TMI Blog1998 (11) TMI 663X X X X Extracts X X X X X X X X Extracts X X X X ..... d had a technical collaboration. Since 1994, the applicant is stated to be practising as a Process Engineering Consultant. It is stated that the applicant joined the board of directors of Pennwalt India Limited on December 15, 1995, by virtue of his technical merit and cordial relations with the company. According to the applicant, he had been approached by Pennwalt India Limited for technical and marketing consultation in respect of their process equipment, viz., super centrifuge, super-D-canter and vibrating screens. The services were to be rendered from Germany. The purpose of the consultancy is said to be technical advancement of the company s products and development of export potential in the European market. The services rendered by the applicant from abroad are stated to be as follows :- (i) Location of manufacturers of specialised raw materials for use in the manufacture of the said equipment. (ii) Application of the machines for various processes and necessary changes in design construction, etc. (iii) Improvement and advancement required in manufacturing. (iv) Identification of customers for such products in European industry. According to the applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also stated to have communicated with these suppliers and customers abroad through telephone, fax and corresponded with them. Thereafter, he is stated to have advised the Indian company with regard to improvements in design and manufacture to suit the European market. He is also stated to have advised the Indian company to participate in trade exhibitions and machinery shows abroad for display of the products to European consumers. It has been claimed that the above services rendered by the applicant are entirely in Germany and Europe and no part of the services has been rendered in India. It is also claimed that the professional fees receivable by the applicant are solely in respect of the services rendered. On the basis of these facts, the applicant has raised the following questions for our consideration : 1. Whether professional fees receivable by the applicant, Mr. Von Der Mark, are taxable in India, in view of article 14 of the Agreement for Avoidance of Double Taxation dated April 14, 1994, between India and the Federal Republic of Germany, having regard to the fact that no services are rendered in India ? 2. Whether income-tax is deductible at source under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... secondary importance. Therefore, income accrues to the applicant in India through a fixed base in India. The Department is further of the view that the amount of ₹ 4 lakhs accruing to the applicant is liable to taxation under the head Salary under section 15 of the Income-tax Act, 1961, irrespective of the fact whether it is paid in India or abroad. According to the Department, as per article 16 of the DTAA between India and Germany, the director s fee paid to the applicant is taxable in India. During the hearing, it was clarified by Shri H. P. Ranina, learned counsel for the applicant, that the tax at source was being deducted in respect of one per cent. commission paid to the applicant. As such, there was no dispute on that score. As regards the fee paid to the applicant in respect of other professional services, Shri Ranina contended that article 14 of the DTAA directly applied to the applicant s case. Article 14 reads as follows (see [1997] 223 ITR (St.) 130, 143) : Independent personal services : 1. Income derived by an individual who is a resident of a contracting State from the performance of professional services or other independent activities of a si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he applicant. It was further contended by Shri Ranina that article 12 did not apply in the case of the applicant because the fees for technical services did not arise in India but arose in Germany. Further, this article was general in nature whereas article 14 was specific to professionals. When two articles overlapped, the specific article will apply to the exclusion of the general article. In the light of the aforesaid, Shri Ranina concluded that no income arose to the applicant in India and could not be taxed under article 12, 14 or 16 in India. The income of the applicant arose entirely in Germany and article 14(1) squarely applied whereby the amount would be taxable only in Germany, since the conditions of clauses (a) and (b) were not satisfied in the case of the applicant. Hence, no tax was required to be deducted at source by Pennwalt India Ltd. while making the payment of the fees to the applicant under the consultancy agreement. Shri H. Srinivasulu, arguing for the Department, submitted that the consultancy service charges received by the applicant were covered by article 16 of the DTAA since the applicant received commission, consultancy charges, reimbursement of va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 992] 195 ITR 81 took the view that the amendment was only of clarificatory nature and the term technical services always included within it professional services as well. This court has gone even to the extent that when a person consults the lawyer and seeks his opinion on certain issues the advice rendered by the lawyer would be a piece of technical service. Thus, according to Shri Srinivasulu, the term technical services included professional services. The words used in article 12(4) of the DTAA were managerial, technical or consultancy nature and the professional services rendered by the applicant were covered by the words technical services . Accordingly, he submitted that article 12(6) was also applicable in the case of the applicant. The Authority has carefully considered the rival contentions. It is not possible to agree with the averment of the Department that the applicant has a fixed base in India or that the services rendered by him fall within the purview of article 16 except to the extent indicated hereafter. There is no relationship of employer and employee between the applicant and Pennwalt India Ltd. so as to attract section 15 of the Income-tax Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determining whether a director s fee paid to a non-employee director is subject to tax in the country of residence of the corporation, it is not necessary to establish that the fee is attributable to a fixed base in that country. The resolution of the board of directors of Pennwalt India Ltd. at its meeting held on September 29, 1997, clearly envisages sitting fee for attending meetings of the board or a committee thereof. The fee paid in this regard to the applicant would attract article 16 of the DTAA. In the light of the aforesaid position, the conclusions of the authority with respect to the questions posed by the applicant are as under : A. Whether professional fees receivable by the applicant Mr. Von Der Mark are taxable in India, in view of article 14 of the Agreement for Avoidance of Double Taxation dated April 14, 1994, between India and the Federal Republic of Ger many, having regard to the fact that no services are rendered in India. B. Whether income-tax is deducti ble at source under section 195 of the Income-tax Act, 1961, by Penn walt India Ltd. at the time of remit tance of the said professional fees by Pennwalt India Limited to Mr. Von Der M ..... X X X X Extracts X X X X X X X X Extracts X X X X
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