2002 (10) TMI 232 - AT - Income Tax

Summary

Issues Involved:
1. Withholding tax liability on remittance to a foreign consultant.
2. Applicability of Article 15 of Indo-US DTAA for 'independent personal services'.
3. Applicability of Article 12 of Indo-US DTAA for 'fees for included services'.

Summary:

Issue 1: Withholding Tax Liability on Remittance to a Foreign Consultant

The assessee, an Indian company, appointed Mr. Frank Rusinko, an American Scientist, as a consultant. The primary issue was whether the remittance made to Mr. Rusinko attracted withholding tax liability. The authorities below held that the remittance was covered under 'fees for included services' u/s Article 12 of Indo-US DTAA, thus requiring tax deduction at source.

Issue 2: Applicability of Article 15 of Indo-US DTAA for 'Independent Personal Services'

The assessee contended that the remittance fell under 'independent personal services' u/s Article 15 of Indo-US DTAA, which exempts such income from Indian tax if the consultant does not have a 'fixed base' in India or does not stay in India for more than 90 days in a taxable year. The Tribunal analyzed the scope of 'independent personal services' and concluded that Mr. Rusinko's services, being of a professional and intellectual nature, fell under this category. Since Mr. Rusinko did not have a 'fixed base' in India and did not stay for more than 90 days, the remittance was not taxable in India under Article 15.

Issue 3: Applicability of Article 12 of Indo-US DTAA for 'Fees for Included Services'

The Tribunal noted that if a payment qualifies as 'independent personal services' under Article 15, it is automatically excluded from 'fees for included services' under Article 12(5). The Tribunal found that Mr. Rusinko's services were professional and intellectual, thus falling under Article 15 and not Article 12(4). Consequently, the remittance was not taxable under Article 12(4).

Conclusion:

The Tribunal held that the remittance to Mr. Rusinko was not exigible to Indian income tax under either Article 12(4) or Article 15 of the Indo-US DTAA. Therefore, the assessee had no withholding tax liability. The Tribunal directed the Assessing Officer to refund the taxes already deposited by the assessee. The appeal was allowed.