Tax deduction at source on foreign technical fees was not required where services were rendered abroad and no Indian permanent establishment existed.

Technical know-how fees paid to an Austrian company for services rendered in Austria were not subject to tax deduction at source before remittance because the recipient had no permanent establishment in India. On those facts, the applicable India-Austria Double Taxation Agreement allocated taxing rights outside India, so the remittance did not give rise to Indian tax liability. The Assessing Officer therefore had no basis to require deduction under section 195(2) and should have granted the no-objection for remittance without withholding tax.

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Issues: Whether tax was deductible at source under section 195(2) on technical know-how fees payable to an Austrian company for services rendered in Austria under the India-Austria Double Taxation Agreement.

Analysis: The payment was found to relate to technical services rendered in Austria, not in India. The Austrian recipient had no permanent establishment in India. On that footing, the relevant treaty provision governing business profits and cross-border taxation excluded Indian tax liability on the remittance, and there was consequently no basis to insist on deduction of tax at source before remittance of the amount.

Conclusion: Tax was not deductible at source under section 195(2), and the Assessing Officer ought to have granted the no-objection for remittance without such deduction.

Ratio Decidendi: Where consideration for technical services is payable to a non-resident for services actually rendered outside India and the non-resident has no permanent establishment in India, tax deduction at source under section 195(2) is not attracted if the applicable double taxation agreement allocates taxing rights outside India.

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