2009 (10) TMI 652 - AT - Income Tax

Summary

Issues involved:
The correctness of the relief given to the taxpayer by the CIT(A) regarding the taxation of 'fees for technical services' received by the head office separately from other income of the PE.

Comprehensive details of the judgment:

1. The appellant, a company incorporated in France with a branch office in India, provided marine and certification services in India. The dispute arose when the Assessing Officer questioned the provision made towards technical expenses payable to the head office, treating it as 'fees for technical services' subject to taxation u/s 40(a)(i) and the India-France DTAA.

2. The CIT(A) justified the disallowance of expenses as a payment from self to self, citing the ABN Amro Bank case and article 7(3)(b) of the Indo-French tax treaty. However, the CIT(A) deleted the addition of the amount in question from the assessee's income, preventing double taxation.

3. The core issue was whether the addition of the amount as fees for technical services in the hands of the assessee was justified. The Tribunal emphasized that the taxable unit was the nonresident company, not its head or branch office, and analyzed the taxability under the Indo-French tax treaty.

4. The Tribunal clarified that for payments to be taxed as 'fees for technical services' under the treaty, they must involve the provision of technical knowledge or skills. In this case, the payment was a reimbursement of expenses to the head office and did not qualify as 'fees for technical services' under the treaty.

5. The Tribunal upheld the CIT(A)'s conclusion that the amount in question was not taxable in the hands of the assessee, agreeing with the reasoning and declining to interfere with the decision.

6. Ultimately, the appeal by the Income-tax Department was dismissed, affirming that the amount in dispute was not liable to be taxed as 'fees for technical services' in the hands of the assessee company.