2010 (9) TMI 717 - HC - Income Tax

DTAA - The issue relating to the payment of interest on advance tax under section 234B of the Act has been decided by this court in a recent judgment in Director of Income-tax v. Mitsubishi Corporation (2010 -TMI - 78020 - DELHI HIGH COURT) in favour of the assessee and against the Revenue wherein it was held that if the person (payer) who had to make payments to the non-resident had defaulted in deducting the tax at source from such payments the non-resident is not absolved from payment of taxes thereupon. However in such a case the non-resident is liable to pay tax and the question of payment of advance tax would not arise. Taxability of services provided by assessee - The contention of the assessee was that the fee received from NHAI is to be treated as fees for included services as prescribed in article 12(4) of the Double Taxation Avoidance Agreement (DTAA) between India and Canada - The Tribunal has relied upon the aforesaid Treaty in support of its conclusion - The said article 12(4)(b) does not contemplate transfer of all rights totally or interest in such technical design or plan - Even where the technical design or plan is transferred for the purpose of mere use of such design or plan by the person of the other contracting State and for which the payment is to be made article 12(4)(b) would be attracted - Decided in the favour of the assessee

Summary

Issues:
1. Taxability of amount received for services under section 9(1) of the Income-tax Act or article 12 of the Indo-Canadian Treaty.
2. Liability to pay advance tax and chargeability of interest under section 234B.

Issue 1: Taxability of Amount Received for Services:
The case involved a non-resident company providing consultancy services for infrastructure projects under an agreement with the National Highway Authority of India (NHAI), funded by the World Bank. The company received fees for technical drawings and reports, claiming it to be "fees for included services" under article 12(4) of the Double Taxation Avoidance Agreement (DTAA) between India and Canada. The Assessing Officer contended that the income derived was chargeable under section 9(1)(vii) of the Income-tax Act at 20%, while the Tribunal held it to be taxable at 15%. The main question was whether the services provided fell under the definition of "fees for included services" as per article 12(4) of the DTAA.

Issue 2: Liability to Pay Advance Tax and Interest under Section 234B:
The judgment referred to a previous case where the court ruled in favor of the assessee regarding the chargeability of interest under section 234B of the Income-tax Act. As a result, the question of interest under section 234B did not arise in the current case. The court analyzed the nature of services provided by the company and the specific requirements under clause (b) of paragraph (4) of article 12 to determine if the services qualified as "fees for included services." The court rejected the Revenue's argument that the technical designs provided were project-specific and not made available for other purposes, emphasizing the interpretation of clause (b) and the examples provided in the DTAA with the U.S.A.

In conclusion, the court held that the services provided by the company fell under the category of development and transfer of technical plans or designs as per article 12(4)(b) of the DTAA. The term "transfer" did not imply an absolute transfer of ownership but referred to the transfer of technical drawings or designs for use by the resident of another state. Therefore, the court ruled in favor of the assessee and against the Revenue, determining the taxability of the services at 15% under the DTAA.