2005 (6) TMI 484 - AT - Income Tax

2019 (10) TMI 1127 - AT

Issues Involved:
1. Taxability of credit rating fees paid to Standard & Poor's (Australia) Pvt. Ltd. (S&P) in India.
2. Classification of credit rating fees as 'Fees for Technical Services' under section 9(1)(vii) of the Income-tax Act, 1961.
3. Classification of credit rating fees as 'royalty' under Article 12 of the Indo-Australian Double Taxation Avoidance Agreement (DTAA).
4. Applicability of section 195 of the Income-tax Act regarding the deduction of tax at source.

Issue-wise Detailed Analysis:

1. Taxability of Credit Rating Fees in India:
The assessee argued that the credit rating fees paid to S&P should not be taxable in India as it falls under S&P's normal business activities and operations, which should be considered as 'business income' and not taxable in India due to the absence of S&P's permanent establishment in India. However, the CIT(A) upheld the Assessing Officer's view that the fees are taxable in India.

2. Classification as 'Fees for Technical Services':
The CIT(A) confirmed the Assessing Officer's view that the credit rating fees paid to S&P are 'Fees for Technical Services' as per Explanation 2 to section 9(1)(vii) of the Income-tax Act. The assessee contended that the services provided by S&P were professional services based on information supplied by the assessee and should not be construed as technical or consultancy services. The Tribunal, however, found that the services rendered by S&P involved the supply of commercial information, which falls under the definition of 'Fees for Technical Services.'

3. Classification as 'Royalty' under DTAA:
The CIT(A) also confirmed that the credit rating fees fall within the purview of 'royalty' as defined in Article 12 of the Indo-Australian DTAA. The Tribunal examined Article 12 of the DTAA, particularly sub-paragraphs (c) and (d) of paragraph (3), which define 'royalty' to include payments for the supply of commercial knowledge or information and ancillary technical or consultancy services. The Tribunal concluded that the credit rating certificate issued by S&P constitutes commercial information, thus classifying the fees as 'royalty.'

4. Applicability of Section 195 of the Income-tax Act:
The Tribunal held that the assessee was liable to deduct tax under section 195 of the Income-tax Act. The Tribunal reasoned that the payment made by the assessee to S&P for the credit rating certificate, which is used for raising resources in international markets, falls under the category of ancillary services connected with the supply of commercial information. Therefore, the annual surveillance fee paid to S&P is taxable in India, and the assessee is required to deduct tax at source as per the provisions of the DTAA.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the CIT(A)'s decision that the credit rating fees paid to S&P are taxable in India as 'Fees for Technical Services' and 'royalty' under the Indo-Australian DTAA. The assessee was held liable to deduct tax under section 195 of the Income-tax Act.

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