TaxTMI 
TaxTMI 
1988 (3) TMI 123
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....s of the reformer catalyst tubes. The assessee has claimed that the receipt by the foreign company was not chargeable to tax under the provisions of the agreement for avoidance of double taxation inIndiaandDenmark. The relevant articles of the agreement are as follows: "Article III.-(1) Subject to the provisions of paragraph (3) below, tax shall not be levied in one of the territories on the industrial or commercial profits of an enterprise of the other territory unless profits are derived in the first-mentioned territory through a permanent establishment of the said enterprise situated in the first-mentioned territory. If profits are so derived, tax may be levied in the first-mentioned territory on the profits attributable to the said p....
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.... property or rights, but does not include any royalty or other like amount in respect of the operation of mines, quarries or other natural resources or in respect of cinematographic films". "Article XIV.-(1) Profits or remuneration from professional services (including services as a director) or from services as an employee derived by an individual who is a resident of one of the territories may be taxed in the other territory only if such services are rendered in that other territory. (2) An individual who is a resident ofIndiashall not be taxed inDenmarkon profits or remuneration referred to in paragraph (1) if (a) he is temporarily present inDenmarkfor a period or periods not exceeding in the aggregate 183 days during a taxable ....
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....ept the plea of the assessee that the receipt by the foreign company was exempt. The IAC (Asst.) further directed that the tax be deducted at 40 per cent of the receipt in the hands of the foreign company. As the foreign company was to get the payment net of taxes, the tax liability was to be worked out on tax basis. 2. When the matter came before the CIT(A), he noted the nature of the agreement between the assessee-company and the company ofDenmark. The foreign company was to carry out the study for capacity of the reforming section and for that purpose the study had to make various estimates about the working of the tubes for a life of different number of years. For this study a lump sum amount of U.S. Dollers 15,000 was to be paid. Th....
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....o the Danish company M/s Haldor Topsoe for carrying out a study or carrying out certain tests inDenmark. The results were to be communicated to the Indian company on the payment of stipulated amounts. It was contended that in the hands of the foreign company it was in the nature of commercial profit and as the Danish company was not having a permanent establishment inIndia, this could not be taxed under Art. III of the agreement for avoidance of double taxation. It was submitted that the payments were not in the nature of rents, royalties, interest, dividends, management charges, remuneration for labour or for personal services and they were in fact in the nature of technical fees for carrying out the status and the tests. In the alternativ....
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.... The only exception to the general rule was the fees in respect of services rendered in connection with the transfer of a technical know-how, which is considered as royalty. In that case, it becomes taxable inIndianotwithstanding the existence of the permanent establishment. It was further clarified that the tax treatment of fees for technical services may change when the revised agreement comes into force. This was, however, in respect of the agreement withGermany. 7. It was, therefore, contended that the payment in the hands of the foreign company should be treated as commercial profit in their hands, and should therefore, be covered under Art. III of the avoidance of double taxation agreement. It was further submitted that the provisi....