2003 (8) TMI 538 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the 'no objection certificate' issued by the AO under s. 195.
2. Whether the payment to MEP falls under 'fees for technical services' as per the India-UK DTAA.
3. Jurisdiction of the CIT under s. 263 to revise the AO's order.
4. Applicability of the Double Taxation Avoidance Agreement (DTAA) provisions over the IT Act, 1961.

Summary:

1. Validity of the 'no objection certificate' issued by the AO under s. 195:
The core grievance of the assessee was that the 'no objection certificate' issued by the AO, which authorized the remittance after deducting tax at source @ 5%, was not prejudicial to the interest of the Revenue. The assessee argued that no tax was required to be deducted at source from the remittance in question.

2. Whether the payment to MEP falls under 'fees for technical services' as per the India-UK DTAA:
The Tribunal examined the scope of 'fees for technical services' under Art. 13(4) of the India-UK DTAA. It was concluded that the services rendered by MEP did not make available technical knowledge, experience, skill, know-how, or processes to the assessee. Therefore, the payment to MEP was not covered under 'fees for technical services' as per the DTAA, and no tax was exigible on the payment.

3. Jurisdiction of the CIT under s. 263 to revise the AO's order:
The CIT initiated revision proceedings under s. 263, arguing that the payment was taxable @ 20% and the AO's order was erroneous and prejudicial to the Revenue. However, the Tribunal found that while the AO's order was erroneous, it was not prejudicial to the interests of the Revenue since no tax was required to be deducted. Thus, the conditions for invoking s. 263 were not satisfied.

4. Applicability of the Double Taxation Avoidance Agreement (DTAA) provisions over the IT Act, 1961:
The Tribunal reiterated that as per s. 90(2) of the IT Act, the provisions of the DTAA override the provisions of the IT Act to the extent they are more beneficial to the assessee. The Tribunal cited the jurisdictional High Court's decision in CIT vs. Davy Ashmore India Ltd. and CBDT Circular No. 333, which clarified that the DTAA provisions prevail over the IT Act in case of conflict.

Conclusion:
The Tribunal, by majority view, held that the payment made to MEP was not exigible to tax in India under the India-UK DTAA. Consequently, the CIT's order under s. 263 was canceled, and the AO's order directing the deduction of tax @ 5% was restored. The appeal was allowed.