TaxTMI 
TaxTMI 
2010 (10) TMI 611
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.... issue that is raised by the assessee is against the AO's action in initiating the proceedings u/s. 147 of the Act. and then issuing the notice u/s. 148 of the Act. The grounds on this point raised by the assessee are. w nutshell as under:- "The learned JCIT is not justified in reopening the case u/s. 147 of the Income Tax Act as no fresh evidence or material has come to his notice. It is merely a change of opinion on his part Therefore, the notice u/s. 148 is invalid and bad in law, Since the notice it's. 148 about reopening the case is invalid and bad in law, the order passed in /"elation to the saute is also invalid and bad in law," 5, Relevant facts giving rise to the aforesaid issues raised by the assessee may be set out m brief as under as would be emerging from the orders of the authorities below and the materials on record:- 5.1 The assessee filed its return of income u/s. 139 on 28.12.1989, 31.12.1993 and 30.11.1994 declaring loss at Rs. 80,76,095/-, Rs. 12,22,24,470/- and, Rs. 4,64,53,064/- for the assessment years 1989-90, 1993-94 and 1994-95 respectively. The aforesaid returns were processed u/s. 143(l)(a) on 30.03.1990, 30.06.1994 and 31.03.1995 respectivel....
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.... taken in A.Y. 1996-97. the AG assessed the receipts received bv the assesscc from the Department of Science &. Technology, Government of India for maintaining and giving services with regard to the super computer installed at Mausam Bhawan as fees for technical services and treated the income as pel-provisions of section 44D read with section 115 A of the Act. 7. Being aggrieved, the assessee preferred an appeal before the id. CIT(A). 8. Before the Id. CIT(A). the assessee had taken a ground thai the AO was not justified in initiating the proceedings u/s. 147 of the Act as no fresh material or evidence had come to his notice and it was merely a case of change of opinion on his part. 9. During the course of appellate proceedings before the Id. CIT(A), the AO submitted his reports. 10. The AO's report in respect of A.Y. 1989-90 reads as under:- "Original assessment in this case had been completed u/s. 143(l)(a) of the I.T. Act in the summary manner and thus no opinion, as to say was formed at the time of original assessment Change of opinion resupposes an earlier opinion which in this case does not exist Although the assessee had not elaborated as to how the proceedin....
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....he assessee to disclose fully and truly all material facts necessary for his assessment" such expression is rehundant, meaningless and is of no consequence in so far as the post-1989 main section 147 is concerned [Rakesh Aggarwal vs. Asst CIT (1997) 225 ITR 496, 501, 502 (Del)]. In view of the above, there is no infirmity in initiating the proceedings u/s. 147 of the IT. Act, 1961." 12. The aforesaid reports of the AO Were confronted to the assessee. The assessee vide his written submission dated 10.10.2000 reiterated before the CIT(A) that the proceedings u/s. 147 of the Act were based on change of opinion. It was also argued that in A.Y. 1995-96, the AO had taken a different view as compared to the view taken in earlier years without there being any change in the facts of the case and treated the receipts in question as fees for technical services. He, therefore, submitted that the AO had no reason to believe that any income had escaped assessment within the meaning of section 147 of the Act. 13. After considering the AO's order and his reports and the assessee's submission and the facts of the case, the CIT(A) held that the proceedings initiated u/s. 147 of the Act by the ....
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.... "Section 147 of the Income Tax Act, 196h as amended with effect from April 1, 1989 provides that if the Assessing Officer has reason to believe that any income chargeable to tax h as escaped assessment for any assessment year, he may; subject to the provisions of section 148 to 153 of the Act, assess or reassess such income and also any other income chargeable to tax which Has escaped assessment The section not only merges clause (a) and (b) of the pre-amended section 147 but also brings about a significant change in the preliminary requirement of certain mandatory conditions before reassessment proceedings could be initiated under the old section. Under the unamended section 147(a), the Assessing Officer could initiate reassessment proceedings if he had reason to believe that income chargeable to tax had escaped assessment by reasons of: (a) omission or failure on the part of an assessee to make a return under section 139 or the Act for any assessment year, or (b) to disclose fatly and truly all material facts necessary for his assessment for that yean As is evident from the amended section, in contradistinction to the unamended section, requiring fulfillment of twin ....
