TMI Blog2002 (10) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... though the assessee has taken seven grounds of appeal, these grounds are, in substance, only arguments in support of these propositions. As a matter of convenience, therefore, we will take all these grounds of appeal together. 3. Briefly, the facts. The assessee is an Indian company engaged, inter alia, in the business of manufacturing and/or marketing of graphite electrodes, anodes and other miscellaneous carbon and graphite products. The assessee had appointed one Mr. Frank Rusinko Jr., a resident of the United States of America, as its consultant on retainer basis. As to the scope of Mr. Rusinko's primary work, paragraph 2 of the appointment letter dated 28th March, 1996 (duly acknowledged copy placed before us at pages 7 and 8 of the paper book) states as follows: "During the continuance of your appointment hereunder, you shall advise the company's accredited representatives) in the USA or, if required, send to the company by post, documentation on matters concerning technology upgradation and development of new products in the field of carbon and graphite, and, without limitation on the generality of the foregoing, shall render to the company consultancy services for impro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany alone or in any such person or persons as the company may direct, the whole right, title and interest thereto." 4. On 25th August, 1997, the assessee moved an application to the Assessing Officer seeking permission to make the remittance of two quarterly instalments of the consultancy fees payable to the aforesaid Mr. Rusinko. The assessee submitted that consultancy services for which the remittance in question was being made was covered by the scope of expression 'independent personal services' in Article 15 of Indo US DTAA. It was also submitted that since neither the Mr. Rusinko had a 'fixed based regularly available to him in India for the purpose of performing his activities' nor did he 'stay in India for a period or period amounting to or exceeding in aggregate 90 d s in the relevant taxable year', Mr. Rusinko's ay income from such independent personal services was not exigible to tax in India. Accordingly, the assessee's case was that, the assessee did not have any obligation to withhold taxes from this remittance. These submissions, however, did not find any favour with the Assessing Officer. He was of the view that the services rendered by the foreign consultant are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .......... (8) .............. Article 15--Independent Personal Services (1) Income derived by a person who is an individual or firm of individuals (other than a company) who is a resident of a Contracting State from the performance in the other Contracting State of professional services or other independent activities of a similar character shall be taxable only in the first-mentioned State except in the following circumstances when such income may also be taxed in the other Contracting State: (a) if such person has fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other State; or (b) if the person's stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 90 days in the relevant taxable year. (2) The term "professional services" includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants." 7. The primary thrus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " and, therefore, OECD "commentary on that article is important" and very relevant. That commentary inter alia states as follows: "The Article is concerned with what are commonly known as professional services and other activities of independent character. This excludes industrial and commercial activities and also professional services rendered in employment...The meaning of term 'professional services' is illustrated by some examples of typical liberal professions. The enumeration has an explanatory character only and it is not exhaustive...... Elaborating upon the underlying philosophy of this model article, the Commentary further explains that "The provisions of the Article are similar to those for business profits and rest on the same principles as those of Article 7 (dealing with business profits). The provisions of Article 7 and Commentary thereon could, therefore, be used as guidance for interpreting Article 14." 10. The concept of 'permanent establishment', which is fundamental to Article dealing with business profits, is, however, missing in the Article dealing with independent personal services. Explaining the rationale behind this omission and the alternate para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot defined in tax treaties or even official commentaries on UN and OECD Model Conventions. The meaning of this term is illustrated by some examples of typical liberal professions, and this enumeration of professions has only an explanatory character. 'The law Lexicon' edited by Justice Y.V. Chandrachud (1997 Edition) def-ines'profes4ion, inter alia, as involving' the idea of an occupation requiring either purely intellectual skill or if any manual skill, as in painting and sculpture or surgery, skill controlled by the intellectual skill of the operator, as distinguished from an occupation which is substantially the production or sale or arrangements for the production or sale of commodities'. This definition, barring the words "as distinguished from an occupation which is substantially the production or sale or arrangements for the production or sale of commodities" is incidentally the same as assigned by Scrutton LJ in Inland Revenue Commissioner v. Maxse [1919] 1 KB 647 referred to in LB Curzon's Law Dictionary. Referring to Hon'ble Bombay High Court's judgment in the case of Sakharam Narayan Kherdekar v. City of Nagpur Corpn. AIR 1964 Bom. 200, at page 210, the Law Lexicon furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of Article 12(5) of the indo US DTAA, the amount paid in consideration of these services is outside the scope of Article 12(4) of the Indo US DTAA. We, therefore, vacate the findings of the authorities below that the impugned amount was exigible to tax in India under Article 12(4) of the Indo US DTAA. 15. The question then is whether the impugned amount can be subjected to Income tax in India under Article 15 of the DTAA. 16. In the present case, the two basic conditions discussed in paragraph 11 above, i.e. 11(i) and 11(ii), are admittedly fulfilled but, in order to attract taxability in India under Article 15, at least one of the further conditions laid down in 11(iii) is required to be fulfilled. As far as the first of these conditions, i.e. regarding availability of 'fixed base' in India, is concerned, the following observations of the Assessing Officer, after taking into account the fact that Mr. Rusinko had, though under a separate contract, visited manufacturing facilities of the assessee company, are relevant: "...... A fixed base has to be decided in totality and in the instant case, the entire factory premises and its auxiliary space is available to Mr. Frank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 15. Hon'ble Andhra Pradesh High Court has, in the case of CIT v. Visakhapatnam Port Trust [1983] 144 ITR 146, referred to OECD. Commentaries on the technical expressions and the clauses in the model conventions, and referred to, with approval, Lord Radchffe's observations in Ostime (Inspector of Taxes) v. Australian Mutual Provident Society [1960] 39 ITR 210, 219 (HL), which have described the language employed in these documents as the "inter-national tax language". In view of the observations of Hon'ble Andhra Pradesh High Court, in Visakhapatnam Port Trust's case, these model conventions and commentaries thereon constitute international tax language and the meanings assigned by such literature to various technical terms should be given due weightage. In our considered view, the views expressed by these bodies, which have made immense contribution towards development of standardization of tax treaties between various countries, constitute 'contemporanea expositio' inasmuch as the meanings indicated by various expressions in tax treaties can be inferred as the meanings normally understood in, to use the words employed by Lord Radcliffe, 'international tax language' developed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to deduct tax at source, from the said income, at the 'rate in force' which, in turn, has been explained under section 2(37A)(iii) as follows: 'for the purposes of detection of tax under section 195, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year or the rate or rates of income-tax specified in an agreement entered into by the Central Government under section 90, whichever is applicable by virtue of the provisions of section 90.' As we have earlier observed, provisions of the DTAA clearly override the provisions of the Act to the extent the provisions in such agreements are more favourable to the assessee. Therefore, in case a DTAA provides for lower rate, which includes 'Nil' rate, of taxes, such a rate will prevail over the rate given in the Act. As a natural corollary to this proposition, when, in terms of the provisions of a DTAA, an income is not exigible to income-tax in India, no tax is required to be deducted under section 195 from the payment of such income to a non resident......" As we have already given a finding that the impugned payment to Mr. Rusinko was not exigible to tax in India, in our considered view, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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