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TMI Blog2001 (12) TMI 196X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of deducting tax at source from two payments, amounting to French Francs 3,14,790 and French Francs 3,14,950 covered by the respective appeals, made to one M/s. Decoufle s.a.r.l., France, on account of installation and commissioning charges in respect of certain machineries purchased from this very French company. 3. Briefly stated, material facts of the case are that respondent ie. ITC Limited (hereinafter referred to as "the assessee tax-deductor") imported two sets of machines from Decoufle s.a.r.l., France, (hereinafter referred to as 'Decoufle'). Decoufle also deputed its technicians, for installation and commissioning of these machines, 6th March, 1995 to 10th July, 1995 (146 days) and 15th March, 1995 to 29th May, 1995 (75 days) respectively. It was in connection with this installation and commissioning of machines that the assessee was to pay sums of French Francs 5,14,790 and French Francs 3,14,950 (net of taxes) to Decoufle. The assessee moved applications under section section 195 of the Income-tax Act (hereinafter referred to as 'the Act') and prayed for issuance of a 'no objection certificate' for remitting these sums without any deduction of tax at source. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore concluded that 'it cannot be said that M/s. Decoufle has provided technical consultancy service to the appellant'. The CIT(A) further observed that Decoufle did not have any 'permanent establishment'(PE) in India and that unless the Decoufle has a PE in India or unless the installation project takes more than six months time, income embedded in such payments was not taxable in India. It was stated that when there is no PE and the installation project does not take time beyond six months, the tax has to be paid in the country from which plant and machinery is purchased and from which the persons come for setting up and installing the plant and machinery. In support to this proposition, a reference was made to Article 5 and Article 7 of the India France DTAA. It was in this background that the CIT(A) came to the conclusion that the Assessing Officer was not justified in declining issuance of a no objection certification for remittances to Decoufle, without any deduction of tax at source. The CIT(A) also directed the Assessing Officer that 'refunds (of taxes already deducted) may be issued forthwith'. Revenue is aggrieved and in appeal before us. 5. We have conscientiously ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y have been made in the Agreement. Thus, where a Double Taxation Avoidance Agreement provided for a particular mode of computation of income, the same should be followed, irrespective of the provisions in the Income-tax Act. Where there is no specific provision in the Agreement, it is the basic law, i.e., the Income tax Act, that will govern the taxation of income.' In our view, the Circular reflected the correct legal position inasmuch as the Convention or Agreement is arrived at by the two contracting Governments in deviation from the General principles of taxation applicable to the Contracting States; otherwise, the double taxation avoidance agreement will have no meaning at all." 6. We will, therefore, firstly examine taxability of impugned payments to Decoufle, in the light of provisions in applicable India France Double Taxation Avoidance Agreement. In view of the provisions of Article 30(1)(a)(i) of India France DTAA dated 29th September, 1992, which came in force on 1st August, 1994, this DTAA is applicable with respect to income arising in India in the previous years beginning 1995-96 i.e. fiscal years beginning on or after 1st day of April following the calendar year in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stage, it is also important to refer to an extract from the protocol signed at the time of conclusion of the aforementioned India France DTAA. The relevant portion is reproduced below: PROTOCOL At the time of proceeding to the signature of the Convention between France and India for the avoidance of double taxation with respect to taxes on income and on capital, the undersigned have agreed on the following provisions which shall form an integral part of the Convention: ....................... ........................ 7. In respect of Articles 11 (Dividends), 12 (Interest) and 13 (Royalties, fees for technical services and payments for the use of equipment), if under any Convention, Agreement or Protocol signed after 1-9-1989, between India and a third State which is a member of the OECD, India limits its taxation at source on dividends, interest, royalties, fees for technical services or payments for the use of equipment to a rate lower or a scope more restricted than the rate of scope provided for in this Convention on the said items of income, the same rate of scope as provided for in that Convention, Agreement or Protocol on the said items of income shall also apply und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person in consideration for the rendering of any technical or consultancy services (including the provision of services of technical or other personnel) which: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this Article is received; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received; or (c) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. Article 13(5) The definitions of fees for technical services in paragraph 4 of this Article shall not include amounts paid: (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property, other than property described in paragraph 3(a) of this Article; (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships, or aircraft in international traffic; (c) for teac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [*Article 12(3)(a) refers to payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof]. 12. We have also noticed that Article 12(4) and 12(5) of the India Switzerland Double Taxation Avoidance Agreement provides as follows: Article 12(4) For purposes of this Article, the term "fees for included services' means: (a) payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel), if such services are ancillary and subsidiary to the application or enjoyment of the right, for which a payment described in sub paragraph (b) of paragr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices', in these treaties, appears to be far more restricted than the scope of the same expression in Indo French DTAA which broadly defines fees for technical services as to mean payments in consideration for services of a managerial, technical or consultancy nature. Therefore, whereas payments for all kind of technical services are to be treated as 'fees for technical services' for the purpose of Article 13(4) of Indo French DTAA, such payments cannot be treated as to be in the nature of 'fees for technical services', under respective articles in Indo UK, Indo US and Indo Swiss Double Taxation Avoidance Agreements, in case the same constitutes' fees for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property'. Clearly, therefore, scope of 'fees for technical services' is much more restricted in Indo UK, Indo US and Indo Swiss DTAAs vis-a-vis the DTAA that India has entered into with France. 