2001 (8) TMI 1397 - AAR - Income Tax

Summary

Issues Involved:
1. Tax liability on the amount received for the sale of engineering, drawings, and designs.
2. Entitlement to a refund of the tax deducted at source (TDS).

Summary:

Issue 1: Tax Liability on the Amount Received
- The applicant, Pro-Quip Corporation USA, questioned whether it is liable to tax on the amount received from Linde Process Technologies India Ltd. (LPT) for the sale of engineering, drawings, and designs.
- The applicant argued that the transaction was an out-and-out sale of engineering drawings and designs, not a service, and thus should not be taxed as "fees for included services" u/s Article 12 of the India-US Tax Treaty.
- The Commissioner contended that the payment should be treated as a fee for included services, as defined in Article 12(4) of the India-US Tax Treaty, which includes payments for technical or consultancy services.
- The Authority for Advance Rulings (AAR) concluded that the transaction was an out-and-out sale, not contingent on productivity or use, and thus did not fall within the definition of "royalty" or "fees for included services" u/s Article 12.
- The AAR ruled that the payments made by LPT to the American company do not fall within the ambit of Article 12 of the Indo-US Treaty for Double Taxation, answering the first question in the negative and in favor of the applicant.

Issue 2: Entitlement to Refund of TDS
- The applicant sought a refund of the tax deducted by LPT at source, along with interest on delayed payment.
- The AAR stated that the applicant is entitled to claim a refund of the tax deducted at source, provided it follows the prescribed procedure and files a return of income claiming the refund in accordance with the law.
- The AAR noted that if the only source of income for the applicant in India is the consideration for the sale of engineering drawings and designs, then the applicant would not be liable to pay any tax in India u/s Article 12.
- Consequently, the applicant may be entitled to a refund of the amount deducted at source, along with interest, if applicable, as per the provisions of Chapter XVII of the Income-tax Act, 1961.

Conclusion:
Both questions raised by the applicant were answered in favor of the applicant, with the first question confirming no tax liability on the amount received for the sale of engineering drawings and designs, and the second question affirming the applicant's entitlement to a refund of the tax deducted at source.