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2008 (8) TMI 395 - AT - Income TaxDouble Taxation Relief - business of providing consultancy for infrastructure projects - fees received from National Highway Authority of India (NHAI) - Whether the fees for technical services received within the meaning of Expln. 2 to s. 9(1)(vii) can be treated as fees for included services within the meaning of art. 12 - DTAA between India and Canada - HELD THAT - From the scope of services, it is clear that the assessee was required to furnish project report so as to cover detailed design for rehabilitation/strengthening of the existing carriageways and design new carriageways and required structures. Assessee made suitable proposal for further widening the highways and strengthening of the carriageways. Because of such drawings and designs, NHAI was capable of carrying out the desired work. There is no dispute to the fact that the same falls within the meaning of fees for technical services as defined in Expln. 2 below s. 9(1)(vii) of the Act. The second limb in cl. (b) of sub-art. (4) of art. 12 of DTAA can be invoked when the amount is paid in consideration for rendering of any technical or consultancy services and if such services consist of the development and transfer of a technical plan or a technical design also. In a way, the condition of making available technical knowledge is not, sine qua non for considering the question as to whether the amount is fees for included services or not particularly when the payment is only where the technical or consultancy services consist of development and transfer of a technical plan or technical design only. This will be considered as fees for included services within the meaning of art. 12(4) of the Act (sic-DTAA) and hence, in terms of art. 12(2), tax rate should be charged. The Tribunal, in the case of Gentex Merchants (P) Ltd. 2005 (2) TMI 450 - ITAT CALCUTTA-A interpreting art. 12 of DTAA between India and USA (which is identically worded in Indo-Canada treaty) held that ''The term transfer as used in art. 12(4) does not refer to the absolute transfer of rights of ownership. It refers to the transfer of technical drawings or designs to be effected by the resident of one State to the resident of other State which is to be used by or for the benefit of resident of other State. Even where the technical design or plan is transferred for the purpose of mere use of such design or plan by the person of other Contracting State and for which payment is to be made, art. 12(4)(b) will be attracted. Therefore, we hold that the payment received by assessee is in the nature of fees for included services and hence, to be taxed as such at the rate prescribed in art. 12(2) to the treaty between India and Canada. Interest charged u/s. 234B - AO assessed the income as returned but applied the rate of tax of 20 per cent as per s. 115A - This resulted into excess tax payable - CIT(A) held that since the payments made to the assessee are subject to deduction of tax at source u/s. 195 and the tax has been deducted by the payer @ 15 per cent, the assessee was not liable to pay any advance tax. HELD THAT - The precondition for levy of interest u/s. 234B is the liability to pay advance tax u/s. 208. Under s. 208, advance tax shall be payable where the amount of such advance tax payable as computed in accordance with provisions of Chapter XVII is Rs. 5,000 or more. The advance tax will be computed u/s 209. Under s. 209, the assessee is to estimate his current income and find out the tax payable therein as per sub-cl. (1) of s. 209(1). Under cl. (d) of sub-s. (1) of s. 209, the income-tax calculated under cl. (a) is to be reduced by amount of income-tax, which would be deductible at source during the said financial year. Thus, the assessee can take credit of the tax deductible at source. Whether the tax is deductible @ 15 per cent or 20 per cent is to be decided by the payer and not the payee i.e. the assessee. Therefore, the tax payable by the assessee does not exceed the tax deductible at source. In such a situation, the assessee is not required to pay any advance tax. In that view of the matter, interest u/s. 234B is not chargeable. Sec. 191 only requires that if the tax is not deducted at source, such income-tax shall be payable by the assessee directly. Sec. 191 only requires the assessee to pay the tax. Thus, the liability, which extends to payment of tax u/s. 191 does not extend to payment of interest u/s. 234B. In that view of the situation, the conclusion arrived at by ld CIT(A) is just. We, therefore, uphold the order of learned CIT(A). In the result, the appeal of assessee is allowed and that of Revenue is dismissed.
Issues Involved:
1. Rate of tax applicable to fees received by the assessee from National Highway Authority of India (NHAI). 2. Applicability of interest under section 234B of the Income-tax Act. Detailed Analysis: 1. Rate of Tax Applicable to Fees Received by the Assessee from NHAI: The primary issue in the assessee's appeal is the rate of tax applicable to the fees received from NHAI. The assessee, a company engaged in providing consultancy for infrastructure projects, executed contracts with NHAI for technical services related to the upgradation of National Highway-5 and National Highway-2. The services included preparation of detailed project reports, technical drawings, and designs for the construction and rehabilitation of highways. The assessee contended that the fees should be taxed at 15% under Article 12 of the Double Taxation Avoidance Agreement (DTAA) between India and Canada, as "fees for included services." The Assessing Officer, however, applied a 20% tax rate under section 115A of the Income-tax Act, arguing that the services did not qualify as "fees for included services" because the technology was not made available to NHAI. The CIT(A) concurred with the Assessing Officer, maintaining the 20% tax rate but ruled against the levying of interest under section 234B. The assessee appealed, asserting that the services provided, which included the development and transfer of technical drawings and designs, should be considered as "fees for included services" under Article 12(4) of the DTAA, thereby qualifying for the 15% tax rate. The Tribunal analyzed the scope of services and the relevant DTAA provisions. It concluded that the services rendered, which involved the development and transfer of technical plans and designs, met the criteria for "fees for included services" under Article 12(4)(b) of the DTAA. Consequently, the fees should be taxed at the 15% rate as per Article 12(2) of the DTAA. 2. Applicability of Interest under Section 234B: The revenue's appeal challenged the CIT(A)'s decision to cancel the interest charged under section 234B. The assessee had filed a return declaring income and taxes deducted at source at 15%, in line with the Indo-Canada treaty. The Assessing Officer, however, assessed the income at a 20% tax rate, resulting in additional tax liability and interest under section 234B. The CIT(A) ruled that since the entire income was subject to tax deduction at source, the assessee was not required to pay advance tax, thereby negating the interest under section 234B. The Tribunal upheld this decision, emphasizing that the liability to pay advance tax under section 208 arises only if the tax payable exceeds the tax deductible at source. Since the tax was deducted at source at the rate applicable under the DTAA, the assessee was not liable for advance tax, and thus, interest under section 234B was not chargeable. Conclusion: The Tribunal allowed the assessee's appeal, confirming that the fees received from NHAI qualify as "fees for included services" under the DTAA, subject to a 15% tax rate. The revenue's appeal was dismissed, upholding the CIT(A)'s decision to cancel the interest charged under section 234B.
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