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Facts
The assessee, a German partnership firm, earned Fees for Technical Services (FTS) from an Indian company and claimed treaty benefits under the India-Germany DTAA. The AO and DRP denied treaty benefits, treating the firm as a pass-through entity because one partner, M/s. GROB Verwaltungs GmbH, was Austrian, and assessed income under Section 115A. The denial was based on the assessee's perceived failure to prove that 100% of profits were attributable to the German resident partner, Mr. Florian Grob, and that no part was passed to the Austrian entity.
Held
The Tribunal established that the assessee is a tax resident of Germany, has paid trade tax in Germany, and holds a valid Tax Residency Certificate (TRC). It was found that Mr. Florian Grob, a German tax resident, holds 100% of the shares and discloses the firm's profits in his German tax returns, with no profits shared with the Austrian entity. Consequently, the assessee firm is entitled to treaty benefits as per Article 12 read with Article 2 of the India-Germany DTAA, and taxation under Section 115A with surcharge and cess is not justifiable.
Key Issues
Whether the assessee, a German partnership firm, is entitled to treaty benefits under the India-Germany DTAA for FTS income, and whether it should be treated as a fiscally transparent entity with its income taxed under Section 115A due to an Austrian partner.
Sections Cited
143(3), 144C(13), 143(2), 142(1), 129, 195, 115A, 127, 90(2)
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Income Tax Appellate Tribunal, VISAKHAPATNAM “DIVISION” BENCH, VISAKHAPATNAM
Before: SHRI RAVISH SOOD, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
आदेश /O R D E R
PER SHRI S BALAKRISHNAN, ACCOUNTANT MEMBER:
This appeal is filed by the assessee against the final assessment order passed by the Ld. Assessing Officer [hereinafter in short “Ld. AO"] under section 143(3) r.w.s. 144C(13) of Income Tax Act, 1961 (in short ‘Act’) vide
I.T.A.No.176/VIZ/2025 M/s. GROB – WERKE GmbH & Co. KG DIN & Order No. ITBA/AST/S/143(3)/2024-25/1072656275(1) dated 29.01.2025 for the A.Y. 2022-23.
Brief facts of the case are, assessee is a partnership firm derived income from Indian company on account of fee for technical services (FTS) during the A.Y.2022-23, filed its return of income admitting a total income of Rs.50,41,79,910/-. The case was selected for scrutiny under CASS for the reason that assessee has claimed treaty benefits owing to the fiscally the physical transparent entity. Subsequently, notices under section 143(2) dated 01.06.2023 was issued and served on the assessee. Later, notice under section 142(1) of the Act was issued on various dates requiring the assessee calling for details on the pass-through entity and financial statements of the firm. In response, assessee furnished the reply on 28.03.2024. After transfer of file vide order issued under section 129 of the Act on 21.03.2024, the incumbent officer also issued notice under section 142(1) for its explanation why the income earned in India be taxed. Assessee replied on 27.03.2024.
On perusal of the information submitted by the assessee, the Ld. AO observed that the firm is a tax resident of Germany and registered in Germany with the following two persons: -
Mr. Florian Grob (100% share)- “Resident of Germany” (i). (ii) M/s. GROB Verwaltungs GmbH - “Tax resident of Austria”
Page. No 2
I.T.A.No.176/VIZ/2025 M/s. GROB – WERKE GmbH & Co. KG 4. It was noticed that assessee firm provided FTS services to its customers in India and received payments towards the same after deduction of tax at source @10% under section 195 of the Act. The Ld. AO observed that the firm is a pass-through entity with M/s. GROB Verwaltungs GmbH as one of the partners being an Austrian resident as disclosed from the details of the ITR filed by the assessee. It was also submitted before the Ld. AO that Mr. Florian Grob a German resident partner holds 100% share in the firm. But the Ld. AO observed that the assessee has not provided any document of the firm’s deed or the partnership documents about the partner’s percentage of share in the firm. Further it was also observed by the Ld. AO, assessee has not provided any documentary evidences and the entire profit during the impugned assessment year is attributed to Mr.Florian Grob only. Further it was also noticed that assessee has not submitted any Income tax filing details of Mr. Florian Grob which is documentary evidence to substantiate that he has offered his entire share of profit from the assessee’s firm in his income tax filing in Germany. The Ld. AO noticed that assessee as firm has not submitted the tax residence certificate (TRC) and the income details of M/s.GROB Verwaltungs GmbH who is tax resident of Austria. In the absence of theabove documentary evidences, the Ld. AO denied the treaty benefits and taxed the income as per section 115A of the Act @10% + sur charge + cess and determined the tax payable at Rs.46,38,382/- (wrongly mentioned by AO as Rs. 48,15,164/-), while passing the draft assessment order dated 30.03.2024.
