Treaty-based taxation of technical fees depends on receipt, not accrual, under the India-Germany DTAA.

Fees for technical services payable to a German resident were held taxable under the India-Germany DTAA on receipt basis, not on mere accrual or book entry, because Article 12 governed and the treaty was more beneficial than section 9(1)(vii) of the Income-tax Act. The assessee's cash system of accounting further supported taxation only when payment was received. On that basis, the accrual-based addition was unsustainable and directed to be deleted. However, since no conclusive evidence was produced before the lower authorities that the amount had already been offered to tax in the subsequent year, the limited factual question was remitted for verification.

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Issues: Whether fees for technical services payable to a non-resident resident of Germany were taxable in India on accrual basis or only on receipt basis under the applicable double taxation avoidance agreement, and whether the impugned addition could survive in the relevant assessment year.

Analysis: The assessee was a German company and the dispute related to testing and inspection charges treated by the revenue as fees for technical services. The domestic law position under section 9(1)(vii) of the Income-tax Act, 1961 was invoked by the assessing officer to tax the amount on accrual basis, but the relevant treaty provisions were held to govern because the Double Taxation Avoidance Agreement between India and Germany was in force and was beneficial to the assessee. The tribunal followed the treaty interpretation adopted in earlier decisions and noted that, under Article 12, the taxable event for royalties and fees for technical services was the receipt of payment by the German resident, not mere accrual or book provision. The assessee's stated cash system of accounting reinforced the position that the amount could not be taxed on accrual basis. At the same time, as no evidence was produced before the lower authorities to conclusively show that the amount had already been offered to tax in the subsequent year, the matter was restored for limited verification on that factual aspect.

Conclusion: The addition on accrual basis was not sustainable and was directed to be deleted, but the limited question whether the amount was offered to tax in the later year was remitted for verification.

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