TMI Blog2009 (6) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... agement fees which cannot be considered as “commercial profits” under Article III of the DTAA 1958. - Decided against the assessee - 24 of 1996 - - - Dated:- 12-6-2009 - V.C.DAGA and J.P.DEVADHAR, JJ. Mr. Parag Vyas, Advocate for applicant. Mr. Harvinder Toor, Advocate with Nishith Doshi i/b. Crawford Bayley Co. for respondent. JUDGMENT The judgment of the court was delivewed by J.P. DEVADHAR, J. - At the instance of the revenue, the Income Tax Appellate Tribunal under section 256 (1) of the Income Tax Act, 1961 has forwarded the following question of law for the opinion of this Court:- "Whether on the facts and in the circumstances of the case, the Tribunal is right in law in accepting the claim of the assessee th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1958. The assessing officer rejected the claim of the assessee by holding that the fees for technical services were not reflected in the DTAA and, therefore, the provisions of the Income Tax Act, 1961 ('1961 Act' for short) would apply and accordingly the amount received by the assessee was taxable. 6. On appeal filed by the assessee, the CIT (A) observed that under the DTAA the "technical service fees" were not included within the meaning of industrial commercial profits and, therefore, the exemption contained in the DTAA would not be applicable in the present case. Accordingly, the CIT(A) upheld the assessment order. 7. On further appeal filed by the assessee, the ITAT disagreed with the views expressed by the assessing office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the word 'management charges' in Article III (3) of DTAA 1958 refers to the business management charges and not technical management charges. He submitted that the supervision charges received were relating to technical management charges and, therefore, the amounts received by the assessee were squarely covered under DTAA 1958. 11. Strong reliance was placed by Mr. Toor on the decision of Karnataka High Court in the case of AEG Telefunken V/s. C.I.T. reported in 233 I.T.R. 129 (Kar) wherein it is held that the technical supervision fees if not specifically excluded from the definition of the term "industrial or commercial profits"; the same cannot be excluded by inference. Reliance was also placed by the counsel for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mine the profits to be attributed to the permanent establishment, nothing in this paragraph shall affect the application of the law of either territory in relation to the liability of the enterprise to pay tax on an amount determined by the exercise of a discretion or the making of an estimate by the taxation authority of that territory: Provided that such discretion shall be exercised or such estimate shall be made, so far as the information available to the taxation authority permits, in accordance with the principle stated in this paragraph. (3) For the purposes of this Agreement the term "industrial or commercial profits" shall not include income in the form of rents, royalties, interest, dividends, management charges, remuneration fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under part (a) of the agreement, the assessee under part (b) of the agreement was also to manage or supervise installation of terminal equipments as well as commissioning activities. The fees payable in respect of the above activities are nothing but the management fees which are specifically excluded from the purview of "industrial commercial profits" as per Article III (3) of DTAA 1958. 15. The argument of the assessee that in the light of the decision of the Tribunal in the case of Rheinbraun Consulting GmbH (supra), the technical supervision fees received by the assessee are liable to be treated as commercial profits under Article III (1) of the DTAA 1958 cannot be accepted, because, though, in the ordinary course the "commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. Para 2.3.3 of the agreement dated 23/6/1985 reads thus:- 2.3.3 i) Swedtal (assessee herein) shall supervise and submit reports to owners on the Contractor's performance during the loading, jointing, laying, installation and overall commissioning activity of the Submarine Cable, the submerged repeaters and equalisers. ii) Swedtal shall also supervise the laying and jointing of the land cable sections of coexial cables and sea-earth cables. iii) Swedtal shall supervise installation of all terminal equipments and the cables in the terminal buildings and also the overall testing and commissioning activities. Swedtal shall scrutinise the Contractor's test results during the activities mentioned above, analyse the performance, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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