Independent personal services under the India-Swiss DTAA defeated TDS disallowance on payments to Swiss scientists.

Payments to Swiss resident scientists for independent scientific services were treated as independent personal services under Article 14 of the India-Swiss DTAA, not as fees for technical services under Article 12, because Article 12 excludes amounts covered by Article 14. As the recipients had no fixed base in India and had not stayed in India for 183 days or more, the income was taxable only in the state of residence. Consequently, the payer had no obligation to deduct tax at source under section 195, and the disallowance under section 40(a)(i) was held unsustainable and deleted.

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Issues: Whether payments made to Swiss resident scientists for independent scientific services were taxable as fees for technical services under Article 12 of the DTAA with Swiss Confederation and, consequently, liable for disallowance under section 40(a)(i) for failure to deduct tax at source under section 195 of the Income-tax Act, 1961, or whether they fell under Article 14 as independent personal services.

Analysis: The services were rendered by individual non-residents in Switzerland in the nature of independent scientific activities. Article 12 of the DTAA specifically excludes amounts covered by Article 14 from the definition of fees for technical services. The record also showed that the recipients had no fixed base in India and had not stayed in India for 183 days or more. In those circumstances, the payments were governed by Article 14 and were taxable only in the state of residence, so the payer was not obliged to deduct tax at source under section 195.

Conclusion: The disallowance under section 40(a)(i) was not sustainable and was liable to be deleted; the issue was decided in favour of the assessee.

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