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2009 (11) TMI 29 - AAR - Income TaxTechnology Assessment and Commercialization ( ATAC ) assisting DRDO laboratories in identification and business development of competitive global technologies from its inventory of existing defence-related innovations - award of certain work to to perform certain work and services for the IC2-FICCI-DRDO Innovation programme in USA Appliability of DTA Applicability of with holding tax (TDS) held that - Evaluating the potential of technologies after interaction with the experts and passing on the results of its interaction or furnishing relevant informations which are mostly in public domain in order to enable DRDO to find potential customers for the concerned technologies do not in our view fall within the scope of services contemplated by paragraph 4 of Art.12 of the DTAA - Provision of DTAA applicable Income of UT is not taxable in India TDS is not required to be deducted
Issues Involved:
1. Applicability of Double Taxation Avoidance Agreement (DTAA) between India and USA. 2. Tax liability of University of Texas (UT) on payments received from FICCI. 3. Requirement for FICCI to deduct tax under Section 195 of the Income-tax Act, 1961. 4. Taxability of payments and applicable tax rate if the answers to issues (2) and (3) are negative. Detailed Analysis: Issue 1: Applicability of DTAA between India and USA The Revenue questioned whether UT (IC2) qualifies as a "resident" under Article 4 of the DTAA. The applicant provided a certificate from the University of Texas confirming its status as a resident of the USA for tax purposes, despite its tax-exempt status under the Internal Revenue Code. The Authority concluded that the DTAA applies, as the University is liable to tax in the USA. Thus, the first issue was resolved affirmatively, confirming the applicability of the DTAA. Issue 2: Tax Liability of UT on Payments from FICCI The core question was whether the payments to UT constitute 'fees for included services' under Article 12 of the DTAA. The definition in Paragraph 4(b) of Article 12 requires that technical or consultancy services "make available" technical knowledge, experience, skill, or processes to the recipient. The Authority determined that the services provided by UT, including technology assessment and business development, did not "make available" such technical knowledge or skills to DRDO in a manner that would enable DRDO to apply them independently in the future. The Quicklook Reports and other services were seen as providing commercial information rather than transferring technical know-how. Consequently, the payments were not taxable as 'fees for included services' under the DTAA, and UT was not liable to pay income tax in India. Issue 3: Requirement for FICCI to Deduct Tax Under Section 195 Given the conclusion that the payments to UT were not taxable under the DTAA, the Authority ruled that FICCI was not required to deduct tax at source under Section 195 of the Income-tax Act, 1961. The DTAA provisions, being more beneficial to UT, took precedence over the domestic tax laws. Issue 4: Taxability of Payments and Applicable Tax Rate Since the answers to the second and third questions were affirmative, indicating that the payments were not taxable and no tax deduction was required, there was no need to address the fourth issue regarding the amounts liable to tax and the applicable rate. Conclusion: 1. The DTAA between India and USA governs the taxability of payments made by FICCI to UT. 2. UT is not liable to pay income tax in India on the payments received from FICCI. 3. FICCI is not required to deduct tax under Section 195 for these payments. 4. There is no need to determine the taxability and applicable tax rate for these payments. The ruling was pronounced on 30th November 2009.
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