Taxability of fees for technical services turned on section 9 deeming rules, justifying a reference on a question of law.

The High Court noted that the Tribunal had rejected the revenue's reference request on the ground that no technical service was rendered in India, but had not addressed section 9(1)(vii)(b) of the Income-tax Act, 1961. That provision deems fees for technical services payable by a resident to accrue or arise in India, subject to the statutory exception. Because the taxability of the payment to the non-resident depended on that legal provision, the controversy raised a question of law fit for reference under section 256(2). The reference application was therefore allowed and the Tribunal was directed to state the case on the questions proposed by the revenue.

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Issues: Whether a question of law arose warranting reference to the High Court under section 256(2) of the Income-tax Act, 1961 on the issue of taxability of fees for technical services payable by a resident under section 9 of the Income-tax Act, 1961.

Analysis: The Tribunal had rejected the revenue's reference application on the footing that no technical service was rendered in India. The High Court noted that the Tribunal's order did not show consideration of section 9(1)(vii)(b) of the Income-tax Act, 1961, which deems income by way of fees for technical services payable by a resident to accrue or arise in India, subject to the statutory exception. On that basis, the controversy as to whether the amount paid to the non-resident assessee was taxable raised a question of law fit for a reference.

Conclusion: The reference application was allowed and the Tribunal was directed to send the statement of case on the questions proposed by the revenue.

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