1999 (1) TMI 533 - AAR - Income Tax

Summary

Issues Involved:
1. Whether the amount received by a non-resident company for services rendered by another company should be construed as income liable for tax deduction at source.
2. Whether the tax rate adopted by the Government of Orissa for payments made in foreign and local currency is appropriate compared to the rate in the Double Taxation Avoidance Agreement between India and the United Kingdom.

Analysis:

Issue 1:
The applicant, a non-resident company, was involved in a World Bank project in India and had entered into a sub-consultancy agreement with another company for rendering services. The main issue was whether the amount received by the applicant on behalf of the sub-consultants should be considered as income liable for tax deduction at source. The applicant argued that these amounts were linked to the payments claimed by the sub-consultants and no income accrued to the applicant. The Revenue contended that the Government of Orissa, responsible for tax deduction, was justified in doing so due to lack of clarity on the nature of the sub-consultancy agreement. The Authority determined that the nature of income was fees for technical services, subject to a tax deduction rate of 15% as per the Double Taxation Avoidance Agreement with the U.K. The issue of whether the amount received by the applicant constituted income was deemed a factual matter best left for assessment during income evaluation.

Issue 2:
The second issue revolved around the appropriateness of the tax rate adopted by the Government of Orissa for payments made in different currencies. The applicant argued that the prescribed tax rates were not in line with the Double Taxation Avoidance Agreement rate of 15% between India and the U.K. The Commissioner of Income-tax recommended a 15% tax rate as well. The Authority concurred with this recommendation, stating that the tax deduction rate should align with the treaty rate. The tax paid would not be included in the applicant's income calculation as per section 10(6A) of the Income-tax Act.

In conclusion, the Authority ruled that the tax deduction rate for the applicant's income from technical services should be 15% as per the Double Taxation Avoidance Agreement. The issue of whether the amounts received constituted income was deferred for assessment during income evaluation, emphasizing the factual nature of the determination.