Page. No 3
I.T.A.No.176/VIZ/2025 M/s. GROB – WERKE GmbH & Co. KG 5. Assessee being aggrieved by the draft assessment order filed its objections before the Ld. Dispute Resolution Panel, Bangalore (in short “Ld.DRP”). The Ld.DRP while disposing off the objection raised by the assessee called for the Remand Report from the Ld. AO regarding the additional evidences submitted by the assessee before the Ld.DRP. Ld. AO submitted the Remand Report on 26.11.2024 which was submitted to the assessee to furnish the rejoinder to the Remand Report. Assessee submitted its rejoinder on 12.12.2024. The Remand Report and the Rejoinder are extracted in the order of the Ld.DRP. The Ld.DRP observed that Ld. AO after examining the documents is not satisfied as assessee did not produce the partnership deed to establish that 100% share of the profits belongs to Mr. Florian Grob and nothing was passed to Austrian entity which is the other partner. The Ld.DRP observed that the assessee has not specifically explained that it is covered under India – German Double Tax Avoidance Agreement and hence the charging of tax under the provision of Income Tax Act under section 115A of the Act is found to be in order and thereby dismissed the objection raised by the assessee. Giving effect to the direction of the DRP, the Ld. AO passed the final assessment order.
On being aggrieved by the final assessment order the assessee is in appeal before us by raising following grounds of appeal: -
1. Ground No. 1: Final Assessment order is without jurisdiction and bad in law: -
Page. No 4 I.T.A.No.176/VIZ/2025 M/s. GROB – WERKE GmbH & Co. KG In the facts and circumstances of the case and in law, the Ld. AO's assumption of jurisdiction and passing of the assessment order is invalid, as the procedure prescribed for the transfer of a case from one city (Nellore) to another (Vizag) under section 127 of the Act was not followed.
2. Ground 2: Entitlement to the benefit under Agreement for Avoidance of Double Taxation with Germany ('India-Germany Tax Treaty'): In the facts and circumstances of the case and in law, the Ld. DRP erred in affirming the Ld AO's position that the Appellant is not entitled to the beneficial provisions of India-Germany Tax Treaty, thereby assessing the Appellant at the tax rate provided under the provisions of section 115A instead of Article 12 of the India-Germany Tax Treaty, resulting into additional demand of INR 46,38,382/-considering applicability of surcharge and cess under the provisions of the Act.
3. Ground 3: Disregarding valid Tax Residency Certificate issued by Tax Authorities of Germany In the facts and circumstances of the case and in law, the Ld. AO and the Ld. DRP ought to have appreciated that the Appellant Firm had furnished a valid Tax Residency Certificate (TRC) issued by the Tax Authorities of Germany, which categorically affirms that the Appellant Firm is a tax resident of the Federal Republic of Germany for the purpose of India- Germany Tax Treaty and hence, application of the beneficial provision of such Tax Treaty cannot be denied.
Ground 4: Disregarding taxation of the entire income of the Appellant firm in Germany through its partner: - In the facts and circumstances of the case and in law, despite the documentary evidence in the form of partnership deed, tax residency certificate, financial statements, tax returns etc. being available before them, the Ld. AO and the Ld. DRP erred in not appreciating that the Appellant Firm, being a fiscally transparent entity, is a tax resident of Germany, as 100% of its income/profits are attributable to its partner, Mr. Florian Grob, who is tax resident of Germany under the India-Germany Tax Treaty and hence, application of the beneficial provision of such Tax Treaty cannot be denied.