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....7(Delhi) (iv) Shipra Srivastava vs. ACIT, ITA no. 8683/2007 (Delhi) (v) Prashant S. Joshi vs. ITO, Writ Petition no. 2287/2009 (Delhi) (vi) CIT vs. H.B. Stock Holdings, ITA no. 65/2009 (Delhi?) (vii) CIT vs. Smt. Jyoti Devi (2008) CTR 264 (Raj.) 16. The Id. DR, on the other hand, submitted that since there was no assessment made. u/s. 143(3) of the Act by the AO in all these three assessment years i.e. assessment years 1989-90, 1993-94 and 1994-95. The question of forming any opinion in respect of the nature of the receipts received by the assessee from the Department of Science & Technology. Government of India, towards maintenance and service charges for super computer installed at Mausarn Bhawan did or could not arise, and. thus, the question of any change of opinion on the part of the AO does not arise when the AO had formed a reason to believe that income has escaped assessment within the meaning of section 147 of the Act in the light of the view AO had taken while completing the assessment u/s. 143(3) for the A.Y. 1995-%. The Id. DR also placed heavy reliance upon the decision of Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers P....
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....n 147 and not the proviso thereto. Only one condition has to be satisfied. Failure to Lake steps u/s. 143(3) will not rendered the AO powerless to initiate reassessment proceedings when intimation u/s. 143(1) has been Issued. (vi) The High Court is wrongly applied the case of Adani Exports vs. Dy. CIT (Assessment) (1999) 240 ITR 224 (Guj.), which has no application to the case on the facts in view of the conceptual difference between section 143(1) and section 143(3) of the Act. 20. Besides above proposition, the Hon'ble Supreme Court has also analyzed the meaning and scope of the expression "reason to believe" used in section 147 of trie Act by holding and observing as under:- "Section 14 7 authorizes and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for assessment year has escaped assessment The word "reason" in the phrase "reason to believe" would mean cause or Justification. If the Assessing Officer has cause or justification to know or suppose that income has escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read mean ....
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....urt above in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra). In that case, the Hon'ble Supreme Court further held that failure to take place u/s. 143(3) will not rendered the AO powerless to initiate reassessment proceedings when intimation u/s. 143(1) only have been issued. The only condition to be satisfied is where the AO had reason to believe that income had escaped assessment within meaning of section 147 of the Act. In the present case, the assessee received certain receipts from the Department of Science & Technology towards maintenance and service charges in respect, of super computer installed-at Mausam Bhawan. New Delhi. The assessee had shown receipts as business income. However, 'in the A.Y. 1995-96, the AO has treated the same to as fee for technical services while completing the assessment u/s. 143(3) of the Act. Now the question arises whether the ACITs finding or view taken in A.Y. 1995-96 can be a basis to entertain a believe that income had escaped assessment. 23. Expression "reason to believe" used in section 147 has been analyzed by the Hon'ble Supreme Court in the above referred ease of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (su....
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....basis of which a reasonable person could have formed a requisite belief that the income had escaped assessment within the meaning of section 147 of the Act, as the assessee has shown the receipts as business income as against the AO's finding that receipts are assessable as fees for technical services to be taxed u/s. 44D read with section U5A. In the reasons recorded, the AC) has clean staled that while finalizing the assessment for A.Y. 1995-96. It was noticed that nature of income was in the nature of fee for technical services as per provision of section 44D read with section 115A of the Act. and tax on the total income shall be calculated @ 30% of the total turnover as the payment of maintenance services made by the Department of Science & Technology to the assessee is clearly fall within the payment of fee for technical services. Therefore, in the light of the proposition laid down by the Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra) and on the facts of the present case, we hold that the notice issued by the AO u/s. 148 of the Act is valid and is within hi&-jurisdiction. Thus, this ground challenging the validity of the AO's acti....
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....cribed in detail in article 2 of the Agreement. The assessee has been providing maintenance services since 1989 for the super computer sold to the Department of Science & Technology, Government of India by M/s. Cray Research Inc, USA. For the purpose of providing maintenance services, project office was set up in India by the assessee. During the course of assessment proceedings the AO raised a question whether amount received by the assessee from the Ministry of Science & Technology towards maintenance services rendered or provided by the assessee is in the nature of business income or is it in the nature of fees for technical services. The AO was of the view that the payment for maintenance services received by the assessee was in the nature of fees for technical services as defined in Explanation 2 to clause (vii) of sub-section (1) of section 9 of the Act. As against these. Id. authorized representative submitted before the AO that the assessee is incorporated in USA and, therefore, the assessee company has an option to be governed by the Indo-US DTAA, if the provisions of DTAA are found to he beneficial to the assessee The assessee therefore submitted that that the payment in ....
