Fees for technical services under the India-U.K. treaty confirmed for fabric design transfer, with tax deduction upheld.

The Tribunal held that an objection to maintainability under section 248 could not be reopened in appeal because the Commissioner (Appeals) had already admitted the matter and the Revenue had not challenged that admission or filed a cross-objection. It further held that payments to a UK consultant for developing and transferring fabric designs fell within article 13(4)(c) of the India-U.K. treaty as fees for technical services, because the designs were to be made available for the assessee's use without restriction. The payment was therefore taxable in India and subject to tax deduction at source under section 195; both appeals were dismissed.

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Issues: (i) whether the assessee's objection to maintainability under section 248 could be entertained in the appeal; (ii) whether the payments made to the UK consultant for fabric designs constituted fees for technical services taxable in India, attracting deduction of tax at source under section 195.

Issue (i): Whether the assessee's objection to maintainability under section 248 could be entertained in the appeal.

Analysis: The appeal had already been admitted by the Commissioner (Appeals) under section 248. The Revenue had not challenged that admission and had also filed no cross-objection. In those circumstances, the objection to admissibility could not be reopened before the Tribunal.

Conclusion: The maintainability objection was rejected.

Issue (ii): Whether the payments made to the UK consultant for fabric designs constituted fees for technical services taxable in India, attracting deduction of tax at source under section 195.

Analysis: The consultant was required to develop and transfer fabric designs, provide progress reports, and make available the developed designs to the assessee without any contractual restriction preventing their use or further disposal by the assessee. The Tribunal held that the arrangement fell within article 13(4)(c) of the India-U.K. treaty because it involved the development and transfer of a technical design and, on the facts, satisfied the treaty definition of fees for technical services. The treaty-based contention that the payment was not taxable failed, and the authorities relied upon by the assessee were distinguished on facts.

Conclusion: The payment was held to be fees for technical services and tax was deductible at source; the issue was decided against the assessee.

Final Conclusion: Both appeals were dismissed after holding that the remittance to the UK consultant was taxable as fees for technical services and that the assessee was obliged to deduct tax at source.

Ratio Decidendi: Where a foreign consultant develops and transfers a technical design that the recipient may use independently, the payment is taxable as fees for technical services under the treaty and attracts deduction of tax at source.

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