2005 (9) TMI 27 - AAR - Income Tax

Applicant, a company registered under the Indian Companies owner of mines - material analysed and tested in the laboratory in Canada - For technical services rendered outside India the consultant and the lab fees are paid by the applicant in dollars in Canada held that services rendered by the Met-Chem Inc., Canada is considered to be rendered in India held that the rate of tax applicable for the purpose of TDS would be the lesser of the rates prescribed under Finance Act or in the treaty

Summary

Issues:
1. Determination of whether services rendered by a non-resident company are considered to be in India.
2. Applicability of the rate of Tax Deducted at Source (TDS) for services rendered by the non-resident company.

Analysis:

Issue 1:
The applicant sought advance rulings on whether services provided by a non-resident company, Met-Chem Canada Inc., were considered to be in India. The Commissioner opined that fees for technical services paid to the consultant in Canada would be deemed to accrue or arise in India as per section 9(1)(vii)(b) of the Income-tax Act, 1961. The Commissioner highlighted that even though the lab tests were done outside India, the reports were used in the applicant's business in India, making it income deemed to accrue in India. The Authority analyzed the definition of "fees for technical services" under Explanation 2 to section 9(1)(vii) and concluded that the fees paid by the applicant to the consultant satisfied the requirements of technical services within the Act.

Issue 2:
Regarding the applicability of TDS rates, the applicant's counsel argued that the fees fell under an exception mentioned in the Act and cited relevant CBDT circulars to support their contention that no tax should be deducted under section 195 of the Act. However, the Authority disagreed, stating that the fees for technical services paid to the consultant would be deemed income of the consultant under the Act. The Authority also clarified that circulars cited by the applicant were not applicable to the current scenario. The ruling highlighted that the services, though prepared outside India, were utilized in India for the applicant's business and income within India. The Authority referred to a previous ruling to support this interpretation.

In conclusion, the Authority ruled that the services rendered by Met-Chem Inc., Canada were considered to be rendered in India based on the facts presented. Additionally, the rate of tax applicable for TDS would be determined as the lesser of the rates prescribed under the Finance Act, 2005, or in the relevant treaty article, whichever was more beneficial to the applicant.