Double tax treaty protection limits Indian tax on incidental erection and commissioning services by a foreign supplier.

A foreign supplier's services in India for erection and commissioning of imported machinery were treated as incidental to the supply contract and not as personal services. On the facts found, the applicable double taxation agreement governed the remittance, and the attempt to tax the amount under section 9 was not justified. The Calcutta HC therefore held that the tax demand on the remittance could not be sustained, and the impugned demand was set aside, granting relief to the assessee.

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Issues: Whether the tax demand on remittance to the foreign supplier could be sustained when the transaction was governed by the avoidance of double taxation agreement, and whether the services rendered for erection and commissioning of the machine amounted to personal services attracting Indian tax liability.

Analysis: The foreign supplier manufactured the press abroad and rendered services in India only in connection with setting up and making the plant workable. Those services were incidental to the supply and erection arrangement and could not be characterised as personal services. In view of the agreement for avoidance of double taxation, the attempt to bring the amount within section 9 was not justified on the facts found.

Conclusion: The demand for tax on the remittance was not sustainable and the petition succeeded.

Final Conclusion: The impugned tax demand was set aside and the assessee obtained the relief sought.

Ratio Decidendi: Services rendered by a foreign supplier in connection with erection and commissioning of supplied equipment, when incidental to the supply contract and not personal in nature, do not by themselves justify Indian tax liability where the applicable double taxation agreement governs the transaction.

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