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TMI Blog1994 (2) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... company with Kerbs CIE, S.A., Paris, France on 29-10-1981 for setting up a plant for the production of Caustic Soda Chlorine and Chloride -Chlorine Dioxide at Nowgang Paper Project. The assessee-company made an application to the ITO on 30-6-1982 for ascertaining the rate of tax which could be deducted at source by the assessee-company on the remittance of French Franc 2,70,000 to the French firm. The ITO passed an order on 8-7-1982 under section 195(2) of the Act, directing the assessee-company to deduct tax at the rate of 20 per cent on the 50 per cent of French Franc 2,70,000 and at the rate of 40 per cent on the balance 50 per cent of French Franc 2,70,000. It was also directed that the tax should be calculated on tax basis as the assessee-company was required to remit French Franc 2,70,000 net of Indian tax. 3. Clause II of the said agreement executed between the assessee- company and the said French firm deals with the scope of work. The French firm being the vendor under the said agreement agreed to provide and the assessee-company being the purchaser agreed to avail of it and buy the following: (a)Know-how and basic engineering services for Chlorate-Chlorine Dioxide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting States. Article VII(2) defines the term 'royalties' to mean payments of any kind received as consideration for the use of, or for the right to use any copyrights of literary, artistic or scientific works, cinematographic films, patents, models, designs, plans, secret process or formulae, trademarks or for the use of, or for the right to use, industrial, commercial or scientific equipment or for information concerning industrial, commercial or scientific experience, but does not include any royalty or similar payments in respect of the operation of mines, quarries or other places of extraction of natural resources. The question involved in this reference is whether the consideration received by the French firm for the supply of various technical know-how and basic engineering services as also for supply of imported equipments constitutes industrial or commercial profits within the meaning of article 111(5) of the DTA agreement between the Government of India and the Government of France. 6. The Commissioner (Appeals) looked into the terms of agreement executed on 29-10-1981 between the assessee-company and the French firm and after examining the DTA, the Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e III and article VII(2) of the DTA and it failed to consider the definition of royalty and technical service fees as contained in section 9. According to him, the total payments made by the assessee-company for know-how and basic engineering services came within the expression 'royalty' as defined under article VII of the DTA and, therefore, it was wholly taxable in this country. He submitted that the payments made to the French firm did not come within the expression 'industrial or commercial profits' as defined in article 111(5) of the DTA. The learned counsel appearing for the revenue also submitted that it is necessary to consider the definition of royalties as contained in section 9 in addition to the definition contained in DTA. 9. Dr. Pal, the learned counsel, appearing for the assessee, however, reiterated the submissions made before the Commissioner (Appeals) as well as before the Tribunal. He, therefore, submitted that the non resident French firm in this case has agreed to supply the imported equipments as also the know-how and basic engineering services on an outright basis to the assessee-company in terms of the said agreement executed on 29-10-1981 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the provisions in the Act. Where there is no specific provision in the agreement, it is the basic law, ie., the Act, that will govern the taxation of income. 11. We also find that sub-section (2) has been inserted in section 90 of the Income-tax Act, by the Finance (No. 2) Act, 1991 with retrospective effect from 1-4-1992. Sub-section (2) so inserted as aforesaid clearly provides that where the Central Government has entered into an agreement with the Government of any country outside India under section 90 for granting relief of tax or, as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. 12. In other words, it is very clear that the DTA Agreement shall always prevail even when an anomaly is noticed between the provisions of the Act and the provisions of DTA. Further, in view of sub-section (2) of section 90, the assessee has an option to claim that provisions of the Act may be made applicable if these are more beneficial to the assessee. In other words, the provisions of the Act, which are against the assessee can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntracting States should proceed to the other contracting States although assisting in the installation of the machinery therein, such activity, shall not be deemed to constitute a permanent establishment unless it is carried on for a period exceeding 3 years or the expenses incurred on such activity are more than 10 per cent of the total sale price of the order. Sub-clause (bb) of clause (i ) of article II(1) of the DTA further lays down that an enterprise of one of the contracting States shall be deemed to have a fixed place of business in the other contracting States, if it carries out in the other contracting State a construction, installation or assembly project or the like. In that event it will be a case of permanent establishment within the meaning of article 2(1)(i). In that case some tax liability will arise in the hands of the French firm in respect of the amount payable by the assessee-company and such tax liability will have to be determined having regard to the provisions contained in clauses (2), (3) and (4) of article III of the DTA. A perusal of the scope of technical and engineering services to be provided by the French firm to the assessee-company shows that the F ..... X X X X Extracts X X X X X X X X Extracts X X X X
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