1996 (12) TMI 132 - AT - Income Tax

Technical Collaboration Agreement, TDS, Technical Services, Lumpsum, Avoidance Of Double Taxation Agreement

Summary

Issues:
- Whether deduction of tax at source was required under section 195(2) of the I.T. Act from technical fees payable to a foreign entity.
- Interpretation of the Double Taxation Agreement (D.T.A.) between India and Austria in relation to the tax liability on technical services.
- Validity of the order of the ld. CIT(A) in holding that no deduction of tax was necessary based on the D.T.A. provisions.
- Assessment of the jurisdiction for taxation on technical services rendered by a foreign entity.

Analysis:

The appeal considered whether tax deduction at source was necessary under section 195(2) of the I.T. Act from technical fees payable to a foreign entity. The dispute arose from an Agreement between M/s. Tata Yodogawa Limited (TAYO) and M/s. Eisenwerk Sulzau-Werfen (ESW), Austria, for technical services. The Assessing Officer contended that tax should be deducted in India from the payments to ESW. However, the ld. CIT(A) ruled in favor of the assessee, citing the Double Taxation Agreement (D.T.A.) between India and Austria.

The Assessing Officer argued that the payments to ESW were for technical services, including royalty, and hence taxable in India. The ld. CIT(A) disagreed, relying on the D.T.A. provisions. The Revenue challenged this decision before the Tribunal, claiming that tax deduction was required. The Senior Departmental Representative asserted that tax should be deducted, reiterating the grounds of the Assessing Officer.

The ld. counsel for the assessee supported the ld. CIT(A)'s decision, referencing specific articles of the D.T.A., the Collaboration Agreement, and letters from the involved parties. The counsel argued that the technical services were rendered in Austria, not India, and thus not subject to Indian taxation. Additionally, the absence of a permanent establishment of ESW in India supported the exemption from tax deduction at source.

After considering the arguments and evidence presented by both parties, the Tribunal agreed with the ld. CIT(A). It held that the payments to ESW for services rendered in Austria were taxable in Austria, not India, as per the D.T.A. provisions. The Tribunal emphasized that the technical services were provided in Austria, as evidenced by the correspondence between the parties. Therefore, no tax deduction at source was warranted in this case.

The Tribunal dismissed the departmental appeal, upholding the decision that no tax deduction was required. The Cross-Objection filed by the assessee was allowed, supporting the ld. CIT(A)'s decision. The Tribunal concluded that the Assessing Officer should have issued a No Objection Certificate for the remittance of technical fees to ESW without tax deduction under section 195(2) of the I.T. Act.