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Issues: Whether the disallowance under section 40(a)(ia) was warranted in respect of examination fees remitted to the University of Cambridge on the ground that the payment was chargeable to tax in India and tax was deductible at source.
Analysis: The payment was collected from students and remitted to the foreign university without any portion being retained by the assessee. The foreign university was a non-resident, and on the facts there was no basis to treat the assessee as a permanent establishment of the university. The arrangement was only one of affiliation, with no material showing supervision, control, fixed place of business, or principal-agent relationship. The payment for conducting examinations did not result in any technical knowledge, skill, or know-how being made available to the assessee and, in the case of educational institutions, such payments were not treated as fees for technical services under the treaty. In the assessee's own earlier and later years, identical disallowances had been deleted on the same reasoning, and no material change in facts was shown.
Conclusion: The disallowance under section 40(a)(ia) was not sustainable, as no tax was deductible on the remittance to the University of Cambridge.
Ratio Decidendi: Where a remittance to a non-resident educational institution is not chargeable to tax in India and the payment does not constitute fees for technical services, section 40(a)(ia) cannot be invoked for want of tax deduction at source.
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