TaxTMI 
TaxTMI 
2009 (6) TMI 2
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.... right in law in accepting the claim of the assessee that fees for technical services of U.S. $ 2,17,250 accrued under the consultancy agreement dated 23-6-1985 with Videsh Sanchar Nigam Ltd. be considered as "Industrial or Commercial Profits" and therefore exempt from taxation as per Article III(1) of the Double Taxation Avoidance Agreement between India and Sweden dated 30th July, 1958 ?" 2. The assessment year involved herein is AY 1988-89. 3. The respondent ('assessee' for short) is a non resident company registered and incorporated in Sweden. 4. On 23/6/1985 the assessee had entered into an agreement with "Videsh Sanchar Nigam Limited" ("VSNL' for short) to render consultancy services in implementation of India U.A.E. Submarine Cabl....
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....expressed by the assessing officer as well as the CIT(A) and following its decision in the case of ITO V/s. Rheinbraun Consulting GmbH, the Tribunal held that the technical consultancy fee received by the assessee may not be industrial profit but it was definitely a commercial profit and, therefore, Article III of the DTAA between India and Sweden entered into in the year 1958 would apply. Accordingly, the Tribunal held that the technical supervision fees received by the assessee was covered under DTAA and hence exempt from payment of tax. On a reference application filed by the revenue, the Tribunal has forwarded the aforesaid question of law for the opinion of this Court. 8. Mr. Vyas, learned counsel appearing on behalf of the revenue su....
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....e counsel for the assessee on the decision of Tribunal in the case of Rheinbraun Consulting GMBH wherein similar question has been answered in favour of the assessee therein. 12. We have carefully considered the rival submissions. The short question to be considered in the present case is, whether the technical supervision charges received by the assessee are the management charges which are excluded from the purview of "industrial & commercial profits" under Article III (3) of the DTAA 1958 ? 15. Article III of DTAA 1958 reads thus :- (1) Tax shall not be levied in one of the territories on the Industrial or commercial profits of an enterprise of the other territory unless the profits are derived in the first-mentioned territory through ....
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....muneration for labour or personal services or income from the operation of ships or aircraft but shall include rents or royalties in respect of cinematographic films. 13. On a plain reading of Article III (3) of DTAA 1958, it is clear that the management charges whether relating to business management or technical management would be outside the scope of exemption under Article III of DTAA 1958. In other words, for the purposes of DTAA 1958, the "management charges" are not to be treated as commercial profits. Therefore, the management charges received by the assessee, whether relating to the business management or technical management would be outside the scope of DTAA 1958. 14. By relying on the decision of ITAT in the case of Rhe....
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....mmercial profits" would include "management charges" in view of the specific exclusion contained in Article III (3), the "management charges" would be outside the purview of DTAA 1958. Therefore, in the facts of the present case the technical supervision charges received by the assessee being "management charges", the decision of the Tribunal in holding that the said amounts are commercial profits cannot be accepted. Moreover, it is pertinent to note that in the case of Rheinbraun Consulting GmbH (supra) the Tribunal was not called upon to consider the scope and the meaning of the word "management charges" in Article III (3) of the DTAA 1958, whereas in the present case, it was specifically argued before the Tribunal that in view of Article....