9911796707
|
Home
Issues Involved:
1. Classification of the consideration received by the French firm under the Income-tax Act, 1961. 2. Applicability of the definition of technical services under section 9(1)(vii) of the Income-tax Act, 1961. 3. Interpretation of the Double Taxation Avoidance Agreement (DTA) between India and France. 4. Determination of tax liability based on the DTA provisions versus the Income-tax Act provisions. Detailed Analysis: Issue 1: Classification of the Consideration The primary issue was whether the consideration of French Franc 2,70,000 paid to the French firm, Kerbs & CIE, S.A., Paris, France, was for engineering or commercial activity. The Tribunal concluded that the consideration was from the engineering or commercial activity of the non-resident company. The agreement between the assessee-company and the French firm included the provision of know-how, basic engineering services, machinery, equipment, supervision, erection, commissioning, and training of technical personnel. The total consideration was French Franc 11,372,000 and Swiss Franc 2,148,500, with the remittance in question being the first installment. Issue 2: Applicability of Section 9(1)(vii) of the Income-tax Act The Tribunal did not consider the express provisions in the Explanation appended to section 9(1)(vii) of the Income-tax Act, 1961, which defines technical services. The Tribunal instead relied on the DTA between India and France, which provides that industrial or commercial profits of an enterprise of one contracting state shall not be subjected to tax in the other contracting state unless the enterprise has a permanent establishment in that other state. The Tribunal held that the profits derived by the French firm were industrial or commercial profits and not royalties or technical service fees as defined under section 9 of the Act. Issue 3: Interpretation of the DTA The DTA between India and France, dated 26-3-1969, was pivotal in this case. Article III(1) of the DTA stipulates that industrial or commercial profits of an enterprise of one contracting state shall not be subjected to tax in the other contracting state unless there is a permanent establishment. Article VII(1) allows royalties to be taxed in both contracting states. The Tribunal found that the payments made by the assessee-company did not constitute royalties as defined in Article VII(2) of the DTA but were industrial or commercial profits. Issue 4: Determination of Tax Liability The Tribunal and the Commissioner (Appeals) concluded that the payments made by the assessee-company were industrial or commercial profits and not royalties. Consequently, no tax was payable by the French firm in India. The Tribunal also considered the alternative argument regarding the definition of royalty under section 9 of the Act but found it unnecessary to apply since the DTA provisions prevailed. The Tribunal's decision was challenged by the revenue, arguing that the payments should be considered royalties under section 9 and thus taxable in India. However, the court emphasized that the DTA provisions prevail over the Income-tax Act in case of conflict, as clarified by Circular No. 333, dated 2-4-1982, and section 90(2) of the Act. Remand for Further Consideration The court noted that the Tribunal did not consider whether the French firm had a permanent establishment in India, which could affect the tax liability. The court remanded the matter to the Tribunal to re-examine this aspect, considering the DTA provisions regarding permanent establishment and the scope of services provided by the French firm. The Tribunal was directed to re-decide the matter afresh, allowing both parties to present additional facts. Conclusion The judgment emphasized the precedence of DTA provisions over the Income-tax Act in case of conflict and remanded the matter to the Tribunal for further consideration regarding the permanent establishment and the nature of the services provided by the French firm.
|
