Contract for work, not technical services, excluded tax deduction at source on machinery dismantling and packing payments.

Consideration for dismantling, packing and loading used machinery was held not to be fees for technical services because the agreement, read as a whole, was a contract for work rather than managerial, technical or consultancy services. Mere use of skilled personnel did not change the character of the payment, so it fell outside section 9(1)(vii) and article 13(4) of the India-Poland DTAA. As the non-resident had no permanent establishment in India and the income arose outside India, no tax was deductible at source under section 195, and the section 201 demand was correctly deleted by the ITAT.

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Issues: Whether consideration paid to the non-resident for dismantling, packing and loading of used machinery constituted fees for technical services so as to attract tax deduction at source and consequential liability under section 201.

Analysis: The agreement, read as a whole, showed that the non-resident was engaged for dismantling of machinery, match marking, seaworthy packing, stuffing into containers and loading on trucks. The dominant character of the arrangement was a contract of work and not a contract for managerial, technical or consultancy services. Mere involvement of skilled personnel did not convert the activity into technical services. The payment was therefore outside the scope of fees for technical services under section 9(1)(vii), and it was also not chargeable under article 13(4) of the India-Poland DTAA. As the non-resident had no permanent establishment in India and the income arose outside India, no obligation to deduct tax at source under section 195 arose.

Conclusion: The payment was not taxable as fees for technical services and the assessee was not liable to deduct tax at source; the order under section 201(1) read with section 201(1A) was rightly deleted, in favour of the assessee.

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