9911796707
TMI Blog2002 (2) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... ous upgradation of the quality of the PRODUCTS to international standards as defined above. 1.2 to increase the productivity, all round efficiencies in production, and Cost effectiveness of the PRODUCTS to specified international standards. 1.3 that the CONSULTANT impart the expertise and transfer the technical know-how in respect of the manufacture of the PRODUCTS to ITC-TTD to achieve the standard parameters as specified in clauses 1.1 and 1.2 supra 1.4 that the CONSULTANT assist and enable ITC-TTD to develop Customers in international markets for the PRODUCTS." Under the terms of agreement dated 6-7-1994, the assessee-tax deduction was to pay 'as a consideration for the services rendered by the consultant and his associates', a sum of Deutshe Mark 2,000 (net of taxes) per person per day for each day of their stay, at works, In this background of facts, a bill dated 4-12-1995 was raised on the assessee tax deductor which, inter alia, stated as follows: "Technical services fees for research and evaluation in connection with your problems in the mill (1) Discussion with management of Scapa-Kern on November 28th, 1995 DM 2,000 (2) Discussion with Siemens-Austri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable to quote following extracts from the Assessing Officer's order dated 22-7-1996: "On perusal of the Technical Consultancy Agreement dated 6-7-1994, it is seen that there is no clause therein emplowing Mr. Seeberger to render technical services from abroad. As per the agreement, Mr. Seeberger and his associates are required to pay periodic visits to the factory premises of TTD in India as and when defects crop up in the machinery and thereafter render assistance/guidance for rectifying the defect, stabilising the machine operation and verifying the quality of products and process parameters. In the instant case, Mr. Seeberger, before writing the letter dated 28-11-1995 personally visited the work site of ITC-TTD in November 1995 and inspected the concerned machineries which were fraught with defects malfunctioning. After collecting all the necessary dates relating to the said machines in India, Mr. Seeberger went back to home and after analysing and compiling those dates there, he wrote back to the management of TTD suggesting various methods for eliminating the intrinsic defects of the machines and improving efficiently thereof. Thus, it can be clearly seen that the act of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has entered into, under section 90(1), an agreement with a foreign country, for granting relief of tax or for avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply only to the extent such provisions are more beneficial to the assessee. In other words, provisions of the double taxation avoidance agreements override the provisions of the Act, to the extent such provisions are more beneficial to the assessee. This position is duly supported by the judgment of the jurisdictional High Court in the case of CIT v. Davy Ashmore India Ltd. [1991] 190 ITR 626 (Cal.). 8. We, therefore, proceed to examine the taxability of this payment of Deutshe Mark 10,000 to Mr. Seeberger, in the light of the provisions of the applicable DTAA that India has entered into with Austria of which Mr. Seeberger is admittedly a resident. 9. Article VII of the Indo Austrian Double Taxation Avoidance Agreement dated 24-9-1963, which was applicable at the relevant point of time, provides as follows: " ARTICLE VII-- Amounts paid by an enterprise of one of the territories for technical services furnished by an enterprise of the oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source country. In other words, where an Indian enterprise makes any payment on account of technical services, to an Austrian enterprise, Indian tax liability is confined to portion of payment which relates to technical services have actually been attributable to activity carried out in India. 12. The problem, however, arises in interpretating scope of expression, 'enterprise' and effect of somewhat competing provision contained in Article XIV of the aforesaid DTAA. 13. Although 'Model Tax Contentions' frequently use the expression 'enterprise', none of the model tax conventions define the same and there is considerable debate about the scope of this term. In his famous essay "The term 'enterprise' in model tax conventions--seventy years of confusion" [Essay Int. Tax 317--Intertax 491 (1994)] Van Radd K has strongly critised use of this term, pointing out that this term is used inconsistently in the model conventions, and proposing to eliminate it's usage entirely. 14. Dr. Klaus Vogel, in his off referred commentary on Double Taxation Conventions' (Klaus Vogel on Double Taxation Conventions - 1997 English edition; published by Kluwar Law International Ltd., UK), describes 'en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -deductor to Mr. Seeberger will not be covered by the expression 'payments' made to an Austrian enterprise. When examined in the light of the above discussion, a technical consultancy service by an individual, which admittedly Mr. Seeberger's service is, cannot be said to be service rendered by an Austrian enterprise. In any case, in view of the provisions of Article II(1)(f), only commercial or industrial entities are covered by the meaning of an 'enterprise'. Further, as the technical service in question requires 'scientific and other academic training', carrying out such an activity by an individual does not constitute carrying on an enterprise. On the other hand, rendering of consultancy services by Mr. Seeberger is clearly in the nature of 'professional services'. We have noted that these are activities of an independent character, do not constitute commercial or industrial activities and are not professional services performed during the course of employment. Accordingly, in our considered view, provisions of Article VII of Indo Austrian DTAA will not govern this situation and that provisions of Article XIV will apply in the instant case. 18. Provisions of Article XIV of In ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
