2010 (2) TMI 1296 - AT - Income Tax

Summary

Issues involved:
The issues involved in this case are the classification of revenue as 'fees for technical services' (FTS) under section 9(1)(vii) of the Income Tax Act, treatment of income as 'business profits' under Article 7(3) of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore, and the levy of interest under section 234B.

Classification of Revenue as FTS:
The Assessing Officer (AO) determined that the nature of the assessee's activity constituted the rendering of technical services, leading to the revenue being categorized as FTS under section 9(1)(vii) of the IT Act. The AO disregarded the assessee's argument that the information provided was purely factual data for the public. The AO relied on a ruling by the Authority for Advance Ruling and applied section 44D of the IT Act to tax the entire revenue of the assessee as FTS at a rate of 20% under section 115A, in addition to levying interest under section 234B.

Treatment of Income as Business Profits:
The assessee contended that its income should be assessed as business profits under Article 7(3) of the DTAA, rather than being taxed on a gross basis as FTS. The Commissioner of Income Tax Appeals (CIT(A)) agreed with the assessee, directing the AO to compute the income as business profits in accordance with sections 28 to 43D of the IT Act. The CIT(A) also ruled that interest under section 234B was not applicable to the non-resident company.

Judicial Decision:
The Tribunal, considering a similar case precedent, held that once an assessee opts for the provisions of a tax treaty, the revenue cannot impose the provisions of the Act. The Tribunal emphasized that the Act's provisions should not apply if the tax treaty is more beneficial to the assessee. It was clarified that non-technical consultancy services should not be subject to limitations on expense deductions under section 44D, but rather under Article 7(3) of the DTAA. The Tribunal dismissed the Revenue's appeal, citing the similarity of the case to the precedent and upholding the decision in favor of the assessee.