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Recently, the Bangalore Bench of the Income-tax Appellate Tribunal (the Tribunal), in the case of IBM India Private Limited, held that business information services, work force management services, etc. provided by the foreign company were in the course of its business. Further a specific article dealing with these services i.e. ‘Fees for Technical Services’ Article is absent in the India-Philippines tax treaty (tax treaty). Therefore, the payments for such services would be covered by Article 7 of the tax treaty i.e. ‘Business Profits’. Since the foreign company was not having a Permanent Establishment in India, such business profits were not chargeable to tax in India.
The Tribunal also held that the Article 24 of the tax treaty dealing with the elimination of double taxation has no applicability.