TMI Blog2005 (11) TMI 365X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of sections 44D and 115A of the Income-tax Act, has held that such services clearly rule out the applicability of clauses (a) and (c) to Article 12(4) of the DTAA. As regards clause (b) of Article 12(4) the Tribunal held that only such services as are technical in nature are covered which may enable the recipient of services to apply the technology and not consultancy services. In case receipts through permanent establishment in respect of which profits are computed under Article 7(3) of the DTAA are not fee for technical services, section 44D is not to be applied for purposes of deduction of expenses. Tribunal held that receipts by assessee-Singapore-company through its permanent establishment in India chargeable to tax under Article 7(3) of the DTAA between India and Singapore, being from strategy consultancy services, were not from technical services as referred to in Article 12(4)(d) of the DTAA. Hence section 44D, and for that matter, Explanation 2 to section 9(1)(vii) did not apply and, therefore, the limitation for deduction under section 44D was not attracted. The Tribunal also held that even if a contrary view was possible the one favourable to the assessee has to be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in detail the nature of services provided by the U.K. Company. The main services to be provided are as under : ( i ) Construction supervisory services of the project. ( ii ) Supervision of start up and commissioning of the project. ( iii ) Material and warehouse management of the project. ( iv ) Any other services incidental to the scope of PMC-1 services as defined and as may be required with a view of achieving realization of the project. According to the Assessing Officer, services were provided by highly qualified technical personnel and, therefore, they fall within the ambit of fee for technical services . As the receipts are assessable as fees for technical services, no deduction of expenses is to be allowed, in view of section 44D of the Act, even though the receipt may be assessable under Article 7 of DTAA between India and U.K. The Assessing Officer has taken this view keeping in mind the provision of Article 7(5) of DTAA. The Assessing Officer, therefore, did not allow any expenditure while computing the income. Therefore, he has not allowed the assessee s claim for carry forward of the loss to be set off against profit in subsequent years. Aggrieved the assessee filed an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a. In view of the foregoing, the income should be assessed after allowing deduction of expenses. ( x ) The Non-Discriminatory Clause Article 26 of India-U.K. Double Taxation Avoidance Agreement provides that taxation of a permanent establishment of a Contracting State shall not be less favourably assessed to tax in the other State compared to their own enterprise under the same conditions. Engineers India Limited, Tata Consulting Engineers etc., are providing services, some of which are definitely Fees for technical services , yet their income is assessed to tax on net basis and not on gross basis. Therefore, the permanent establishment should also be assessed to tax accordingly. The Non-Discriminatory Clause, itself provides that rate of tax in the case of permanent establishment could be different from the rate of tax charged on enterprise of the State itself. The Non-Discriminatory Clause also provides that where income is assessed on the basis of estimated allocation of expenses, it will not be treated as discriminatory. Thus wherever a permanent establishment could be treated in a manner different from what the enterprise of the State is to be treated, the Non-Discriminatory C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Consulting Group P. Ltd. [2005] 93 TTJ (Mum.) 293 and Dy. CIT v. Boston Consulting Group P. Ltd. [2005] 94 ITD 31 and in Raymond Ltd. v. Dy. CIT [2003] 80 TTJ 120 (Mum.). 5. We have considered the rival submissions and have gone through the record as also the Tribunal decision relied upon by the learned counsel for the assessee. There is no dispute as to the facts and circumstances of the case as mentioned above. The core of controversy before us is that whether or not the limitation on deduction for expenses as set out in section 44D of the Income-tax Act will apply in a case where the related income is not in the nature of fees for technical services so far as the meaning of the said expression under the applicable bilateral tax treaty is concerned, but on the test laid down under Explanation 2 to section 9(1)( vii ) of the Act, such an income could be treated as fees for technical services. For resolving this controversy it is necessary to refer to Article 7 of the DTAA which reads as under : Article 7. Business profits - 1. The profits of an enterprise of a Contracting State shall be taxable only in the State unless the enterprise carries on business in the other Contracting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch are allowed under the provisions of and subject to the limitations of the domestic law of the Contracting State in which the permanent establishment is situated. 6. Where the law of Contracting State in which the permanent establishment is situated imposes a restriction on the amount of the executive and general administrative expenses which may be allowed, and the restriction is relaxed or overridden by any Convention between that Contracting State and a third State which is a member of the Organisation for Economic Co-operation and Development or a State in a comparable stage of development and that Convention enters into force, after the date of entry into force of this Convention, the competent authority of that Contracting State shall notify the competent authority of the other Contracting State of the terms of the relevant paragraph in the Convention with that third State immediately after the entry into force of that Convention and, if the competent authority of the other Contracting State so requests, the provisions of this Convention shall be amended by protocol to reflect such terms. 7. Paragraph of this Article shall not apply to amounts, if any, paid (otherwise than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipts through permanent establishment in respect of which profits are computed under Article 7(3) of the DTAA are not fee for technical services, section 44D is not to be applied for purposes of deduction of expenses. Tribunal held that receipts by assessee-Singapore-company through its permanent establishment in India chargeable to tax under Article 7(3) of the DTAA between India and Singapore, being from strategy consultancy services, were not from technical services as referred to in Article 12(4)( d ) of the DTAA. Hence section 44D, and for that matter, Explanation 2 to section 9(1)( vii ) did not apply and, therefore, the limitation for deduction under section 44D was not attracted. The Tribunal also held that even if a contrary view was possible the one favourable to the assessee has to be preferred. Similar is the view taken by the Tribunal in the case of Raymond Ltd. ( supra ). Facts and circumstances being similar following the detailed discussions contained in the order of the Boston Consulting Group Pte. Ltd., we are of the opinion that the CIT(A) has come to a right conclusion and his order does not call for any inference. It is accordingly upheld and the revenue s grou ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
