AI Drafter 
TaxTMI 
TaxTMI 
2005 (9) TMI 27
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....plicant is the owner of mines. It is engaged in prospecting and extraction of minerals, metals, ores, etc. It is carrying on business of exporting minerals. For the purpose of its business, the applicant gets the analysis of samples and ores conducted from technical lab of the consultant - Met-Chem, Canada Inc. Under the agreement between the applicant and the consultant the material required to be analyzed and tested in the laboratory in Canada in respect of specific contents has to be sent to the consultant who will send reports to the applicant from time to time. For technical services rendered outside India the consultant and the lab fees are required to be paid by the applicant in dollars in Canada. However, the technical consultants w....
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....b tests are done outside India and the technical fee is paid outside India in dollar, it is important to note that the samples are collected in India and the lab reports for which the payment is made is being used in the applicant's business in India. The report is not used for the purpose of making or earning any income from any source outside India. As the income is deemed to accrue or arise to the consultant in India, section 195 of the Act would be attracted. The rate of tax to be deducted at source will be as prescribed in Part II of Schedule I to the Finance Act. If the rates provided in the Treaty are more beneficial to the applicant, the same would apply to the applicant. 4. Mr. Sanjay Verma, learned counsel appearing for the app....
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....services utilized in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or • x x x x Explanation 1 xx xx x Explanation 2 - [For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "salaries"] It may be seen that Explanatio....
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....fied in sub-clauses (a) to (c) thereof. The relevant provisions is Sub-clause (b) of section (vii) which has two limbs. The first limb refers to a person who is a resident; the second limb incorporates an exclusionary clause which takes out the fees from the ambit of the deemed income. If the fees is payable in respect of services utilized in a business or profession carried on by such person outside India or for the purpose of making or earning any income from any source outside India, the fees payable to the non-resident consultant in Canada will not be deemed income of the consultant arising or accruing in India. Obviously, in this case the applicant is not utilizing services of the consultant (reports) in a business or profession carrie....
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.... held above that the fees for technical services paid by the applicant to the consultant in Canada would be deemed income of the consultant under section 9(1)(vii)(b) of the Act. Further, circular No. 23 dated 23 rd July, 1969, relates to income accruing or arising through or from "business connection" in India. In Performing Rights Society Ltd. v. CIT [1977] 106 ITR 11, the Hon'ble Supreme Court declined to take note of the said circular on the ground that it contemplates a situation quite different from the liability to tax on income accruing or arising to a non-resident under section 9 of the Act. For the above reasons, none of the circulars would be of any assistance to the applicant. 8. From the above discussion, it follows that tho....
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....h): • during the first five taxable years for which this Agreement has effect, • 15 per cent of the gross amount of the royalties or fees for included services as defined in this Article, where the payer of the royalties or fees is the government of that Contracting State, a political sub-division or a public sector company; and • 20 per cent of the gross amount of the royalties or fees for included services in all other cases; and • during the subsequent years, 15 per cent of the gross amount of the royalties on fees for included services; and • x x x x x x 3 to 8 x x x x x x The rate of tax applicable to the consultant on its deemed income would be lower of the two rates viz. rates given in Part II of Schedu....