2004 (7) TMI 35 - HC - Income Tax

High Court rules in favor of foreign company, deems payment as technical fees not royalty, subject to 20% tax rate.

Commissioner of Income-Tax Versus Barmag Ag, West Germany.

The High Court dismissed the appeal, ruling in favor of the foreign company, as the payment made to the foreign company was considered technical know-how ... Substantial question of law - 'Whether in terms of DTAA with Germany, the Tribunal was right in holding that the payment made to the assessee-foreign company was taxable @ of 20 %, as technical know-how fees and not at 30 %, as royalty?' - it is seen that both appellate authority have rendered a categorical factual finding based on appreciation of evidence - Even though the appellant has not succeeded before both the appellate authorities, it has chosen to file the present appeal, by contending that the substantial question of law as stated supra should be decided by this court. A perusal of the substantial question of law clearly discloses that the appellant is aggrieved only with regard to the factual findings rendered by the appellate authorities, much less, there is no substantial question of law involved in the present appeal. The scope of section 260A of does not enable the parties to file an appeal, if they are aggrieved, as against the factual finding rendered by the appellate authorities. - there is no substantial question of law – Appeal by revenue is dismissed Issues:Interpretation of Double Taxation Avoidance Agreement with Germany regarding taxation rate for payment made to foreign company - Whether payment should be taxed at 20% as technical know-how fees or 30% as royalty.Analysis:The case involved a dispute over the tax rate applicable to a payment made to a foreign company by their agents in India. The Assessing Officer initially determined that the payment constituted royalty and should be taxed at 30% under section 115A of the Income-tax Act. The foreign company contended that the payment should be considered technical know-how fees and taxed at 20% as per the Double Taxation Avoidance Agreement with Germany. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal both upheld the foreign company's position, leading to the Revenue filing an appeal.The Commissioner found that the payment was linked to technical know-how fees and not royalty, especially considering that the Indian company had not yet commenced production during the relevant assessment year. The Tribunal confirmed this decision, noting that the Revenue did not raise any valid objection to the Commissioner's findings. The appellate authorities made factual findings based on the agreement between the parties, concluding that the Assessing Officer's decision was incorrect.The High Court, in its analysis, emphasized that the appeal did not involve any substantial question of law but rather a challenge to factual findings made by the lower appellate authorities. Referring to the scope of section 260A of the Income-tax Act, the court highlighted that parties cannot appeal against factual findings alone. Citing precedent, the court clarified that the appeal lacked merit as it did not raise any substantial legal issue. Consequently, the court dismissed the appeal, ruling in favor of the foreign company.