2008 (10) TMI 257 - AT - Income Tax

Summary

Issues Involved:
1. Whether the payment for training fees to a non-resident company constitutes "fee for technical services" u/s 195 of the IT Act, 1961.
2. Applicability of Article 13 of the DTAA between India and UK to the training fees.

Summary:

Issue 1: Payment for Training Fees as "Fee for Technical Services" u/s 195 of IT Act, 1961

The assessee, an Indian company, sought permission from the AO to remit payment towards training fees to M/s Corus Consulting Ltd., UK, without deduction of tax at source u/s 195 of the IT Act, 1961. The AO held that the payments were in the nature of "fee for technical services" and directed the assessee to deduct tax at source. The CIT(A) confirmed the AO's order. The assessee contended that the training was imparted outside India and did not involve any technical services as defined under Article 13(4)(c) of the DTAA between India and UK. The Departmental Representative argued that the services provided were technical in nature and fell under the definition of "fee for technical services" as per Article 13 of the DTAA and s. 9(1)(vii) of the IT Act, 1961. The Tribunal concluded that the training involved high-level technical knowledge and skills, thus constituting "fee for technical services" under Explanation 2 to s. 9(1)(vii) of the Act.

Issue 2: Applicability of Article 13 of the DTAA between India and UK

The assessee argued that the training fee was not chargeable to tax in India as it did not constitute "fee for technical services" under Article 13(4)(c) of the DTAA. The Tribunal examined the agreement and found that the training provided by Corus Consulting Ltd. involved technical expertise and knowledge, which were to be used by the assessee's personnel in India. Therefore, the training fee was deemed to accrue and arise in India u/s 9(1)(vii) of the Act and was chargeable to tax under Article 13(2) of the DTAA. The Tribunal held that the nature of services provided fell within the scope of Article 13 of the DTAA and s. 9(1)(vii) of the IT Act, 1961.

Conclusion:

The Tribunal upheld the CIT(A)'s order confirming the AO's action for deduction of tax in respect of payment of training fees by the assessee to Corus Consulting Ltd., treating the services as technical in nature. All appeals of the assessee were dismissed.