{"id":4152,"date":"2012-01-08T07:56:55","date_gmt":"2012-01-08T07:56:55","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?p=4152"},"modified":"2012-01-08T08:26:45","modified_gmt":"2012-01-08T08:26:45","slug":"dit-vs-rio-tinto-technical-services-delhi-high-court-even-if-not-assessable-as-fees-for-technical-services-under-dtaa-bar-in-s-44d-against-deduction-of-expenses-will-apply","status":"publish","type":"post","link":"https:\/\/itatonline.org\/archives\/dit-vs-rio-tinto-technical-services-delhi-high-court-even-if-not-assessable-as-fees-for-technical-services-under-dtaa-bar-in-s-44d-against-deduction-of-expenses-will-apply\/","title":{"rendered":"DIT vs. Rio Tinto Technical Services (Delhi High Court)"},"content":{"rendered":"\n\n
Click here to download the judgement (rio_tinto_FTS_44D_expenses.pdf) <\/strong> <\/a><\/p><\/td>\n<\/tr>\n<\/table>\n


\nEven if not assessable as “fees for technical services” under DTAA, bar in s. 44D against deduction of expenses will apply
\n<\/strong><\/p>\n

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 & CIT (A) held that the payments received by the assessee were taxable as “fee for technical services<\/em>” u\/s 9(1)(vii) read with s. 115A on a gross basis without any deduction in view of s. 44D<\/em> at the rate of 20%. On appeal, the Tribunal (39 DTR 327 (Del))<\/a> held that as the assessee had a PE in India, the receipts were chargeable to tax as “business profits<\/em>” after deduction of expenses under Article 7 of the DTAA and s. 44D & 115A did not apply. On appeal by the department, HELD partly reversing the Tribunal:<\/p>\n

(i) As the assessee had a PE in India from which the income arose, the income was chargeable to tax as “business profits” under Article 7<\/strong> of the DTAA and not as “fees for technical services” under Article 12;<\/p>\n

(ii) Article 7(3) permits a deduction of expenditure “in accordance with and subject to limitations of the law<\/em>” relating to tax in India including executive and general administrative expenses so incurred regardless whether they have incurred in India or elsewhere. The words “in accordance with and subject to limitation of the law relating to tax<\/em>” applies not only to the “executive and general administrative expenses” but to all expenditure<\/strong>;<\/p>\n

(iii) The income received by the assessee, though not assessable as “fees for technical services” under the DTAA, is “fees for technical services<\/em>” under Explanation 2 to s. 9(1)(vii)<\/strong> because it is for providing technical information and does not arise from a “project”. Consequently, s. 44D, which provides that no deduction shall be admissible while computing income of the nature of “fees for technical services” shall apply<\/strong>. <\/p>\n

\nNote<\/strong>: This view is in line with the AAR Rulings in Ericsson Telephone Corporation<\/a><\/strong> 224 ITR 203 (AAR) and ABC<\/strong> 228 ITR 487 (AAR) though contrary to the Tribunal rulings in Boston Consulting Group<\/a><\/strong> 94 ITD 31 (Mum) & Essar Oil<\/a><\/strong> (Mum)\n<\/div>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

The income received by the assessee, though not assessable as “fees for technical services” under the DTAA, is “fees for technical services<\/em>” under Explanation 2 to s. 9(1)(vii) because it is for providing technical information and does not arise from a “project”. Consequently, s. 44D, which provides that no deduction shall be admissible while computing income of the nature of “fees for technical services” shall apply<\/strong><\/p>\n

Read more ›<\/a><\/div>\n

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