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Direct Tax Amicus: April 2018

Taxation of independent personal Service - Can legal form of entity alter right to tax income?

Under OECD Model Tax Convention income from professional services was taxed in terms of Article 14 titled ‘Independent Personal Services’ However, Article 14 was deleted from the OECD MTC with effect from 29th April 2000 and the taxation of income from professional services was brought at par with taxation of business profits as provided in Article 7 of OECD MTC. Even after its deletion from OECD MTC, Article 14 continues to find place in UN MTC and the tax treaties entered by India. It has always been a dispute internationally as to whether Article 14 applies only to natural persons (individuals) or even to artificial persons (like partnership firms, companies, etc.). Countries have adopted different position on this issue. It is very common for professionals to incorporate themselves into an entity, rather than practicing as individuals. In many cases, the incorporated professional entities provide consultancy, registration, certification and similar services to Indian residents. Owing to divergent views on the scope of Article 14, both domestically and internationally, it is likely that these entities may end up facing litigation wherein the tax authorities will contest that the income earned by such entity is taxable as FTS...


Ratio decidendi

  • Payment to advertising agency for securing more business taxable as ‘Commission’ - Supreme Court
  • ALP for customised goods and commission paid to AEs - TNM method and not CUP tobe followed – Bombay High Court
  • Recovery of dues may be made from purchaser of property under attachment by income tax department – Rajasthan High Court
  • Earning of franchise fee by charitable education institution does not indicate business motive – Delhi High Court
  • Transaction when cannot be treated as sham merely because of economic detrimentto revenue – ITAT, Mumbai



  • Easing of requirement to obtain Pan Card by companies – CBDT Press release


April, 2018/Issue-44 APril, 2018/Issue-44

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