Fees for technical services by a non-resident were taxable in India, with withholding at the more beneficial treaty rate.

Fees paid to a non-resident consultant for analysing and testing samples with reports supplied for use in an Indian business were treated as fees for technical services, because the work was managerial, technical or consultancy in nature and did not fall within the statutory exclusion for services used outside India or for earning foreign-source income. The consideration was therefore deemed to accrue or arise in India, and withholding under section 195 applied. For tax deduction at source, the applicable rate was to be determined by comparing the domestic rate with the treaty rate under Article 12, and the lower, more beneficial rate would govern.

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Issues: (i) Whether the fees payable to a non-resident consultant for analysing and testing samples and sending reports constituted fees for technical services and were deemed to accrue or arise in India; and (ii) what rate of tax was applicable for deduction at source.

Analysis: The services fell within the definition of fees for technical services because they were managerial, technical or consultancy services and did not relate to a construction, assembly, mining or like project undertaken by the recipient. The exclusion in section 9(1)(vii)(b) did not apply because the services were not utilised in a business or profession carried on outside India and were not for earning income from a source outside India. The reports were used in the applicant's business in India, so the income was deemed to accrue or arise in India and section 195 was attracted. For the rate of tax, the applicable deduction was to be determined by comparing the domestic rate in the Finance Act with the treaty rate under Article 12, and the more beneficial rate would apply.

Conclusion: (i) Yes, the services were rendered in India and the consideration was taxable as fees for technical services deemed to accrue or arise in India, against the assessee; and (ii) the tax deductible at source would be at the lower of the domestic rate or the treaty rate, in favour of the assessee.

Final Conclusion: The advance ruling held that the consultancy payments were taxable in India as fees for technical services, while the withholding rate had to be applied at the more beneficial of the domestic and treaty rates.

Ratio Decidendi: Where technical or consultancy services of a non-resident are utilised in an assessee's business in India, the consideration is deemed to accrue or arise in India under section 9(1)(vii)(b), and treaty protection extends only to the extent the applicable treaty rate is more beneficial.

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