Treaty taxation of technical design fees and no section 234B interest where tax deduction at source governs advance tax liability.

Fees for preparing detailed project reports, technical drawings and engineering designs for highway works were treated as fees for included services under Article 12(4)(b) of the India-Canada DTAA because the payment involved development and transfer of a technical plan or technical design; on that basis, the treaty rate of 15% applied rather than the rate under section 115A. The text also states that interest under section 234B was not leviable where tax was deductible at source and credit for such tax was to be considered in computing advance tax liability, leaving no independent advance-tax default.

---

---

Issues: (i) Whether the fees received for preparing detailed project reports and designs for highway projects fell within Article 12(4)(b) of the India-Canada DTAA as fees for included services and were taxable at 15% instead of 20% under section 115A of the Income-tax Act, 1961; (ii) Whether interest under section 234B of the Income-tax Act, 1961 was leviable.

Issue (i): Whether the fees received for preparing detailed project reports and designs for highway projects fell within Article 12(4)(b) of the India-Canada DTAA as fees for included services and were taxable at 15% instead of 20% under section 115A of the Income-tax Act, 1961.

Analysis: The services comprised detailed project reports, technical drawings, engineering designs, and related plans for widening and rehabilitation of highways. The payment was for rendering technical and consultancy services and also involved the development and transfer of a technical plan or technical design. The clause does not require the additional condition of making available technical knowledge, experience, skill, know-how or process where the consideration is for development and transfer of a technical plan or technical design. The amount therefore satisfied Article 12(4)(b) of the treaty.

Conclusion: The receipt was taxable as fees for included services under Article 12 of the India-Canada DTAA and the treaty rate of 15% applied, not the rate under section 115A.

Issue (ii): Whether interest under section 234B of the Income-tax Act, 1961 was leviable.

Analysis: Interest under section 234B depends on a liability to pay advance tax. The payer was required to deduct tax at source, and the assessee was entitled to take credit for tax deductible at source while estimating advance tax. On that basis, no advance tax liability arose beyond the tax deductible at source. Section 191 creates liability to pay tax directly where tax is not deducted, but it does not extend the charge to interest under section 234B on these facts.

Conclusion: Interest under section 234B was not leviable.

Final Conclusion: The assessee succeeded on both the treaty-rate issue and the interest issue, and the revenue's challenge failed.

Ratio Decidendi: Under Article 12(4)(b) of the India-Canada DTAA, consideration for rendering technical or consultancy services is fees for included services when it consists of the development and transfer of a technical plan or technical design, even without proof that technical knowledge was made available; and section 234B is not attracted where no advance tax liability arises because tax deductible at source is to be given credit in the advance-tax computation.

---