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....e order of the CIT(A) for the A.Y. 1995-96 giving a relief to the assessee, but in the light of the facts that the department has already preferred second appeal before the Tribunal against the aforesaid order of the CIT(A) in the A Y 1995-96. He had taken independent view as was taken in the A,Y. 1995-96 by him. 31.Being aggrieved with the AO order for the A.Y. 1996 97, the assessee preferred an appeal before the Id. CIT(A) who upheld the AO's order holding that the maintenance services charges arc assessable as fees for technical services. 32. Being aggrieved, the assessee has tiled the appeal before the Tribunal. 33. With regard to the assessment year 1989-90. 1993-94 and 1994-95. We observe that after the assessment for A.Y. 1995-96 was completed, the AO reopened the assessment proceedings for assessment years 1989-90, 1993-94 and 1994-95 by issuing a notice u/s. 148 of the Act. In these appeals, we are concerned wife the assessment years 1989-90, 1993-94 and 1994-95. In these assessment years, the AO has completed the assessment u/s. 147/144 of the Act, in as much as, in the course of assessment proceedings none for the assessee has appeared before the AO. While compl....
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....than the category described in para 4(a) because it excludes any service that does not make technology available to the person acquiring the service. Generally speaking technology will be considered "made available' when the person acquiring the service is enabled to apply the technology. The fad that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skill etc. are made available to the person purchasing the service, within the meaning of para 4(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available." 45. It is important to note that in the protocol to the said DTAA, the Government of India has also accepted the interpretation of Article 12 i.e. fees for included services in the following words: "This memorandum of understanding represents the current view of the United States Government with respect to these aspects of Article 12 and it is my Governments} understanding that it also received by the assessee from the Department of Science & Technology, in respect of services provided with regard to the super computer a....
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.... of the terms of a double taxation avoidance agreement When that happens, the provisions of such an agreement, with respect to cases to which where they apply, would operate even if inconsistent with the provisions of the Income-tax Act We approve of the reasoning in the decisions which we have noticed. If it was not the intention of the legislature to make a departure from the genera! principle of chargeability to tax under section 4 and the general principle of ascertainment of total income under section 5 of the Act, then there was no purpose in making those sections "subject to the provisions" of the Act The very object of grafting the said two sections with the said clause is to enable the Central Government to issue a notification under section 90 towards implementation of the terms of the DTAs which would automatically override ihe provisions of the Income-tax Act in the matter of ascertainment of total income, to the extern of inconsistency with the terms of the DTA C." 41. In the case of CIT vs. P.V.A.L. Kuiandagam Chettiar (supra), the Hon'ble Supreme Court summed up the position as under: "Where liability to tax arises under the local enactment the provisions of se....
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....f Article 12(4) of DTAA between India and USA is not applicable because there is no payment of royalty. It is nobody's case para (a) of Article 12(4) is applicable to the present case Turning to sub para (b) of Article 12(4), the important ingredients of which represents the current view of the India Government" (emphasis supplied)" 46. From the clarification and definition of the expression "fees for included services", payment to be categorized as one for included services would be as under: (a) While the payee should 'make available' there should be an 'acquirer' of technical knowledge, experience, skill, know-how or process: or technical plan or technical design. (b) The concept of 'make available' postulates that the person /acquiring' the service is enabled to apply the technology. (c) A mere providing of service requiring technical input by the person providing the service does not per se mean that technical knowledge skill, etc are made available to the person purchasing service. (d) That a mere use of the product which embodies technology shall not per se be considered to make the technology available. 47. In the present case, in the Asstt. Year 1995-96, ....
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....ions of the Indian LT. Act, 1961 as the assessee has been incapable of furnishing any further information and it is not possible to determine the correct profit attributable to permanent establishment Hence, in determination of the profits of PE only those deductions are to be allowed which are in accordance with the provisions of and subject to the taxation laws of India as per provisions of the Indian Income-tax Act, 1961. 7. Section 44DoftJieLT. Act, 1961v which is titled - Special provisions for computing income by way of royalties, companies, states that- "44D - Notwithstanding anything to the contrary contained in Section 28 to 44C\ in the case of an assessee, being a foreign company -(a).... (b) no deduction in respect of any expenditure or allowance shall be allowed under any of the said sections in computing the income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Govt or with the Indian concern after the 3ls/ day of March, 1976." 8. Section USA of the IT Act (which is titled "Tax on dividends\ royalty and technical service fcs in the case of foreign c....
