2002 (5) TMI 24 - HC - Income Tax

Double Taxation Avoidance Deduction Of Tax At Source - The Tribunal correctly observed which reads as under On a careful consideration of the facts of the case we are in agreement with the learned Commissioner of Income-tax (Appeals) that the foreign company Rotomac (SPA) cannot be held to have a permanent establishment and since the period of stay of their technicians in India is not more than three months in each of the two years in view of the provisions of article 15 read with article 5(2)(h) of the DTAA the said company is not liable to pay tax in India. Incidentally this view finds support from the Income-tax Appellate Tribunal s order dated September 10 1991 relied upon by the assessee. We therefore hold that the assessee was not liable to deduct tax under section 195(2) of the Act on the amounts remitted by it to the foreign company in the two years under consideration. - In our considered opinion no interference is called for. The appeal is dismissed.

Issues:
1. Interpretation of Double Taxation Avoidance Agreement (DTAA) between India and Italy.
2. Taxability of fees for technical services under section 9(1)(vii) of the Income-tax Act, 1961.
3. Application of article 15 of the DTAA in determining tax liability.
4. Requirement of tax deduction at source (TDS) under section 195(2) of the Income-tax Act.

Analysis:

1. The judgment revolves around the interpretation of the DTAA between India and Italy. The Assessing Officer initially directed the assessee to deduct tax at source (TDS) at a rate of 30% on a remittance made to an Italian company for technical services. However, the Commissioner of Income-tax (Appeals) referred to article 15 of the DTAA, which provides criteria for taxing professional services performed in a contracting state. The Commissioner held that if the technicians stayed in India for less than 90 days, the amount remitted is not subject to tax in India.

2. The Assessing Officer considered the activity of the Italian company as falling under section 9(1)(vii) of the Income-tax Act, which deals with fees for technical services. However, the Commissioner of Income-tax (Appeals) and the Tribunal disagreed, emphasizing the importance of the specific provisions of the DTAA in determining tax liability. The Tribunal held that since the foreign company did not have a permanent establishment in India and the technicians stayed for less than three months, they were not liable to pay tax in India.

3. The application of article 15 of the DTAA played a crucial role in determining the tax liability in this case. The Tribunal, in agreement with the Commissioner of Income-tax (Appeals), held that the foreign company was not liable to pay tax in India based on the provisions of article 15 read with article 5(2)(h) of the DTAA. The Tribunal's decision was supported by a previous order and affirmed that the assessee was not required to deduct tax under section 195(2) of the Income-tax Act.

4. Lastly, the issue of tax deduction at source (TDS) under section 195(2) of the Income-tax Act was addressed in the judgment. The Tribunal concluded that the assessee was not liable to deduct tax on the amounts remitted to the foreign company due to the specific provisions of the DTAA and the limited duration of the technicians' stay in India. As a result, the appeal against the order passed by the Income-tax Appellate Tribunal was dismissed, upholding the decision in favor of the assessee.

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