1985 (2) TMI 6 - HC - Income Tax

Foreign Technical Services Fees Not Taxable under Section 9(1)(vii)

The High Court upheld the decision that technical services fees paid to a non-domestic foreign company were not taxable under section 9(1)(i) but fell ... Fees For Technical Services, Income Deemed To Accrue Or Arise In India Issues involved: The issue involves determining whether the technical services fees paid to a non-domestic foreign company are taxable in India u/s 9(1)(vii) of the Income-tax Act, 1961, or if they fall under the general provision of income accruing from a business connection in India u/s 9(1)(i).Summary of the Judgment:The case involved a non-domestic foreign company providing technical services to an Indian company through deputed personnel. The Income-tax Officer initially treated 30% of the technical services fees as taxable. On appeal, the Commissioner of Income-tax (Appeals) held that the fees were not taxable as the agreement had been approved by the Central Government before April 1, 1976, under the proviso to section 9(1)(vii).The Revenue appealed to the Income-tax Appellate Tribunal, arguing that the fees should be taxed under section 9(1)(i) due to the business connection between the companies. However, the Tribunal held that the fees fell under section 9(1)(vii) based on the approval date of the collaboration agreement by the Central Government.The High Court rejected the Revenue's argument that the fees should be taxed under section 9(1)(i) if excluded from section 9(1)(vii) due to the proviso. The Court emphasized that section 9(1)(i) is a general provision while section 9(1)(vii) is specific to fees for technical services. It concluded that all income from technical services, whether through a business connection or not, should be treated under section 9(1)(vii).The Court agreed with the Tribunal's decision, stating that applying section 9(1)(i) when section 9(1)(vii) is excluded by the proviso would create conflicting provisions. Therefore, the Court dismissed the petition, upholding that income from technical services should be taxed u/s 9(1)(vii) and not u/s 9(1)(i).