Treaty treatment of cross-border legal services excluded fees for included services taxability under the India-USA DTAA.

A non-resident firm of solicitors rendering legal services from outside India was held to fall within article 15 of the India-USA treaty, not article 12. The Tribunal applied section 90(2) of the Income-tax Act and held that the DTAA prevails where more beneficial, while the treaty scheme treats professional legal services by a firm of solicitors as excluded from fees for included services. The Revenue's reliance on domestic law authorities was rejected because the dispute had to be resolved on the treaty language. The amounts were therefore not taxable in India as fees for included services.

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Issues: Whether the professional and legal services rendered by a non-resident firm of solicitors from outside India were taxable in India as fees for included services under article 12 of the India-USA treaty, or were excluded as professional services falling under article 15.

Analysis: The Tribunal noted that the assessee was a firm of solicitors resident in the United States, had no fixed base in India, and its partners and employees rendered services from outside India. It applied section 90(2) of the Income-tax Act, 1961, and held that the treaty provisions would prevail to the extent they were more beneficial. On the construction of article 12, fees for included services do not cover amounts paid to an individual or firm of individuals for professional services as defined in article 15. The Tribunal also relied on the treaty scheme, which specifically treats legal services rendered by a firm of solicitors as professional services and makes article 12 and article 15 mutually exclusive in such cases. The Revenue authorities' reliance on domestic law decisions was held to be unhelpful because the dispute had to be resolved on the treaty language.

Conclusion: The services fell under article 15 and not article 12, and the amounts received were not taxable in India as fees for included services.

Ratio Decidendi: Where a non-resident firm of solicitors renders professional legal services, and the treaty specifically excludes such payments from the definition of fees for included services, the payment is governed by the independent personal services article rather than the fees-for-services article, with the DTAA prevailing over the Income-tax Act under section 90(2).

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