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Issues Involved:
1. Whether the appellant-company was liable to deduct tax at 20% on amounts paid to M/s John Brown E&C, USA, under the Double Taxation Treaty and Section 9(1)(vii)(b) of the IT Act, 1961. 2. Whether the amounts paid to M/s John Brown E&C, USA, for consultancy services fall under "fees for technical services" as defined in Explanation 2 to Section 9(1)(vii) of the IT Act, 1961. Detailed Analysis: Issue 1: Liability to Deduct Tax at 20% The appellant-company contended that the amounts paid to M/s John Brown E&C, USA, were not liable for tax deduction at source under Section 9(1)(vii)(b) of the IT Act, 1961, read with the Double Taxation Treaty with the USA. The company argued that the payments were made for services aimed at earning income from sources outside India, specifically for upgrading their facilities to meet the standards required by regulatory authorities in the USA and UK to boost exports. The CIT(A) held that the payments made by the appellant-company to M/s John Brown E&C, USA, were not related to any business or profession carried on outside India or any other source of income outside India. The payments were made for consultancy services to set up infrastructure in India, which did not qualify for the exception under Section 9(1)(vii)(b). Consequently, the appellant-company was liable to deduct tax at 20% as per the Double Taxation Agreement and the IT Act. The Tribunal upheld the CIT(A)'s decision, stating that the business carried out by the appellant was within India, and merely exporting goods did not qualify as earning income from a source outside India. Thus, the appellant was liable to deduct tax at 20%. Issue 2: Definition of "Fees for Technical Services" The appellant argued that the amounts paid to M/s John Brown E&C, USA, did not fall under the definition of "fees for technical services" as per Explanation 2 to Section 9(1)(vii) of the IT Act, 1961. The appellant contended that the services provided were for construction, assembly, or a like project, which are excluded from the definition. The CIT(A) rejected this argument, stating that M/s John Brown E&C, USA, provided consultancy services and did not undertake any construction or assembly project. The services rendered were technical and consultancy in nature, which fall under the definition of "fees for technical services." The Tribunal agreed with the CIT(A)'s interpretation, emphasizing that the services provided by M/s John Brown E&C, USA, were consultancy services aimed at upgrading the appellant's facilities in India. These services did not involve any construction, assembly, or mining activities. Therefore, the payments made were indeed "fees for technical services" and were subject to tax deduction at source. Conclusion The Tribunal concluded that the appellant-company was liable to deduct tax at 20% on the amounts paid to M/s John Brown E&C, USA, as per the Double Taxation Treaty and Section 9(1)(vii)(b) of the IT Act, 1961. The payments were for consultancy services, which fall under the definition of "fees for technical services," and did not qualify for any exceptions. The appeal filed by the assessee was dismissed.
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