2002 (2) TMI 306 - AT - Income Tax

Summary

Issues Involved:
1. Whether the payment made to the Austrian Consultant is taxable in India under section 195 of the Income-tax Act, 1961.
2. Interpretation of the Indo-Austrian Double Taxation Avoidance Agreement (DTAA) Articles VII and XIV.
3. Determination of the applicability of tax deduction at source (TDS) on payments for technical services rendered by a non-resident.

Detailed Analysis:

1. Taxability of Payment under Section 195 of the Income-tax Act, 1961:
The primary issue is whether the payment made to the Austrian Consultant by the assessee-tax deductor is subject to tax deduction at source under section 195 of the Income-tax Act, 1961. The Assessing Officer directed the assessee to deduct tax at 35% from the payment, asserting that the technical services provided by the consultant were connected to activities performed in India. The CIT(A), however, held that no taxes were required to be deducted as the services were rendered outside India, thus not taxable in India.

2. Interpretation of Indo-Austrian DTAA Articles VII and XIV:
The judgment delves into the interpretation of Articles VII and XIV of the Indo-Austrian DTAA. Article VII states that amounts paid for technical services by an enterprise of one territory to an enterprise of another territory shall not be taxed except for activities performed in the first-mentioned territory. Article XIV specifies that remuneration from professional services may be taxed in the source country only if the services are rendered there, and outlines conditions under which such remuneration can be exempt from tax.

3. Applicability of TDS on Payments for Technical Services:
The tribunal examined whether the services rendered by the Austrian Consultant fall under the purview of 'professional services' or 'technical services' provided by an 'enterprise'. The tribunal concluded that the services rendered by the consultant, being of an independent character and requiring scientific and academic training, qualify as 'professional services'. Consequently, Article XIV, rather than Article VII, is applicable.

Key Findings:

- Services Rendered in India:
The tribunal noted that the consultant's services, although partially performed in Austria, were primarily connected to his visit to the assessee's factory in India. The consultancy involved examining technical aspects at the factory and advising on remedial actions, which were integral to the services rendered in India.

- Conditions under Article XIV:
For the remuneration to be exempt from Indian tax, conditions under Article XIV(2)(a) to (d) must be met. These include the consultant's temporary presence in India for less than 183 days, services rendered on behalf of an Austrian resident, and the profits being subject to Austrian tax. The tribunal highlighted the lack of evidence regarding the taxability of the fees in Austria.

- Direction for Further Examination:
The tribunal restored the matter to the CIT(A) to ascertain whether the payment was subject to Austrian income-tax. If the fees were taxed in Austria, the CIT(A)'s decision would be upheld; otherwise, the Assessing Officer's order would be reinstated.

Conclusion:
The appeal was allowed for statistical purposes, directing further examination of the taxability of the fees in Austria to determine the applicability of TDS under section 195 of the Income-tax Act, 1961.