5. Ground 5: Failure to recognize Appellant's Trade Tax Obligation under German Law In the facts and circumstances of the case and in law, the Ld. AO and the Ld. DRP erred in not appreciating that the Appellant Firm, despite being a fiscally transparent entity, is independently liable to pay trade tax under German law, which falls within the scope of taxes covered under the India-Germany Tax Treaty, thereby entitling it to treaty benefits.
Page. No 5
I.T.A.No.176/VIZ/2025 M/s. GROB – WERKE GmbH & Co. KG 6. Ground 6: Erroneous calculation of tax liability Without prejudice to the above grounds on merits, the Ld. AO erred in computing the tax demand at INR 48,15,164/- instead of INR 46,38,382/-, on account of erroneous consideration of total income, applying incorrect rate of surcharge and education cess and consequential interest.”
Ground No.1 is with respect to challenging the jurisdiction of the Ld. AO, which the Ld. Authorised Representative [hereinafter “Ld.AR”] conceded as being not pressed hence this ground is dismissed as not pressed.
Ground Nos. 2 to 5 are agitated against the denial of treaty benefit as per the India – Germany Double Tax Avoidance Agreement. On this issue, Ld.AR submitted that the assessee is a partnership firm registered under the laws of Germany whichis evidenced by the registration certificate available in the paper book Page No. 145-149. He further submitted that the tax residence certificate (TRC) of assessee is also provided before Ld.DRP which is available in paper book Page No. 141. It was further submitted that the assessee has also paid trade tax in Germany which is covered for relief under the provisions of Double Tax Avoidance Agreement. The copy of the computation of trade tax is enclosed in paper book Page No. 151. He also referred to the partnership agreement available in paper book Page No. 215 and referred to Para No. 31. & 3.2 wherein the names of partners and their capital contributions was available in the partnership deed. It was also further submitted that Mr. Florian Grob has contributed Euro 10 million towards capital of the firm, wherein M/s. GROB Verwaltungs GmbH is a partner without provision of capital contribution. It
Page. No 6 I.T.A.No.176/VIZ/2025 M/s. GROB – WERKE GmbH & Co. KG was also further submitted that the other partner M/s. GROB Verwaltungs GmbH is a tax resident of Austria which is confirmed by the certificate of residence provided in paper book Page No.
He also refereed to paper book Page No. 227 wherein the computation of income tax of Mr. Florian Grob disclosing the income received from the partnership firm which is stood at 5,24,68,496/-. He therefore submitted that the entire profits are being disclosed by Mr. Florian Grob who is a tax resident of Germany and therefore he reiterated that the assessee firm is not a pass-through entity and was not acting as conduit. He therefore pleaded that assessee is entitled for treaty benefits of India – Germany DTAA and hence taxability of FTS under the provisions of section 115A of the Act is not justifiable. He prayed for deletion of the surcharge and cess computed as per provisions of section 115A of the Act.
On the other hand, Ld. Departmental Representative [hereinafter in short “Ld. DR”] submitted that assessee has not furnished any of the documents before the Ld. AO but filed it before the Ld.DRP as additional evidences. He further submitted that the Ld.DRP after obtaining the Remand Report and rejoinder has dismissed the objections raised by the assessee. Further he also submitted that as per clause 7.2 of the partnership agreement the general partner i.e.M/s. GROB Verwaltungs GmbH also received annual remuneration of 5% of paid-in share capital that it has reported in its balance sheet at the beginning of the financial year, but at least an amount of 5,000 euros. He submitted that the Page. No 7
I.T.A.No.176/VIZ/2025 M/s. GROB – WERKE GmbH & Co. KG liability compensation is disclosed in the tax residence certification 9316.40 Euros and hence it cannot be doubted that the assessee act as pass through entity for the remuneration payable to the other partner in Austria. He therefore pleaded that learned Revenue Authorities be upheld.
