2001 (12) TMI 196 - AT - Income Tax

Summary

Issues Involved:
1. Liability of deducting tax at source u/s 195 for payments made to foreign companies for installation and commissioning services.
2. Application of Double Taxation Avoidance Agreements (DTAA) and their precedence over the Income-tax Act.
3. Scope and interpretation of 'fees for technical services' under relevant DTAAs.

Summary of Judgment:
Issue 1: Liability of Deducting Tax at Source u/s 195 for Payments to Foreign Companies
- The primary issue was whether the assessee was required to deduct tax at source from payments made to foreign companies for installation and commissioning services.
- The Assessing Officer held that these payments were taxable in India as 'fees for technical services' u/s 9(1)(vii) of the Income-tax Act and directed the assessee to deduct tax at 30%.
- The CIT(A) ruled in favor of the assessee, stating that the services did not constitute 'technical consultancy service' and were not taxable in India due to the absence of a 'permanent establishment' (PE) of the foreign companies in India, as per the India-France and India-UK DTAAs.

Issue 2: Application of DTAA and Precedence Over the Income-tax Act
- The Tribunal emphasized that provisions of the DTAA override the provisions of the Income-tax Act if they are more beneficial to the assessee.
- Citing the case of CIT v. Davy Ashmore India Ltd., it was reiterated that in case of inconsistency, the DTAA provisions prevail.
- The Tribunal examined the taxability of the payments under the India-France and India-UK DTAAs, confirming that the foreign companies did not have a PE in India and the projects did not exceed six months.

Issue 3: Scope and Interpretation of 'Fees for Technical Services'
- The Tribunal analyzed the definition of 'fees for technical services' under the India-France DTAA and noted that services ancillary and subsidiary to the sale of property are excluded from this definition.
- Similarly, under the India-UK DTAA, it was found that installation and commissioning services are excluded from 'fees for technical services' if they are ancillary and subsidiary to the sale of property.
- The Tribunal concluded that the payments for installation and commissioning services made to Decoufle (France) and NTM (UK) did not qualify as 'fees for technical services' and thus were not taxable in India.

Conclusion:
- The Tribunal upheld the CIT(A)'s decision, confirming that the assessee was not required to deduct tax at source from the payments made to Decoufle and NTM.
- All three appeals filed by the Revenue were dismissed.