TaxTMI 
TaxTMI 
2002 (6) TMI 167
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....rown E&C, USA, for supply of plant, design, layout facilities, equipment selection, etc. etc. was not for construction, assembly or like project which is excluded from the definition "fee for technical services" as specified in Expln. 2 to s. 9(1)(vii) of the IT Act, 1961 and hence the same was chargeable to tax in India." 3. The relevant facts of the case are that the assessee, vide its letter dt. 5th Feb., 1993, in reference to the technical collaboration agreement between the assessee and M/s John Brown E&C, USA, for supply of consultancy and other services, filed for obtaining "No objection certificate" for opening a letter of credit for US $ 1,50,000 in favour of M/s John Brown E&C, USA, the Dy. CIT (Spl. Ranga-2), New Delhi, vide its order dt. 8th Feb., 1993, intimated as under: "As per art. 12 of the Agreement for Avoidance of Double Taxation between the USA and India, you are required to deduct tax @ 20 per cent of the amount of technical know-how fee payable to foreign collaborators. Certificate regarding no objection for remittance through letter of credit to the foreign collaborators shall be issued on production of proof regarding deduction and payment of tax i....
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....ndia. In this background, it was contended that the assessee-company approached the AO under s. 195 for issuance of NOC for opening a letter of credit in favour of the USA party. It was contended by the assessee before the first appellate authority that no tax was deductible at source in accordance with s. 9(1)(vii) of the IT Act, 1961. But since the AO required the assessee to deduct tax at 20 per cent before he issued NOC in the said circumstances, the assessee deposited tax of Rs. 9,86,700 on 8th Feb., 1993, under protest. 5. After addressing the background, the learned Authorised Representative, before the CIT(A), relied upon the provisions of s. 9(1)(vii)(b) on the basis of which it was contended that fees was paid to M/s John Brown in respect of professional, engineering and validation services so that the oral dosage and sterile dosage facility of the appellant at Dewas conformed to the standard norms set by the respective Drug Administration of USA and UK to facilitate the company to register itself in USA and UK to generate income by way of sales to countries outside India. Accordingly, it was contended that it could not be said that the fees paid could be deemed to hav....
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....ant is not acceptable. In view of the reasons given above, the action of the AO is hereby upheld." 8. Still aggrieved by this, the assessee is in appeal before us. 9. The learned Authorised Representative Shri Vinod Chandiok, argued at length. His submissions made before the CIT(A) were reiterated and the entire background of the case was also addressed. Our specific attention was invited to a copy of the contract between the assessee and M/s John Brown, a division of Trafalgar House Inc. for professional, engineering and validation services for the oral dosage and sterile dosage facility. Arguments were addressed at length on various aspects of this agreement and it was canvassed by the learned Authorised Representative that the CIT(A) had not appreciated this agreement in the correct perspective. 10. Arguments at length were also made addressing s. 9(1)(vii) of the IT Act, on the basis of which it was contended that the payment made to M/s John Brown has specifically been made in order to earn income outside India, as such it was argued, the said payment does not invite any tax. Various pages of the said agreement were adverted to, to show the nature of services rendered....
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....hat the requirements as advised have been implemented. Accordingly, it was contended that even for this amount, in order to make the said income exigible to tax under DTAA it is necessary to have a permanent establishment in India by virtue of which the personnel should have been in India for about 90 days, whereas in the present facts of the case, there is no dispute that only 3 people have been in India for a period of 3 days. 14. Our attention was invited to the memorandum of understanding, concerning fees for included services. In art. 12 of US-India Tax Treaty certain examples have been given. Special emphasis was laid down on example 7 thereunder, which reads as under: "A US manufacturer operates a wall board fabrication plant outside India. An Indian builder hires the US company to produce wallboard at that plant for a fee. The Indian company provides the raw materials, and the US manufacturer fabricates the wallboard in its plant, using advanced technology. Are the fees in this example payments for included services? Analysis: The fees would not be for included services. Although the US company is clearly performing a technical service, nor technical knowledge, ski....
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....estioned the claim of the assessee and contended that its claim was untenable in view of the specific and undisputed fact that how can M/s John Brown sitting in USA without visiting India apart from the 3 days, as has been contended by the assessee, be expected to undertake and perform any services for which the said payment is being made. 19. It was again reiterated that the fact cannot be lost sight of that the assessee is marketing the drug in the domestic market also and M/s John Brown as per the agreement on record was to supply the plant design. As such, heavy reliance was placed by him on the impugned order. 20. Having heard the rival submissions and perused the material placed on our files, we are of the opinion that right at the outset, it would be pertinent to bring out the exact provision of the Act on which the arguments have been addressed at length by the learned Departmental Representative and Authorised Representative and which has been the basis on which the impugned order has also proceeded. The relevant portion of s. 9 of the IT Act reads as under: "9-Income deemed to accrued or arise in India: (1). The following incomes shall be deemed to accrue or a....
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....d the nature of services which were to be rendered by M/s John Brown in order to secure the necessary approvals from the regulatory authority of USA and UK. 22. Coming to the specific provision of the Act which has been invoked by the tax authorities, it is pertinent to note that it is a deeming provision. It is seen that first and foremost requirement of s. 9(1)(vii)(b) is that income by way of fees for technical services is payable by a person who is a resident. In the present facts of the case, this condition is fully applicable. One of the exceptions envisaged by the legislature is that where the fees are payable for the services of business or profession carried on by a person outside India. In the present facts of the case, there is no dispute that the fees are payable in respect of services which are utilised in the business or profession of an assessee which is carried out in India. There is no evidence, basis or argument in the facts of the case that even for a moment, it can be considered that the business is carried out outside India. Thus, the pre-condition employed by the legislature in order to bring this payment in the exception clause is conspicuous by its absenc....