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Issues Involved:
1. Applicability of the exclusionary provision contained in para 5 of article 12 of the DTAA. 2. Applicability of the provisions of sections 44D and 115A of the Income-tax Act, 1961. Detailed Analysis: Issue 1: Applicability of the exclusionary provision contained in para 5 of article 12 of the DTAA The primary contention was whether the exclusionary provision of para 5 of article 12 of the DTAA, which deals with "royalties and fees for technical services," is applicable. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that the assessee had a Permanent Establishment (PE) in India due to the supervisory activities carried out for more than six months at the installation site of SAIL. They referred to clause (i) of para 2 of article 5 of the DTAA, which states that a building site or construction, installation or assembly projects, or supervisory activities in connection therewith, where such site, project, or activities continue for a period exceeding six months, constitutes a PE. The assessee contended that the installation or assembly project did not belong to them but to SAIL or the Indian Contractors, and they were merely providing supervisory services. The argument was that supervisory activities alone should not constitute a PE unless the installation or assembly project was carried out by the assessee. However, the tribunal concluded that supervisory activities by themselves could constitute a PE if they continued for more than six months, regardless of who owned the installation or assembly project. Thus, the exclusionary provision of para 5 of article 12 was applicable. Issue 2: Applicability of the provisions of sections 44D and 115A of the Income-tax Act, 1961 The second issue was whether the provisions of sections 44D and 115A of the Income-tax Act, 1961, were applicable. The AO and CIT(A) held that the income arising from rendering technical services was taxable under article 7 of the DTAA. Under this article, profits are computed as per the Income-tax Act, 1961, and the applicable tax rate was 30% under section 115A. The assessee argued that article 7 of the DTAA provides for the deduction of expenses incurred in India and outside India for the computation of profits of the PE. They contended that the CIT(A) erred in applying the provisions of section 44D, which disallows any deduction of expenses, and that the profits should be computed in accordance with article 7 of the DTAA, which is more beneficial to the assessee. However, the tribunal noted that article 7 of the DTAA allows for the computation of profits in accordance with the domestic law of the Contracting State, which includes the provisions of sections 28 to 44DA of the Income-tax Act. Section 44D(b), which applies to agreements made after 31-3-1976 but before 1-4-2003, disallows any deduction of expenses in computing income by way of fees for technical services. The tribunal held that section 44D was applicable and that no expenditure or allowance was deductible from fees for technical services. The rate of tax applicable was 30% as provided under section 115A. The tribunal also addressed the argument that section 44D was replaced by section 44DA, which allows for the deduction of expenses, and that this amendment should be considered clarificatory. The tribunal rejected this argument, stating that section 44DA applies prospectively from assessment year 2004-05 onwards and is applicable to agreements made after 31-3-2003. Therefore, section 44DA was not applicable to the assessee's case. Conclusion: The tribunal upheld the orders of the lower authorities, concluding that the exclusionary provision of para 5 of article 12 of the DTAA was applicable, and the provisions of sections 44D and 115A of the Income-tax Act, 1961, were correctly applied. Consequently, the assessee was required to deduct tax at the rate of 30% of the fees received from SAIL, and all the appeals of the assessee were dismissed.
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