Treaty rate applies to technical services fees paid to a UK non-resident, with tax excluded from income

Technical services payments to a UK non-resident were treated as fees for technical services, and the proportion of the sum payable was examined under the withholding provisions. Because the services fell within article 13 of the India-UK tax treaty, tax deduction at source applied at the treaty rate on the gross amount of the fees, namely 15 per cent. Tax paid under the approved arrangement was not included in income by virtue of the Income-tax Act exemption for such payments.

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Issues: Whether the amounts payable for technical services were liable to tax deduction at source at the rate applicable under the Double Taxation Avoidance Agreement between India and the United Kingdom.

Analysis: The payment was characterised as fees for technical services. The computation of the proportion of the sum payable to the non-resident fell within section 195(2) of the Income-tax Act, 1961. Since the services were covered by article 13 of the Double Taxation Avoidance Agreement between India and the United Kingdom, the applicable rate of deduction was the treaty rate on the gross amount of such fees. The ruling also noted that tax paid under the approved arrangement would not form part of the income by virtue of section 10(6A) of the Income-tax Act, 1961.

Conclusion: The rate of tax deduction at source was held to be 15 per cent under article 13 of the treaty, and the corresponding tax payment would not form part of the income under section 10(6A) of the Income-tax Act, 1961.

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