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Issues Involved:
1. Whether the provisions of Double Taxation Avoidance Agreement (DTAA) between India and Austria prevail over the provisions of the Income-tax Act, 1961. 2. Whether the payments made by TSL to AVL fall under the definition of 'royalty' or 'technical know-how fees' as per the DTAA. 3. Whether TSL is liable to deduct tax at source u/s 195 of the Income-tax Act, 1961 for the payments made to AVL. Summary: Issue 1: Prevalence of DTAA over Income-tax Act, 1961 The Tribunal examined whether the provisions of DTAA between India and Austria prevail over the Income-tax Act, 1961. It was concluded that the provisions of DTAA should prevail over the Income-tax Act, 1961 as per section 90(2) of the Act. This conclusion was supported by various High Court decisions, including those in the cases of Visakhapatnam Port Trust, VR. S.R.M. Firm, Arabian Express Line Ltd., and Davy Ashmore India Ltd. The Tribunal emphasized that where there is a DTAA, the specific provisions of the agreement will override the general provisions of the Income-tax Act. Issue 2: Nature of Payments - 'Royalty' or 'Technical Know-how Fees' The Tribunal analyzed whether the payments made by TSL to AVL were 'royalty' or 'technical know-how fees' under the DTAA between India and Austria. The Tribunal found that AVL provided technical consultancy services and transferred technology to TSL without granting any rights to use AVL's property. The payments were lump-sum and not dependent on production volume, characteristics typical of technical fees rather than royalty. The Tribunal relied on various High Court and Tribunal decisions, including the case of Voest Alpine Industries, which held that payments for technical services rendered outside India are not taxable in India under the DTAA. Consequently, the Tribunal concluded that the payments made by TSL to AVL were 'technical fees' and not 'royalty' under the DTAA. Issue 3: Liability to Deduct Tax at Source u/s 195 Given the conclusion that the payments were 'technical fees' and not taxable in India under the DTAA, the Tribunal held that TSL was not liable to deduct tax at source u/s 195 of the Income-tax Act, 1961. The Tribunal noted that the technical services were rendered outside India, and AVL had no permanent establishment in India. Further, it was observed that the Reserve Bank of India and the Deputy Commissioner had issued 'No Objection Certificates' for the remittances, recognizing the payments as technical aid fees. Additionally, AVL had accounted for these payments as technical fees in its tax returns in Austria, and the Austrian tax authorities had treated them as such. Conclusion The Tribunal allowed the appeals of TSL, holding that the payments made to AVL were 'technical fees' under the DTAA between India and Austria and not liable for tax deduction at source u/s 195. Consequently, the question of charging interest u/s 201(1A) did not arise.
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