TMI Blog2005 (9) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. K.D. Singh (Member) Present for the Department - Present for the Applicant Mr. Sanjary Verma , C.A. RULING (By Mr. Justice Syed Shah Mohammed Quadri) - The applicant, a company registered under the Indian Companies Act, 1956, and a tax resident of India, filed this application under section 245Q(1) of the Income-tax Act, 1961 (for short the "Act"). The applicant is the owner of mines. It is engaged in prospecting and extraction of minerals, metals, ores, etc. It is carrying on business of exporting minerals. For the purpose of its business, the applicant gets the analysis of samples and ores conducted from technical lab of the consultant - Met-Chem, Canada Inc. Under the agreement between the applicant and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licant to the consultant in Canada would be income deemed to accrue or arise in India in view of provisions of section 9(1)(vii)(b) of the Act. However, where the services for which the fees is payable, are utilized by the applicant in a business or profession carried on outside India , it would not be the deemed income of the consultant. Though the analysis of samples and ore and lab tests are done outside India and the technical fee is paid outside India in dollar, it is important to note that the samples are collected in India and the lab reports for which the payment is made is being used in the applicant's business in India. The report is not used for the purpose of making or earning any income from any source outside India. As the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. It will be useful to refer to section 9(1)(vii) of the Act. Section 9 Income deemed to accrue or arise in India (1) The following incomes shall be deemed to accrue or arise in India :- (i) to (vi) x x x x x x • Income by way of fees for technical services payable by - (a) x x x x x • a person who is a resident, except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or • x x x x Explanation 1 xx xx x Explanation 2 - [For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the renderin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ext important point is whether the fees falls within the exclusionary clause of deemed income. Section 9(1), extracted above, says that income enumerated in clauses (i) to (vii) of sub-section (1) shall be deemed to accrue or arise in India . We are concerned herewith Clause (vii), which speaks of income by way of fees for technical services payable by persons specified in sub-clauses (a) to (c) thereof. The relevant provisions is Sub-clause (b) of section (vii) which has two limbs. The first limb refers to a person who is a resident; the second limb incorporates an exclusionary clause which takes out the fees from the ambit of the deemed income. If the fees is payable in respect of services utilized in a business or profession carried on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Act, 1961 not having undergone any change in this regard, the clarification in Circular No.23 still prevails. No tax is therefore deductible under section 195 and consequently," (emphasis supplied). It may be noticed that the clarification proceeds on the footing that no part of income of the foreign agent arises in India. In the instant case we have held above that the fees for technical services paid by the applicant to the consultant in Canada would be deemed income of the consultant under section 9(1)(vii)(b) of the Act. Further, circular No. 23 dated 23 rd July, 1969, relates to income accruing or arising through or from "business connection" in India. In Performing Rights Society Ltd. v. CIT [1977] 106 ITR 11, the Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but if the beneficial owner of the royalties or fees for included services is a resident of the other Contracting State, the tax so charged shall not exceed: • in the case of royalties referred to sub-paragraph (a) of paragraph 3 and fees for included services as defined in this Article (other than services described in sub-paragraph (b) of this paragraph): • during the first five taxable years for which this Agreement has effect, • 15 per cent of the gross amount of the royalties or fees for included services as defined in this Article, where the payer of the royalties or fees is the government of that Contracting State, a political sub-division or a public sector company; and • 20 per cent of the gross amount of the royalties or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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