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.... this year, the AO has applied Explanation 2 to Section 9(l)(vii) of the Act to hold that the maintenance charges received by the assessee for rendering maintenance services for super computer is in the nature of fees for technical services. In this assessment made by the AO, the AO has categorically stated that since assessee was having a permanent establishment in India Article 12 of the treaty shall stand not applicable and the definition of "fees for included services" is to be considered in the light of the definition given under Explanation 2 to Section 9(l)(vii) of the Act. In the course of appellate proceedings before CIT(A), a remand report was called for from AO by CIT(A) and in that remand report the AO as categorically stated that the maintenance services received by the assessee are not in the nature of fees for technical sendees as defined under Article 12 of the treaty v Apph :ng iru: definition of fees for technical services as defined in Explanation 2 to Section 9(1)(vii) of the Act., the learned CIT(A) confirmed the AG's order and held that the assessee's income is to be computed in the manner laid down in Section 44D read with Section 115A of the Act. The CIT(A) ....
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....le Taxation Avoidance Agreement with any other country, so far as the assessees which are covered by such an agreement are concerned, the provisions of the Income-tax Act, 1961 will apply only to the extent to which provisions of the Income-tax Act are more beneficial to the assessee. it is a settled legal position thai whenever there is a conflict between the provisions of the tax treaty and the domestic law, the provisions of the tax treaty will prevail. These tax treaties have a significant place in the scheme of the Indian income tax legislation, inasmuch as these treaties lay down an alternate scheme of taxation, so far as the beneficiaries of the applicable tax treaty are concerned. These alternate paradigms are entirely optional to the assessee because it cannot be thrust upon an assessee and the provisions of the Indian Income-tax Act continue to be applicable to the extent these provi^mfs^ me more favourable to the assessees. Once the assessee chooses to be coveted by the provisions of an applicable tax treaty, it is not open to revenue to thrust the provisions of the Act on the assessee. Revenue, therefore, cannot dispute the taxability in the hands of the assessee being ....
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....r than agreements which though made on or after that date or regarded as having been made before that date as explained in paragraph 26.2} no deduction will be all owed in computing the income from the aforesaid sources, regardless of whether the agreement has been... 36.1 . . . income by way of royalty or fees for technical services received by them from Indian concerns in pursuance of approved agreement; made on or after the 1st April, 19/6, wilt now be charged to tax at flat rates applicable on the gross amount of such income. The rates of income-tax to be applied in respect of such income have been specified in new section USA of the Income-tax Act and are as follows ;- (iii) Income by way of fees for technical services received by a foreign company from an Indian concern in-pursuance of an approved agreement made on or after the 1st April, '1976 will be charged to tax at the rate of 40 per cent on the gross amount of such fees." [Emphasis supplied] *' .' The periodic changes in section 44D have been accompanied by the corresponding changes in section 115A. It is thus clear that non deduction of expenses under section 44D, which means that the taxability is on gross ba....
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....) i.e., on account of being attributable to the PE in the other contracting state. In other words, in case a receipt is held to be not taxable as 'royalties and fees for technical services' under the provisions of the India Singapore tax treaty the same cannot also be subjected to tax under section 44D, read with section USA either. 20. In view of the admitted position that the provisions of the India Singapore tax treaty are applicable on the facts of this case, let us examine, on the touchstone of underlying scheme of things in the said tax treaty, as to what is the nature of receipts in the hands of the assesses and in respect of which profits attributable India PE are to be computed. In the assessment order, there is no finding by the Assessing Officer that the receipts by the assessee could be covered by any of the sub-clauses in article 12(4). To the Assessing Officer, this aspect of the matter did not really seem important because he was of the view, in view of the mandate of article 12(6), that when 'royalty and fees for technical services' arise, in the course of business carried on through a permanent establishment in India, the provisions of article 7 are to be applied f....
