Consultancy fees, if not taxable as “fees for technical services”, is not taxable as “other income”
The assessee paid consultancy fees to a Singapore company on which tax was not deducted at source. The AO held that the said consultancy fees were assessable as “fees for technical services” u/s 9(1)(vii) and that the failure to deduct TDS meant that the amount had to be disallowed u/s 40(a)(ia). This was reversed by the CIT (A). On appeal by the department to the Tribunal, HELD dismissing the appeal:
(i) While the consultancy fees may constitute “fees for technical services” u/s 9(1)(vii), it does not fall within the ambit of that term in the India-Singapore DTAA because it does not “make available any technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein”. The services were simply consultancy services which did not involve any transfer of technology and so were not assessable as “fees for technical services” (Guy Carpenter (Del) & De Beers (Kar) followed);
(ii) The department’s argument that if the sum is not assessable as “fees for technical services”, it is assessable as “other income” Article 23 of the DTAA is not acceptable because that Article applies only to “items of income which are not expressly mentioned in the foregoing Articles of this Agreement”. Article 23 does not apply to items of income which can be classified under Articles 6-22 whether or not taxable under these articles. Therefore, income from consultancy services, which cannot be taxed under articles 7, 12 or 14 because the conditions laid down therein are not satisfied, cannot be taxed under article 23 either.