Treaty treatment of non-resident consultancy fees: scientific services were not taxable in India, so no withholding tax arose.

Consultancy fees paid to a non-resident scientist were treated as professional services/independent personal services under the Indo-US treaty, not as fees for included services. Because Article 12(5) excluded such independent personal services from Article 12(4), the payment was not taxable as included services. Taxability under Article 15 also failed since no fixed base was regularly available in India and the non-resident did not stay in India for 90 days or more. As the remittance was not chargeable to tax in India, no withholding obligation arose under section 195.

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Issues: Whether consultancy fees paid to a non-resident scientist were taxable in India under the Indo-US tax treaty as fees for included services or as independent personal services, and whether the payer was therefore required to deduct tax at source.

Analysis: The consultancy arrangement involved predominantly intellectual and specialised scientific work, so the services fell within the concept of professional services and independent personal services under Article 15. By virtue of Article 12(5), amounts paid for such independent personal services are excluded from Article 12(4), and the payment could not be treated as fees for included services. Taxability under Article 15 also failed because no fixed base was regularly available in India for the relevant professional activity and the non-resident did not stay in India for 90 days or more. As the payment was not chargeable to tax in India under the treaty, no withholding obligation arose under section 195.

Conclusion: The remittance was not exigible to Indian income tax and the assessee had no tax deduction at source liability.

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