2019 (7) TMI 75 - AT - Income Tax

Income accrued in India - professional legal services provided before a foreign court- FIS under Article 12 of the India-USA DTAA - assessee claimed to be taxable u/s 44BB - AO brought the receipts of the non-resident to tax as FTS u/s 115A - HELD THAT - Assessee provided of professional legal services before a foreign court, which cannot be brought to tax as FIS under Article 12 of the India-USA DTAA, because there is no make available of any particular knowledge or skill to ONGC before the courts which can enable ONGC to represent its case in future. Under Section 9(1)(vii) legal services cannot be treated as FTS as it is a professional services which is outside the scope of Section 9(1)(vii) of the Act. In A.Y. 2009-10, the Tribunal held that the said legal services is not taxable as FTS u/s 9(1)(vii) of the Act. Therefore, appeal of the assessee is allowed. Payments received by University of New South Wales, Australia - payment for a contract with ONGC for construction, installation and maintenance of High Resolution CT Scanner at ONGC premises - HELD THAT - In this year also the payments received by University of New South Wales, Australia during the relevant previous year were that annual maintenance charges for maintenances of the High Resolution CT Scanner. Since High Resolution CT Scanner is directly associate and inextricably connected with the extraction and production of mineral oil, the receipts would fall within the ambit of consideration for any mining or like project which is excluded from the definition of term FTS as defined in Explanation 2 to Section 9(1)(vii) of the Act and same would be taxable u/s 44BB . Thus the receipts by the said non-resident would fall within the ambit of Section 44BB as held in the earlier Assessment Years as well. - Decided in favour of assessee.

Issues Involved:
1. Taxability of receipts as "fees for technical services" under Section 115A of the Income-tax Act, 1961.
2. Applicability of the India-USA Double Taxation Avoidance Agreement (DTAA) on the receipts.
3. Taxability of receipts under Section 44DA vs. Section 44BB of the Income-tax Act, 1961.
4. Application of deemed profit rate for computing taxable income under Section 44DA.
5. Charging of surcharge and education cess on tax payable under the India-Australia DTAA.

Detailed Analysis:

Issue 1: Taxability of Receipts as "Fees for Technical Services"
The Commissioner of Income Tax (Appeals) upheld the Assessing Officer's decision that the receipts of Dewey & LeBoeuf International Company LLC, USA, were taxable as "fees for technical services" under Section 115A of the Income-tax Act, 1961. The Tribunal noted that the facts for the assessment year 2012-13 were identical to those for the assessment year 2011-12. The Tribunal held that the legal services provided by Dewey & LeBoeuf were professional services and not "fees for technical services" as defined under Section 9(1)(vii) of the Act, thereby exempting them from tax.

Issue 2: Applicability of India-USA DTAA
The Tribunal referred to the India-USA DTAA, particularly Article 12, which requires that for services to be taxable as "fees for included services," they must "make available" technical knowledge, experience, or skill to the recipient. The Tribunal held that the legal services rendered by Dewey & LeBoeuf did not "make available" any such knowledge or skill to ONGC, thus not falling under the purview of Article 12 of the DTAA.

Issue 3: Taxability Under Section 44DA vs. Section 44BB
For the University of New South Wales, Australia, the Tribunal examined whether the receipts for the construction, installation, and maintenance of a High Resolution CT Scanner were taxable under Section 44DA or Section 44BB. The Tribunal concluded that since the services were directly associated with the extraction and production of mineral oil, they fell within the scope of Section 44BB, which pertains to mining or like projects, and not Section 44DA.

Issue 4: Deemed Profit Rate Under Section 44DA
The Commissioner of Income Tax (Appeals) had applied a deemed profit rate of 25% for computing taxable income under Section 44DA. The Tribunal, however, found that the receipts were more appropriately taxable under Section 44BB, which does not necessitate the application of a deemed profit rate as under Section 44DA.

Issue 5: Surcharge and Education Cess
The Assessing Officer had applied a surcharge and education cess on the tax payable, computed as per the maximum rate prescribed in the India-Australia DTAA. The Tribunal found that since the receipts were taxable under Section 44BB, the surcharge and education cess should not be applied as they were for technical services under Section 44DA.

Conclusion:
The Tribunal allowed the appeals, holding that:
1. The legal services provided by Dewey & LeBoeuf International Company LLC, USA, were not taxable as "fees for technical services" under Section 115A and Article 12 of the India-USA DTAA.
2. The receipts of the University of New South Wales, Australia, for the maintenance of the High Resolution CT Scanner were taxable under Section 44BB, not Section 44DA.
3. The surcharge and education cess applied by the Assessing Officer were not applicable as the receipts were taxable under Section 44BB.

Result:
Both appeals of the respective assessees were allowed, and the orders of the CIT(A) were overturned. The Tribunal's decision was pronounced in the Open Court on 12th June 2019.

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