TDS on designing services obtained from Foreign Company

[Niketa Sharma]

Dear Members,

A resident of India has obtained some machine designs from a foreign company  in China and has withhold taxes@ 5% .

Now there are few issues which need clarification and answer:

1.I suppose this service falls under "Fees for Technical Services (FTS) as per Explantion 2 of  Section 9(1)(vii)

2. If under FTS, then for Foreign company this in Income deemed to accrue/arise in India.So as per Law TDS to be deducted @10% .Even in DTAA rate is 10%.

3. Now what options do  the foreign company has ??(1) either to apply PAN and file return to claim TDS or (2) claim that TDS while filing his country Income tax return as DTAA relief.In DTAA the second option is mention as " Where a resident of China derives income from India the amount of tax on that income payable in India in accordance with the provisions of this Agreement, may be credited against the Chinese tax imposed on that resident".   What should be done in this scenario??

Please correct me if have interpreted wrongly any of the above.

Thanks in Advance :-)

CA NIketa Sharma