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TMI Blog1997 (10) TMI 393X X X X Extracts X X X X X X X X Extracts X X X X ..... ca ? Will that be considered as an income deemed to accrue or arise in India ? Will tax be levied on such income ? If yes, then whether income-tax has to be deducted at source on such payment made in South Africa, and at what rate ? A daily living allowance as detailed in Appendix “B” of the draft agreement will be paid by TISCO to the foreign technicians of the applicant. Since the same do not fall within the purview of a perquisite, will tax be levied on such an allowance ? India does not have a Double Taxation Avoidance Agreement (DTAA) with South Africa. Hence, what rate of tax shall be applicable to the technical and consultancy fees paid in India by TISCO to the applicant under the agreement ? - A. A. R. No 359 of 1997. - - - Dated:- 29-10-1997 - S. RANGANATHAN J. (Chairman) and DR. SUBHASH C. JAIN Member Dr. Samir Chakraborty Advocate, Ms. M. K. Gyara and S. N. Mitra, For The Appellant R. B. Das, For The Respondent. ORDER This is an application under section 245Q(1) of the Income-tax Act, 1961 ( the Act ). The applicant, Steffen Robertson and Kirsten ( SRK ), is a company incorporated under the laws of South Africa having its registered office at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds technical and consultancy fees, income-tax under the Income-tax Act, 1961, and, if so, to what extent and at what rate ? (d) Can TISCO make payment to the applicant of the technical fees/charges in South Africa for the work to be done or services to be rendered in South Africa ? Will that be considered as an income deemed to accrue or arise in India ? Will tax be levied on such income ? If yes, then whether income-tax has to be deducted at source on such payment made in South Africa, and at what rate ? (e) A daily living allowance as detailed in Appendix B of the draft agreement will be paid by TISCO to the foreign technicians of the applicant. Since the same do not fall within the purview of a perquisite, will tax be levied on such an allowance ? (f) India does not have a Double Taxation Avoidance Agreement (DTAA) with South Africa. Hence, what rate of tax shall be applicable to the technical and consultancy fees paid in India by TISCO to the applicant under the agreement ? Dr. Samir Chakraborty, appearing for the applicant, took us through the agreement between SRK and TISCO dated December 20, 1996. After setting out the preamble and the nature of services and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicant to raise a question which does not affect it in any manner. In the present case, it was TISCO that was affected by any decision on the issues raised by the applicant and, since it was not open to TISCO, being a resident, to file an application under section 245Q, it would not be open, it was felt, to the parties to get over this hurdle indirectly by having the application filed by the applicant which is a non-resident. This view was put to counsel for the applicant and orders were reserved without hearing the application on the merits. On a careful consideration, the authority was of the view that the above conclusion may not be correct and that the application requires consideration on the merits. Notice was, therefore, given to the parties and the application was refixed for hearing to consider arguments both as to the maintainability of the application as also on the merits of the case. The applicant expressed its inability to appear for the hearing on October 11, 1997, and sought a long adjournment. The parties were, however, informed that the request for a long adjournment could not be granted and that the matter would be fixed for hearing on October 20, 1997, at N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e described as purely academic from its point of view. For these reasons, the authority is of the opinion that the application filed by the applicant is competent and is liable not to be dismissed in limine. To turn to the merits, the questions raised by the applicant in the application which turn on the liability of the applicant to tax on its receipts under the agreement appear to be capable of a direct and simple answer. The point made on behalf of the applicant is that the portion of the fees/ charges attributable to jobs/work carried out by the applicant in its office at Johannesburg, including preparatory studies, do not accrue or arise in India as the place of rendering of such services is outside India. The daily allowance paid by the applicant to the foreign company, it is said, will not come under the purview of the term perquisites , and hence will not be taxable. In respect of fees/charges paid at Johannesburg, no tax is to be deducted at source as no income-tax is payable in respect of these amounts. On the consultancy fee to be received by the applicant under the agreement in respect of services rendered in India, it is conceded that income-tax would be payable at 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical, industrial, commercial or scientific knowledge, experience or skill ; (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (v) . . . (vii) income by way of fees for technical services payable by- (a) the Government ; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : . . . Explanation 2.-For the purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement between SRK and TISCO. The agreement stipulates a consolidated remuneration of US $ 203,090 as payable by TISCO to SRK and the sectionalisation only explains the way in which the figure was arrived at. Neither the salaries nor the allowances and travel expenses of the staff are paid by TISCO to them. There is only a lumpsum remuneration for technical services rendered by TISCO to SRK and the agreement itself says so. Under this agreement, all amounts are being paid by TISCO to SRK towards royalty or fees for technical services. The services may be rendered by the employees to SRK partly in India and partly in Johannesburg but the payments are made by TISCO, which is a resident, for utilising those services in India. The statute does not use the expression fees for services rendered in India but advisedly uses the words fees for services utilised in India . The two expressions have different connotations where, as here, the services are rendered to one person but the consideration is paid by another person in consideration of utilising those services in India. The provisions of section 9(1)(vi) and 9(1)(vii) are, therefore, clearly attracted. There is no difference bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onditions set out in section 115A(1)(b) are fulfilled. 2. Whether the consultancy fees to be received by the applicant from TISCO under the agreement as detailed under serial No. 2 of Appendix B of the agreement is income on which income-tax is payable under the Income-tax Act, 1961 ? If so, at what rate ? do. 3. Is there any obligation on the part of TISCO to deduct at source, from the sums payable under the agreement to the applicant towards technical and consultancy fees, income-tax under the Income-tax Act, 1961, and, if so, to what extent and what rate ? do. 4. Can TISCO make payment to the applicant of the technical fees/ charges in South Africa for the work to be done or services to be rendered in South Africa ? Will that be This will be so even if the pay- ments are made at Johannesburg. considered as an income deemed to accrue or arise in India ? Will tax be levied on such income ? If yes, then whether income-tax has to be deducted at source on such payment made in South Africa, and at what rate ? ..... X X X X Extracts X X X X X X X X Extracts X X X X
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