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....ection, then these payments mentioned therein are not deductible, according to the statute, in certain circumstances. Therefore, the heading of this section is a clear indication that certain payments and expenses which would be otherwise deductible would not be deductible except in certain circumstances indicated in the section. . . ." [Emphasis supplied] Therefore, the heading of a section, in the words of Hon 'bfe Supreme Court, "certainly is a relevant factor to be taken into consideration in construing the ambit of the section f\ The heading of section 44D being "Special Provisions for computing income by way of royalties, etc., in the case pf the foreign companies, this section can come to play only when the income is by way of royalties etc., i.e., by way of royalties and fees for technical services (fees for technical services' is perhaps the only other nature of income belonging to the genus of 'royalties') in the hands of a foreign company. Unless the income is of such a nature so as to fit the description of title of section 44D, there cannot be any occasion to invoke that section. But then, one more important and fundamental aspect is required to be dealt with. This ....
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....from the treaty and interpret it as a kind of a stand alone provision. Therefore, when where apply the "limitation on deduction of expenses so far as 'royalties and fees for technical services9 are concerned, we have to see whether or not the payments in question do in fact constitute 'royalties and fees for technical services' in the light of the principles underlying the scheme of the applicable tax treaty. The deduction under section 44D comes to play only when the income is in the nature of income as royalties and fees for technical services. It would indeed be somewhat inconsistent and certainly unreasonable to, on one hand, hold that the receipts of the assessee are not in the nature of fees for technical services, and then, on the other hand, apply the limitation for deduction of expenses which are applicable only in the case of receipts in the nature of fees for technical services. 22. Hon'ble Supreme Court has, in the case of Azadi Bachao Andolan (supra), observed that the principles adopted in interpretation of treaties are not the same as those in interpretation of statutory legislation" While saying so, Their Lordships quoted, with approval, a passage from the ....
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....rm fees for technical services* means payments of any kind to any person in consideration for services of r managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services are (a) ancillary and subsidiary to the application or enjoyment of the right, property or information for which' a payment described in-paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein; or (c) consist of development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. The nature of assessee's activities being in the nature of 'strategy consulting application of (a) and (c) is clearly ruled out Such services can neither be ancillary and subsidiary to the application or enjoyment of the right, property or information, nor can these services consist of development and transfer of a technical plan or technical design. That leaves us only with sub-clause (b) of artic....
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....b) of th?. India US tax treaty,, these services cannvl he covered by the scope of article 12(4)(b) of the. India Singapore tax treaty either. As a matter of fact the aforesaid India USA tax treaty was the first Indian tax treaty in which this paradigm shift in the scope of fees for technical services was made. The provisions of article 12(4)(b) clearly depart from the normal definition of fees for technical services' in DTAAs that India had entered into with most foreign countries which is some what on the lines of definition given in Expln. 2 to section 9(I)(vii) of the IT Act. In the protocol note attached to and forming part of the aforesaid DTAA, Government of India has confirmed that memorandum of understanding between India and USA with regard to interpretation of article 12 (royalties and fees for included services) also represents the views of the Indian Government. This memorandum, inter alia, provides as follows : Under paragraph 4, technical and consultancy services are considered included services only to th e following extent ; (1) as described in paragraph 4(a), if they are ancillary and subsidiary to the application or enjoyment of a right, property or information....
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....ture are covered by the scope of article 12(4)(b) as is evident from the reference to such services "which enables the person acquiring the services to apply the technology contained therein Unless the services art technical in nature, there cannot be any question of 'technology' being contained therein which the person acquiring the services can be enabled to apply. Therefore? so far as provisions of India Singapore tax treaty, as also the provisions of India US tax treaty, are concerned, payments for services which are non technical in nature, or, in other words, payments for services not containing any technology, are required to be treated as outside the scope of fees for technical services. 27. It is noteworthy that the Government of India has confirmed that memorandum of understanding between India and USA with regard to interpretation of article 12 (royalties and fees for included services), and extracts from which have been reproduced by us hereinabove, also represents the views of the ;# Indian Government Therefore, even apart from our categorical findings on merits, these views must prevail. We also have no reasons to believe that Government of India had any othe....
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....es', the limitation on deduction of expenses under section 44D does not come to the play. In the case before us, the receipts in question are such in nature that the provisions of article 12 are not attracted. Accordingly, in our considered view, the limitation under section 44D is not to be applied for the purpose of deduction of expenses, in computing taxable profits, under article 7(3) of the India Singapore tax treaty. We have already taken note of the position that section 44D, read with section 115A of the Indian Income-tax Act, and article 12 of the India Singapore tax treaty are, similar in nature and offer alternative hut similgr models of taxation of income from royalties and fees from technical services, thai these are two independent, mutually exclusive, and competing sets of provisions, and that once it is clear that these are competing models of taxation of royalties and fees for technical services on gross basis, in the Income-tax Act and in the India Singapore tax treaty, it has to follow that the provisions of the Income-tax Act cannot come to play unless these are more beneficial to the assessee which certainly is not the case here. We have held that in case a rec....
