Treaty-based exemption for foreign technical services negated withholding tax where technicians stayed under 90 days and no permanent establishment existed.

Remittances for erection, assembly and commissioning services were treated as falling within the treaty provisions on independent professional services. Because the technicians remained in India for less than 90 days and the foreign company had no permanent establishment in India, the income was held not taxable in India under the applicable Double Taxation Avoidance Agreement. No obligation to deduct tax at source arose on the remittances, and the assessee was not liable to withhold tax under section 195(2).

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Issues: Whether the assessee was liable to deduct tax at source under section 195(2) on remittances made to the Italian company for erection, assembly and commissioning services, in light of the Double Taxation Avoidance Agreement and the period of stay of the technicians in India.

Analysis: The remittance was held to fall within the treaty provisions dealing with independent professional services. Since the technicians stayed in India for less than 90 days and the foreign company had no permanent establishment in India, the income was held not taxable in India under the applicable treaty articles. On that basis, no obligation to deduct tax at source arose on the remittances.

Conclusion: The assessee was not liable to deduct tax at source on the amounts remitted to the foreign company.

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