1994 (5) TMI 46 - AT - Income Tax

Summary

Issues involved:
The judgment deals with the issue of whether income from technical services should be taxed on accrual basis or receipt basis, and the applicability of provisions of section 145 in determining the total income of the assessee.

Summary:

Issue 1 - Taxation of income on accrual vs. receipt basis:
The dispute in the case revolved around whether fees for technical services should be taxed on accrual basis or receipt basis. The Assessing Officer (AO) had initially held that the income was liable to be taxed on accrual basis, citing a Madras High Court decision. However, the CIT(A) directed that the income should be taxed on receipt basis, based on the agreement for avoidance of double taxation between India and Germany. The Appellate Tribunal, after hearing the parties, upheld the CIT(A)'s decision, emphasizing that the agreement between the two countries prevails over domestic laws. The Tribunal clarified that income in the form of fees for technical services could only be taxed in India on a receipt basis, as per the specific provisions of the agreement.

Issue 2 - Applicability of section 145 in determining total income:
The appellant also contended that the provisions of section 145 were not applicable for determining the total income. The Tribunal, after considering the arguments, found that the order passed by the CIT(A) was legally sound. It noted that the conflict between the domestic laws and the double taxation avoidance agreement necessitated taxing the income on a receipt basis. The Tribunal highlighted that the liability to tax arises only when a non-resident receives payment, as outlined in the agreement, and not on an accrual basis as per section 5 of the Income Tax Act. Therefore, the Tribunal dismissed the appeal, affirming the decision of the CIT(A) regarding the taxation of income from technical services on a receipt basis.

In conclusion, the Appellate Tribunal upheld the CIT(A)'s decision to tax the income from technical services on a receipt basis, in accordance with the agreement for avoidance of double taxation between India and Germany, and dismissed the appeal.