Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2009 (8) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2009 (8) TMI 130 - AT - Income TaxTDS u/s 195 - Payment in nature of technical or consultancy services - DTAA between India and France - Payments for testing charges - evaluation of cars manufactured - conducting impact tests on instrument panels fitted in the cars - As per work order, UTAC was to carry out the tests on three models, namely, Maruti 800, Maruti Omni and Maruti Gypsy. M/s UTAC was to carry out 12 impact tests for each model. AO was of the view that UTAC had the expertise and the skill to perform the tests which are required to be made as per s. 9(1)(vii). Fees for technical services meant any consideration for the rendering of any managerial, technical or consultancy services. He was of the opinion that UTAC rendered technical services and therefore, AO directed the assessee to deduct tax @ 10 per cent from the payments being made at the time of remittance to UTAC. CIT(A) held that testing charges paid were fee for technical services within the meaning of s. 9(1)(vii) and art. 13 of DTAA between India and France as the same were paid in consideration for services of technical nature. HELD THAT:- We find that it is an unambiguous legal position that by the virtue of s. 90(2) of the Act, where the Central Government has entered into an agreement with the Government of any country outside India under sub-s. (1) for granting relief to tax, or as the case may be, 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 they are more beneficial to that assessee. Thus, provisions of such DTAAs override the provisions of the IT Act, 1961 to the extent these agreements are more favourable to the assessee. It may be noted that art. 13(4) of DTAA between India and France excludes payment to an employee of the person making the payment and to any individual for independent personal services mentioned in art.15. On the other hand Expln. 2 to s. 9(1)(vii), excludes the consideration for any construction assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". There is no dispute that UTAC France does not fall in the category of persons excluded under art. 13(4) of the treaty or Expln. 2 to s. 9(1)(vii). After exclusion of such persons, the definition of expression "fee for technical services" will be the same under both the provisions. In other words the expression "fee for technical services" under provisions of art. 13(4) of the Indo-French treaty as well as Expln. 2 to s. 9(1)(vii), would mean the payment made to any person in consideration of a managerial, technical or consultancy services. One of the discernible common factors in Indian DTAA with UK, USA and Switzerland is that in all these treaties 'fees for services that are ancillary and subsidiary, as well as inextricably and essentially linked to the sale of property' is outside the scope of 'fees for technical services' liable to separate treatment under the respective DTAA. The scope of expression 'fees for technical services', in these treaties, appears to be far more restricted than the scope of the same expression in Indo-French DTAA which broadly defines fees for technical services as to mean payments in consideration for services of a managerial, technical or consultancy nature. Therefore, whereas payments for all kinds of technical services are to be treated as 'fees for technical services' for the purpose of art. 13(4) of Indo-French DTAA, such payments cannot be treated as to be in the nature of 'fees for technical services', under respective articles in Indo-UK, Indo-US and Indo-Swiss DTAA, in case the same constitutes 'fees for services that are ancillary and subsidiary, as well as inextricably and essentially linked to the sale of property'. Therefore, scope of 'fees for technical services' is much more restricted in Indo-UK, Indo-US and Indo-Swiss DTAAs vis-a-vis the DTAA that India has entered into with France. Hence in all these DTAAs, fees for technical services will not include the fees received for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of a property. It is settled position in law that protocol is an indispensable part of the treaty with the same binding force as the main clauses therein, as protocol is an integral part of the treaty and its binding force is equal to that of the principal treaty. The provisions of the aforesaid DTAA are, therefore, required to be read with the protocol clauses and are subject to the provisions contained in such protocol. Examined in the light of DTAAs between India and UK, USA and Switzerland, we find that in the case before us the assessee had not purchased any property from UTAC France. Therefore, none of the fees i.e., impact testing fees or fee paid for test reports is ancillary and subsidiary as well as inextricably and essentially linked to the sale of a property. The impact tests to be conducted by UTAC were purely technical in nature. After carrying out the impact tests in above manner testing reports were submitted to assessee which were utilised for the purposes of modification of the products. This in our considered opinion will amount to rendering of technical services/information in the form of impact testing reports by UTAC France to the assessee. Accordingly, the amounts paid by the assessee to UTAC would be in nature of technical or consultancy services. The contention of assessee that testing reports are similar to blood reports prepared by a pathological laboratory, this in our considered opinion is not correct. The payment of blood reports is made by the patient and medicine is prescribed by doctor. In this case the patient as well as doctor are interested in diagnosis of disease and its cure. But in the case of assessee the testing reports have helped the assessee not only to identify the deficiency but also removal of defect in the product which ultimately led to development of product of specified quality. Hence both are not comparable. Whether the payment made will be taxable in India under art. 13(4) of the treaty read with Expln. 2 to s. 9(1)(vii) of the Act? HELD THAT:- The test reports have been used by the assessee inIndiain manufacturing of cars. There is no dispute about this fact. It has been laid down in Steffen, Robertson & Kirsten Consulting Engineers & Scientists [1997 (10) TMI 393 - ADVANCE RULING AUTHORITY] that the statutory test for determining the place of their accrual is not the place where the services for which the payments are being made, are rendered but the place where the services are utilised. Therefore, the payments made to UTAC are chargeable to tax in India. Therefore, we are of the considered opinion that UTAC France had provided technical services to the assessee and those technical services were used in India in product development of desired specifications and hence payments for such technical services are liable to be taxed in India. Therefore, the assessee was liable to deduct tax at source u/s. 195(2). Accordingly, we do not find any reasons to interfere with the findings of the learned CIT(A) who upheld the order of the AO directing the assessee to deduct tax at source.
|