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Issues Involved:
1. Whether the payment made by the assessee to M/s. Raytheon-Ebasco Overseas Limited (REOL) constitutes "fees for technical services" under section 9(1)(vii) of the Income-tax Act, 1961. 2. Whether the payment is chargeable to tax in India under the Double Tax Avoidance Agreement (DTAA) between India and the USA. 3. Whether the assessee was required to deduct tax at source under section 195 of the Act. 4. Whether the assessee can be treated as an assessee-in-default under section 201 of the Act for failure to deduct tax. Detailed Analysis: 1. Fees for Technical Services under Section 9(1)(vii): The tribunal examined whether the payments made by the assessee to REOL fall under "fees for technical services" as defined in section 9(1)(vii) of the Income-tax Act. The agreement between the assessee and REOL included project management, project support services, project engineering, and supply of various equipment. The Assessing Officer and CIT(A) held that the payments were for technical services chargeable to tax in India. The tribunal agreed, noting that the services provided were not for any construction, assembly, or mining project but for setting up a power plant. Hence, the payments were considered fees for technical services under section 9(1)(vii). 2. Chargeability under DTAA between India and USA: The tribunal evaluated whether the payments were chargeable to tax under the DTAA. Article 12 of the DTAA defines "fees for included services" and allows taxation in the state where the services arise. The tribunal found that REOL made available technical knowledge, experience, and processes to the assessee, which falls under Article 12(4)(b). The services were not ancillary and subsidiary to the sale of property, thus not excluded under Article 12(5)(a). Therefore, the payments were chargeable to tax in India under the DTAA. 3. Requirement to Deduct Tax at Source under Section 195: Section 195 mandates tax deduction at source on payments to non-residents if the sums are chargeable under the Act. The tribunal noted that the assessee initially deducted tax but later ceased, influenced by the payee's stance. The tribunal emphasized that the payer's obligation to deduct tax is independent of the payee's opinion on taxability. Since the payments were chargeable to tax, the assessee was required to deduct tax under section 195. 4. Assessee-in-Default under Section 201: The tribunal upheld the Assessing Officer's decision to treat the assessee as an assessee-in-default under section 201 for failing to deduct tax. The tribunal reiterated that the payer's duty to deduct tax is not contingent on the payee's tax liability assessment. The tribunal dismissed the assessee's appeals, affirming the CIT(A)'s orders. Conclusion: The tribunal concluded that the payments made by the assessee to REOL constituted fees for technical services under section 9(1)(vii) and were chargeable to tax in India under the DTAA. The assessee was required to deduct tax at source under section 195 and was correctly treated as an assessee-in-default under section 201 for failing to do so. All appeals were dismissed.
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