi pertaining to Assessment Year 2016-17.

2. In ground no. 1, the assessee has challenged disallowance of Rs.3,09,195/- under section 40(a)(i) of the Income Tax Act, 1961.

3. Briefly the facts are, the assessee a resident corporate entity, is stated to be engaged in the business of providing mobile phone services for international use. For the Assessment year under dispute, the assessee filed its return of income on 30.11.2016 declaring total income of Rs.3,18,77,680/-. In course of scrutiny assessment proceedings, the Assessing Matrix Cellular International Services Ltd.

4. We have considered rival submissions and perused the material on record. As could be seen from the facts and material available on record, the assessee paid the disputed amount to a Malaysian entity for incorporation of a company in Malaysia. In other words, the fee paid to the Malaysian entity was to facilitate incorporation of the company. Of course, as submitted before us by learned Counsel, the company ultimately was not incorporated. Be that as it may, the issue arising for consideration is, whether the payment made by the assessee to the Malaysian entity is chargeable to tax at the hands of that entity in India. As could be seen from Article 7 of India- Malaysia DTAA, income in the nature of business profit earned by a resident of Malaysia can be taxed in India only if the Malaysian entity carries on business in India through a Permanent Establishment (PE). In the facts of the present Matrix Cellular International Services Ltd.

6. That being the case, we hold that the assessee was not required to deduct tax at source under section 195 of the Act while making the disputed payment. Accordingly, we delete the disallowance made. This ground is allowed.

Matrix Cellular International Services Ltd.

7. In ground No. 2, the assessee has challenged disallowance of Rs.2,54,160/- under section 40(a)(i) of the Act. As could be seen from the facts on record, the disputed payment was made to an entity in Bangladesh for rendering legal services. The Assessing Officer disallowed the payment made by applying Section 40(a)(i) of the Act on the ground that the payment made required withholding of tax under section 195 of the Act.

8. In this case also, the reasoning of the Assessing Officer is vague and too general in nature. Neither the Assessing Officer nor learned Commissioner (Appeals) have made any discussion regarding the exact nature of payment made by the assessee to Bangladesh entity. On a perusal of the India-Bangladesh DTAA, it is to be seen that income in the nature of business profit can be taxable in the source country only if the resident of the other country carries on business in the source country through a Permanent Establishment situated therein. In the facts of the present appeal, admittedly, the Bangladesh entity has no PE in India. Therefore, income, if considered to be business profit is not taxable in India. As per Article 13 of the DTAA, the payment made by the assessee cannot be treated as royalty. If at all, the payment can be considered to be towards rendering of independent professional services as per Article 15 of the DTAA. However, the payment made towards independent professional services is taxable in the country of residence of recipient, unless, the recipient has a faxed base regularly available to him in the source country for the purpose of performing his activity. In the facts of the present appeal, there is nothing on record to Matrix Cellular International Services Ltd.