1997 (10) TMI 393 - AAR - Income Tax

Whether charges payable by TISCO to the applicant for work carried out by the applicant under the agreement in its office at Johannesburg, South Africa, including preparatory studies before each field visit, detailed under serial No. 3 of Appendix B of the agreement, are income liable to income-tax under the Income-tax Act, 1961 ? If so, at what rate ? Whether the consultancy fees to be received by the applicant from TISCO under the agreement as detailed under serial No. 2 of Appendix B of the agreement is income on which income-tax is payable under the Income-tax Act, 1961 ? If so, at what rate ? Is there any obligation on the part of TISCO to deduct at source, from the sums payable under the agreement to the applicant towards technical and consultancy fees, income-tax under the Income-tax Act, 1961, and, if so, to what extent and at what rate ? Can TISCO make payment to the applicant of the technical fees/charges in South Africa for the work to be done or services to be rendered in South Africa ? Will that be considered as an income deemed to accrue or arise in India ? Will tax be levied on such income ? If yes, then whether income-tax has to be deducted at source on such payment made in South Africa, and at what rate ? A daily living allowance as detailed in Appendix B of the draft agreement will be paid by TISCO to the foreign technicians of the applicant. Since the same do not fall within the purview of a perquisite, will tax be levied on such an allowance ? India does not have a Double Taxation Avoidance Agreement (DTAA) with South Africa. Hence, what rate of tax shall be applicable to the technical and consultancy fees paid in India by TISCO to the applicant under the agreement ?

Issues Involved
1. Taxability of charges for work carried out in Johannesburg.
2. Taxability of consultancy fees received from TISCO.
3. Obligation of TISCO to deduct tax at source.
4. Consideration of technical fees paid in South Africa as income deemed to accrue or arise in India.
5. Taxability of daily living allowances paid to foreign technicians.
6. Applicable tax rate in absence of Double Taxation Avoidance Agreement (DTAA) with South Africa.

Detailed Analysis

1. Taxability of Charges for Work Carried Out in Johannesburg
The applicant sought a ruling on whether charges payable by TISCO for work carried out in Johannesburg, including preparatory studies, are liable to income-tax under the Income-tax Act, 1961, and if so, at what rate. The authority concluded that these charges are indeed taxable in India. The rate of tax would be 55% if paid in the financial year 1996-97 and 48% if paid in the financial year 1997-98. However, the rate would be 30% if the conditions set out in section 115A(1)(b) of the Act are fulfilled.

2. Taxability of Consultancy Fees Received from TISCO
The consultancy fees received by the applicant from TISCO for services detailed in the agreement are also considered income on which income-tax is payable. The applicable rates are the same as those for charges for work carried out in Johannesburg: 55% for payments in the financial year 1996-97, 48% for payments in the financial year 1997-98, and 30% if the conditions of section 115A(1)(b) are met.

3. Obligation of TISCO to Deduct Tax at Source
TISCO is obligated to deduct tax at source from the sums payable under the agreement towards technical and consultancy fees. The applicable rates for tax deduction at source (TDS) are 55% for payments in the financial year 1996-97, 48% for payments in the financial year 1997-98, and 30% if the conditions of section 115A(1)(b) are satisfied.

4. Consideration of Technical Fees Paid in South Africa as Income Deemed to Accrue or Arise in India
The authority ruled that payments made to the applicant for technical fees/charges in South Africa for work done or services rendered in South Africa will be considered income deemed to accrue or arise in India. Consequently, tax will be levied on such income, and TISCO must deduct tax at source at the rates specified earlier.

5. Taxability of Daily Living Allowances Paid to Foreign Technicians
The daily living allowance paid by TISCO to the foreign technicians of the applicant will form an integral part of the fees payable to SRK under the agreement. Therefore, it will also be taxable in India.

6. Applicable Tax Rate in Absence of Double Taxation Avoidance Agreement (DTAA) with South Africa
Given that there is no DTAA between India and South Africa, the applicable tax rate for the technical and consultancy fees paid in India by TISCO to the applicant under the agreement is 30% if the conditions of section 115A(1)(b) are fulfilled. Otherwise, the rate will be 55% for payments made in the financial year 1996-97 and 48% for payments made in the financial year 1997-98.

Rulings
1. Charges for Work in Johannesburg: Taxable at 55% (1996-97) or 48% (1997-98), 30% if section 115A(1)(b) conditions are met.
2. Consultancy Fees: Taxable at the same rates as charges for work in Johannesburg.
3. TDS Obligation: TISCO must deduct tax at 55% (1996-97), 48% (1997-98), or 30% if section 115A(1)(b) conditions are met.
4. Technical Fees in South Africa: Considered income accruing in India, taxable at the same rates.
5. Daily Living Allowances: Taxable as part of the fees payable to SRK.
6. Applicable Tax Rate: 30% if section 115A(1)(b) conditions are met, otherwise 55% (1996-97) or 48% (1997-98).

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