We have heard both the sides and perused the material available on record including the written submissions of the assessee. The only issue in this instant case is with respect to denial of treaty benefits under the India – Germany Double Tax Avoidance Agreement to the assessee who is the tax resident of Germany. The Ld. AO treated the assessee as pass-through entity since one of the partners to the assessee’s firm M/s. GROB Verwaltungs GmbH is an Austrian entity. However, as per the submissions of the Ld.AR, we find from the partnership deed submitted before us, that Mr. Florian Grob has contributed 10 million euros as capital contribution to the firm and holds 100% of the shares. It was demonstrated by the Ld.AR that M/s. GROB Verwaltungs GmbH (Being “general partner”) has Nil contribution towards capital. However, on perusal of the partnership agreement it is noticed that the general partner receives annual remuneration of 5% over the paid-up share capital disclosed in the balance sheet at the beginning of the financial year with a minimum guarantee of 5000 euros. However, the general partner M/s. GROB Verwaltungs GmbH is not entitled to share of profits of the assessee’s firm.
Page. No 8
I.T.A.No.176/VIZ/2025 M/s. GROB – WERKE GmbH & Co. KG 11. The CBDT vide Circular No.789 dated 13/4/2000 has stated that the certificate of Residence from revenue authorities is sufficient evidence of beneficial ownership to claim the treaty benefits.
Further, the Hon’ble High Court of Bombay in the case of Director of Income-tax (I.T.) v. Universal International Music B held as follows: - “4. In Appeal, the CIT(A) and the Tribunal arrived at a finding of fact on the basis of the evidence in the form of certificate dated 25/7/2003 from revenue authorities in Netherlands certifying that the respondent assessee was a beneficial owner of the royalty received in respect of musical track given to M/s. Universal Music Pvt. Ltd. Besides, reliance was placed by the Tribunal upon the CBDT Circular No.789 dated 13/4/2000 that certificate from revenue authorities is sufficient evidence of beneficial ownership. On these findings of fact the Tribunal upheld the order of CIT(A) and held that the respondent assessee is entitled to benefit of Article 12 of DTAA.
The respondent has not been able to show anything on record to controvert the finding of fact arrived at by the CIT(A) and the Tribunal that the respondent assessee is the beneficial owner of the royalty received on the musical tracks given to Universal Music Private Limited. In view of the above, the decision of the Tribunal being based on a finding of fact, no occasion to entertain the proposed question of law can arise.
In the instant case, it was established by the Ld.AR that the assessee- firm is a tax resident of Germany incorporated under the German laws and has filed the tax return in Germany by paying the applicable trade tax in Germany. Further, the TRC of the assessee-firm for the relevant assessment year was also produced by the Ld.AR in the paper book. Further, it was also found that the profits of the firm are shared with Mr. Florian Grob who holds 100% of shares in the assessee’s firm. We also find that Mr. Florian Grob has disclosed profit / loss of the shareholding of the firm while filing his return of income in Page. No 9
I.T.A.No.176/VIZ/2025 M/s. GROB – WERKE GmbH & Co. KG Germany. Since the profits are not shared with Austrian entity the real beneficial owner was Mr. Florian Grob who is tax resident of Germany. In these facts as aforesaid, we are of the view that the assessee firm is entitled for treaty benefits as per Article 12 between India – Germany Double Tax Avoidance Agreement, since as per Article 2 of the DTAA it applies to Trade Tax (German Tax) in Germany. In accordance with the provisions of section of 90(2) of the Act assessee is entitled to the beneficial provisions of Double Tax Avoidance Agreement and hence taxation by including surcharge and cess under section 115A of the Act is not justifiable. The contentions of the Revenue of treaty abuse by the assessee are fallacious. We therefore allow the grounds raised by the assessee.
With respect to ground No. 6 wherein it was agitated that the Ld. AO has erred in computing the tax demand of Rs.48.15 lakhs instead of Rs.46.38 lakhs. Since the ground raised by the assessee on merits is decided in favour of the assessee, adjudication of erroneous computing of tax demand does not arise. Hence ground No. 6 raised by the assessee is dismissed.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 04th September2025.