Rio Tinto Technical Services vs. DCIT (ITAT Delhi)

DATE: (Date of pronouncement)
DATE: June 18, 2010 (Date of publication)

Click here to download the judgement (rio_tinto_fees_technical_services.pdf)

PE Profits not taxable as FTS u/s 9(1)(vii)

The assessee, an Australian company, set up a permanent establishment (PE) in India to render technical services for evaluation of coal deposits and conducting feasibility studies for transportation of iron ore. The AO accepted that the income was business profits under Article 7 of the DTAA but held that as no rate of tax was prescribed in the DTAA and the nature of the income was “fees for technical services”, the income was assessable u/ss 115A & 44D. This was upheld by the CIT (A). On appeal by the assessee, HELD allowing the appeal:

(i) The assessee was not rendering simple technical or consultancy services but was rendering specific activities through the PE. Accordingly, Article 12 of the DTAA was not applicable. Income attributable to a PE is assessable under Article 7 of the DTAA. Under Article 7(2), the PE is deemed to be a wholly independent enterprise and under Article 7(3) deduction in accordance with the subject to the law relating to the tax in India is allowable. Since Article 7 of the DTAA comes into play, s. 9(1)(vii) is not applicable. Since Article 7 (2) of the DTAA specifies that the PE in India is to be treated as a wholly independent enterprise in India, ss. 44D and 115A will not apply in so far as they relate to foreign companies.

See Also: DCIT vs. Boston Consulting Group 94 ITD 31 (Mum) & JCIT vs. Essar Oil (Mum) where a similar view was taken after considering the contra rulings of the AAR in Ericsson Telephone Corporation 224 ITR 203 (AAR) and ABC 228 ITR 487 (AAR).