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....were found to be beyond the scope of 'royalties and fees for technical services9 in the applicable tax treaties. On the contrary, there was a categorical finding in these cases that the receipts clearly fit in the description of 'royalties and fees for technical services' under the applicable tax treaties. In the case before us, however, not only that it is unchallenged finding of the CIT(A) that the receipts in question do not answer the description of "royalties and fees for technical services', we have, on merits of the case and for the elaborate reasons set out earlier in this order, come to the conclusion that these receipts do not fit the description of the expression 'royalties and fees for technical services' under the applicable India Singapore tax treaty. 33. Thirdly, Hon'ble Authority for Advance Ruling considered only a purely legal interpretation w the provisions of the tax treaty, hut then Hon'ble Supreme Court has subsequently held that this approach is impermissible. Hon'ble Supreme Court, in the case of Azadi Bachao Andotan (supra), has observed that "the principles adopted in interpretation of treaties are not the same as those in interpretation of statutory le....
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....ant in the context of the interpretation of taxing statutes, but, in the light of' principles approved in Azadi Bachao Ancfoldn's case (supra) by the Hon'ble Supreme Court, these observations are certainly applicable in the context of interpretation of tax treaties. In our humble understanding, post Azadi Bacho Andolan it is no longer permissible in law to apply the rigid principles of interpretation of statutes on the treaties as well, and in case of such interpretations resulting in absurd results also, not to extend a liberal and extended construction. In Azadi Bachao Andolan's case (supra), Hon'ble Supreme Court has referred to, with approval? Federal Court of Canada's judgment in the case of John N. Gladden (supra) and observed as follows: ". ..The Federal Court emphasized that in interpreting and applying the treaties, the Courts should be prepared to extend 'a liberal and extended interpretation * to avoid an anomaly which a contrary construction would lead to. The Court recognized that 'we cannot expect to find the same nicety or strict definition as in the modern documents, such as deeds, or Acts of Parliament; it has never been the habit of those engaged in diplomacy t....
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.... technical services' under the applicable tax treaty, the limitation on deduction of expenses under section 44D does not come to the play; 38. In the result, the revenue's appeal is dismissed, 52. Placing reliance on the decision of coordinate bench of the Tribunal in the case of Boston Consulting Group P. Ltd. (supra), the ITAT, Mumbai Bench in the case of JCIT vs Essar Oil Ltd. (2006) 7 SOT 216 (Mum) has taken a view that limitation on deduction for expenses as stated in Section 44D would not apply in a case where income in question, on the test laid down under Explanation 2 to Section 9(l)(vii), could be treated as fees lor technical services within the meaning of Treaty. 53. From the aforesaid decision of coordinate bench of the .i'i A'i -Mumbai Bench in the case of DOT vs Boston Consulting ?. Ltd. (supra)., w 54. is clear that so far as the assesses, which are covered by Double Taxation Avoidance Agreement, the provisions of local Income-tax Act, 1961 will apply only to the extent to which the provisions of Income-tax Act are more beneficial to the asscssee. It is farther held therein that it is a settled legal position that whenever there is a conflict betwe....
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....e that the maintenance receipts received by the assessee are in the nature of fees for technical services within the meaning as defined under the Treaty. The AO has categorically admitted the position that the receipts are not in the nature of fees for technical services under Article 12(4) of the Treaty. The AO has merely applied the provision of local Act, namely, Explanation 2 to Section 9(l)(vii) ignoring the definition of fees for technical services as given in Treaty. Therefore, the AO's action in applying the provisions of Explanation 2 to clause (vii) of sub section (1) of Section 9 read with Section 44D and Section 115A of the Act is not correct inasmuch as this is no mere beneficial to the assessee as against the provisions contained in the Treaty. We. therefore, hold that in the light of the definition of fees for technical services given in Article 12(4) of the Treaty, the maintenance charges received by the assessee from Department of Science & Technology for maintaining the super computer is not in the nature of fees for technical services, and hence. Section 44D and read with Section 115A is not applicable to the assessee's case. The maintenance charges received by t....