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Issues: (i) Whether the payments received by the non-resident assessee from Indian customers were taxable at the rate applicable to fees for technical services under Article 12 of the DTAA or were to be brought to tax as business income attributable to a permanent establishment under Article 7 read with section 115A of the Income-tax Act, 1961. (ii) Whether interest under section 234B of the Income-tax Act, 1961 was leviable on the assessee.
Issue (i): Whether the payments received by the non-resident assessee from Indian customers were taxable at the rate applicable to fees for technical services under Article 12 of the DTAA or were to be brought to tax as business income attributable to a permanent establishment under Article 7 read with section 115A of the Income-tax Act, 1961.
Analysis: The services rendered were found to be consultancy in nature, and the invoices showed that the receipts were for technical consultancy services. For determining existence of a permanent establishment on the basis of supervisory activities, the actual stay of employees in India was held to be relevant and not the entire contract period. On the facts, the deputed employee did not stay in India for more than 180 days, and the consultancy services did not justify application of Article 7. The Protocol to the DTAA also provided that income from technical services exercised in the source State in connection with a permanent establishment in the other Contracting State would not be attributed to that permanent establishment.
Conclusion: The receipts were held taxable under Article 12 as fees for technical services at 10%, and section 115A was held inapplicable. This issue was decided in favour of the assessee.
Issue (ii): Whether interest under section 234B of the Income-tax Act, 1961 was leviable on the assessee.
Analysis: Following the binding High Court rulings on advance tax liability where income is subject to tax deduction at source, the levy of interest under section 234B was not sustained.
Conclusion: The deletion of interest under section 234B was upheld and this issue was decided against the Revenue.
Final Conclusion: The assessee succeeded on the principal taxability question, while the Revenue failed on the interest issue, resulting in only partial relief to the assessee overall.
Ratio Decidendi: For non-resident technical consultancy receipts, the actual stay of employees in India is material for permanent establishment analysis, and where the DTAA Protocol excludes attribution to a permanent establishment, the receipts remain assessable as fees for technical services rather than business profits.
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