TMI Blog2005 (1) TMI 596X X X X Extracts X X X X X X X X Extracts X X X X ..... except that the quantum of payment for this assessment year is Rs. 2,67,52,500. 2. The relevant facts, briefly stated, are that the assessee is a partnership firm of solicitors based in New York, U.S.A. The assessee filed return of income on 27-3-1998 declaring nil income claiming refund of Rs. 34,58,500 being tax deducted at source at the rate of 20% on the payment of Rs. 1,72,92,500 received by it from M/s. G.V.K. Industries Ltd., Hyderabad, which is an Indian company. The assessee claimed that having regard to the specific provisions of the Double Taxation Avoidance Agreement (DTAA), entered into by the Government of India with the U.S.A., the aforesaid receipt was not exigible to tax in India and therefore the assessee was entitled to the refund of tax deducted at source. It was claimed before the Assessing Officer that the case of the assessee is governed by article 15 of the DTAA. The assessee did not have any fixed base regularly available in India. The assessee-company rendered professional services to M/s. G.V.K. Industries Ltd. through U.S. based laywers outside India, who do not stay in India. All the attorneys and the staff as well as partners of the firm worked o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent clearances including financial and non-financial clearances for GVK project. ( i )Research issue on exemption status of securities treated by international finance corporation. The ld. CIT DR contended that the services rendered by the assessee are in the nature of technical consultancy services, which come under the purview of Article 12 of the DTAA. In support of this contention, he relied on the following judgments : ( i ) G.V.K. Industries Ltd. v. ITO [1997] 228 ITR 564 1 (AP). ( ii ) Steffen, Robertson Kirsten Consulting Engineers Scientists v. CIT [1998] 230 ITR 206 2 (AAR). It is submitted that the ld. CIT(A) was not justified in holding that the payment received by the assessee was not chargeable to tax in India. 5. The ld. Authorised Representative strongly supported the orders of the ld. CIT(A). He led us through the relevant articles of the DTAA and contended that the assessee s case is clearly covered under article 15 and not article 12. The ld. counsel relied on the following Tribunal s judgments: ( i ) Maharashtra State Electricity Board v. Dy. CIT [2004] 90 ITD 793 (Mum.). ( ii ) Graphite India Ltd. v. Dy. CIT [2003] 86 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of article 8 (Shipping and Air Transport) from activities described in paragraph 2( c ) or 3 of article 8. 4. For purposes of this article, fees for included services means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services : ( a )are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or ( b )make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. 5. Notwithstanding paragraph 4, fees for included services does not include amounts paid ( e )to an employee of the person making the payments or to any individual or firm of individuals (other than a company) for professional services defined in article 15 (Independent Personal Services). Arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany was formed for generation and sale of electricity and it entered into an agreement with a Non-Resident Company in Zurich for helping in raising finance. The Non-Resident Company rendered services in advising the Indian company regarding processing of loan. The Indian company paid success fees to the Non-Resident Company. It was held by the High Court that the success fee constituted fee for technical services assessable under section 9(1) of the Income-tax Act. The ld. CIT DR also relied on the judgment of the Authority for Advance Ruling (AAR), in the case of Steffen Robertson Kirsten Consulting Engineers Scientists ( supra ). The facts and the ratio of this case can be gathered from the brief headnote, which is reproduced below : "Advance Ruling - Collaboration agreement between foreign company and Indian company agreement stipulating that foreign company would not be liable to pay any taxes in India and that Indian company was liable to pay tax which may have to be paid by foreign company - foreign company bound to file returns and pay advance tax - determination or question whether income accrued or arose to it in India would affect it foreign company entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by an individual or group of individuals, requiring predominantly intellectual skills, dependent on individual characteristics of the person pursuing that vocation, requiring specialized and advanced education or expertise. The ld. counsel for the assessee has invited our attention to paras 18, 19 and 20 of this decision, relevant portions of which may be reproduced below : "Applying the above test as to what constitutes professional services , let us examine facts of this case. It can also not be in dispute that the services that Freshfield was required to deliver under the contract also involved, to use the phraseology of Lord Justice Scrutton, either purely intellectual skills or if any manual skill, as in paintining or sculpture or surgery, skill controlled by the intellectual skill of the operator. Any services in the nature of legal consultancy services inherently involve either purely intellectual skills of the person rendering these services or if any manual skill, as in painting or sculpture or surgery, skill controlled by the intellectual skill of the person. There is also no dispute about the factum of services rendered being in the nature of legal consultancy s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid to an individual, or for that purpose, a firm of individuals, resident in the U.S.A., is found to be covered by the scope of expression independent personal services within the meaning assigned in article 15, it is immaterial whether or not the same is covered by the scope of expression fees for included services which in common parlance is known as fees for technical services under article 12(4). In the eventuality, in view of the provisions of article 12(5), if at all that amount is exigible to tax in India, it can only be taxable under article 15. To that extent, the provisions of article 12(4) and article 15 are non-competing and mutually exclusive (Para 7). In the light of the discussions of various articles as provided in the Indo-US DTAA, the following conditions are required to be satisfied for a service rendered by the US resident being brought within the ambit of independent personal services exigible to tax in India under article 15 : ( i )The service should be in the nature of a professional service , or other activity of an independent character, which includes independent scientific, literary, artistic, educational or teaching activities as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofessional services in the other Contracting State. However, the appellant-firm has not rendered any services in India to M/s. GVK Industries Ltd., its client. M/s. GVK Industries Ltd. had engaged the appellant-firm for the documentation and other legal consultancy services relating to a telecommunication and power project in Andhra Pradesh and the entire services were rendered by its personnel based abroad. Under the circumstances, article 15 which is normally applicable in the case of independent personnel services rendered by a firm of solicitors is not also applicable in the present case as it did not have a fixed base in India. In other words, it did not have a permanent establishment within the meaning of article 5 of the DTAA between India and USA. Therefore, no question arises of bringing to tax the fees received by it from M/s. GVK Industries Ltd. as business income within the meaning of article 7 of DTAA. However, the Assessing Officer has sought to bring to tax the receipts as the fee as fees for included services by invoking article 12 of the DTAA. However, the legal consultancy services rendered by the appellant-firm to the Indian company cannot be considered as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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