Technical consultancy receipts treated as fees for technical services, with treaty rate prevailing over domestic tax provisions

Technical and consultancy receipts received by a foreign company were treated as fees for technical services, not as income governed by the presumptive regime in section 44BB, because the agreements related to technical work and not to mining or prospecting operations. The article explains that such receipts fall within the special charging framework for fees for technical services and are not protected as business income under section 44BB where the statutory exclusions apply. It also notes that under the UK treaty, article 13 governs fees for technical services, the services made available technical knowledge and know-how, and the more beneficial treaty rate prevailed under section 90(2), resulting in taxability at twenty per cent of the gross amount.

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Issues: (i) Whether the consideration receivable under the consulting agreements was chargeable to tax under the Income-tax Act, 1961 or was governed only by the presumptive regime under section 44BB; (ii) Whether, on the facts, the receipts were taxable as fees for technical services under article 13 of the double taxation agreement with the United Kingdom and, if so, at what rate.

Issue (i): Whether the consideration receivable under the consulting agreements was chargeable to tax under the Income-tax Act, 1961 or was governed only by the presumptive regime under section 44BB.

Analysis: The services under the three agreements were treated as interrelated and directed to technical and consultancy work for the Indian concern. Section 44BB applies to non-residents engaged in services or facilities in connection with prospecting for, or extraction or production of, mineral oils, but its proviso excludes cases where section 44D or section 115A applies. The receipts fell within the definition of fees for technical services under section 9(1)(vii), and section 44D, read with section 115A, constituted the special code for taxing such receipts from a foreign company. The attempt to characterise the receipts as business income protected by section 44BB was rejected because the agreements were for technical and consultancy services and not for mining or a like project undertaken by the recipient.

Conclusion: The receipts were chargeable to tax under the Income-tax Act, 1961 and were not taxable under section 44BB.

Issue (ii): Whether, on the facts, the receipts were taxable as fees for technical services under article 13 of the double taxation agreement with the United Kingdom and, if so, at what rate.

Analysis: Article 13 of the treaty specifically governed royalties and fees for technical services and prevailed over the general business profits article. The technical and consultancy services rendered under the agreements made available technical knowledge, experience, skill and know-how within article 13(4)(c). As the applicant had no permanent establishment in India, article 7 did not apply. The non-discrimination argument under article 26 was rejected because the treaty did not support the claimed parity in the circumstances, and the applicable treaty rate was more beneficial than the domestic rate under section 115A. By virtue of section 90(2), the applicant was entitled to the more beneficial treaty rate.

Conclusion: The receipts were taxable as fees for technical services under article 13 at the rate of twenty per cent of the gross amount.

Final Conclusion: The Authority held that the consulting receipts were taxable in India as fees for technical services and that the treaty rate of twenty per cent applied for the relevant assessment years.

Ratio Decidendi: Payments for technical and consultancy services rendered by a foreign company, where the receipts fall within the statutory definition of fees for technical services, are governed by the special charging and computation provisions and, where a treaty provides a more beneficial rate, that treaty rate prevails under section 90(2).

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