14. Our attention has also been invited to the CBDT notification No. S.O. 650 (E) dated 10th July, 2000 which inter alia states as follows: Where the Convention between the Republic of India and the French Republic for the avoid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 13 relating to 'Royalties and fees for technical services and payments for the use of equipment', the following paragraph shall be read: "2. However, such royalties, fees and payments may also be taxed in the Contracting State in which they arise and according to the laws of that Contracting State, but if the recipient is the beneficial owner of these categories of income, the tax so charged shall not exceed: (a) in the case of royalties and fees 20 per cent of the gross amount of such royalties or fees; and (b) in the case of payments referred to in paragraph 5 of this Article, 10 per cent of the gross amount of such payments." V. With effect from the 1st April, 1997, for paragraph 2 of Article 13 relating to 'Royalties and fees for technical services and payments for the use of equipment' referred to in paragraph IV above, the following paragraph shall be read: "2. However, such royalties, fees and payments may also be taxed in the Contracting State in which they arise and according to the laws of that Contracting State, but if the recipient is the beneficial owner of these categories of income, the tax so charged shall not exceed 10 per cent of the gross amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Tata Iron Steel Co. Ltd. v. Dy. CIT [1999] 69 ITD 292 (Mum.) in support of the proposition that executive authority of the Government cannot, by way of a notification, lay down provisions having retrospective effect. It is thus submitted that by way of notification dated 20th July 2000, no amendment, allegedly impairing the existing rights guaranteed by the protocol clause in question, can be made in a treaty which will adversely affect the taxpayer's rights effective from a date earlier than 20th July, 2000. On the strength of these submissions, learned counsel submitted that the CBDT notification dated 20th July, 2000 does not adversely affect the position of the assessee. Learned Departmental Representative, however, placed her bland reliance upon the notification issued by the CBDT. 16. A perusal of the aforesaid notification gives us a prima facie impression that it constitutes Central Government's independent action to implement the understanding arrived at by the virtue of protocol clauses in the India France DTAA. It is difficult to comprehend as to how the Central Government can unilaterally amend, in exercise of the powers under section 90 of the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we are of the considered view that the same scope of 'fees for technical services' as provided for in the Indian DTAAs with UK, USA and Switzerland, which is far more restricted vis-a-vis the scope of this expression in Indo French DTAA, shall also apply under Indo French DTAA, with effect from the date on which the Indo French DTAA or such other DTAA enters into force, whichever enters into force later. As all the three DTAAs discussed above entered into force on a date earlier than the commencement of the previous year 1995-96, the scope of technical services, for the purpose of Indo French DTAA, cannot be broader than that envisaged in the above DTAAS. In this view of the matter, we hold that the 'fees for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property' are outside the scope of technical services so far as Indo French DTAA is also concerned, even though no such specific exclusion clause is incorporated directly in the treaty itself, right from the time Indo French DTAA entered into force. Accordingly, in the year in appeal before us, the 'fees for technical services' for the purpose of Indo French DTAA, did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollary to this proposition, when, in terms of the provisions of a DTAA, an income is not exigible to income-tax in India, no tax is required to be deducted under section 195 from the payment of such income to a non resident. We have already held that, in terms of the provisions of the applicable Indo French DTAA, the income embedded in impugned payments to Decoufle was not liable to income tax in India. Accordingly, in our considered view, the assessee tax deductor was not under any obligation to deduct tax at source from related remittances to the French company i.e. Decoufle s.a.r.l. 21. For the detailed reasons set out above, we support the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter. 22. In the result, ITA Nos. 970 and 971/Cal./98 are dismissed. 23. We now turn to ITA No. 973/Cal./98 which relate to assessee's liability of deducting tax at source from certain payments, amounting to UK pound 10,500, made to one M/s. NTM Limited, United Kingdom, (hereinafter referred to as NTM) on account of commissioning charges in respect of three machines purchased from this UK based company. 24. As far as this appeal is concerned, material facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 94 dated 14th February, 1994, and it was for services rendered in connection with installation and commissioning of these machines that UK pound 10,500 were paid to NTM (copy of invoice No. 2738-95 dated 6th September, 1995). It is also not in dispute that without installation and commissioning of these machines by the NTM's technicians, these machines could not have been put to commercial use. It is thus clear that the technical services rendered by NTM were, to use the phraseology employed in tax treaties, 'services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property'. It is also not in dispute that in terms of Indo UK DTAA, NTM did not have any 'permanent establishment' in India to which such income can be attributed. In this view of the matter, and in view of the specific exclusion of fees for such services from the scope of 'fees for technical services' by the virtue of Article 13(5)(a) of Indo UK DTAA, we hold that the income arising to NTM from rendering these technical services will not taxable in India. Accordingly, in our considered view and relying upon the deliberations in paragraphs 19 and 20 above, which are broad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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