VA Tech Wabag Limited, CHENNAI V. ACIT, CHENNAI

ITA 1893/CHNY/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 4492 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 30-06-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 27-07-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K SUBRAMANIAM SR
• Keywords: Double taxation relief; TDS
• Section: 143(3); 195; 80IA; 251; 148; 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C CHENNAI BEFORE SHRI PRADEEP PARIKH, VICE-PRESIDENT & SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NO.1893/MDS/2007 ASSESSMENT YEAR: 2002-03 VA TECH WABAG LIMITED, 11, MURRAYS GATE ROAD, ALWARPET, CHENNAI 600 018. [PAN:AABCV0225G] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(4), CHENNAI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SRIRAM SESHADRI REVENUE BY : SHRI K. SUBRAMANIAM, SR. STANDING COUNSEL O R D E R PER GEORGE MATHAN, J.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LD. CIT(A) III, CHENNAI DATED 23.05.2007 FOR THE ASSESSMENT YE AR 2002-03. SHRI SRIRAM SESHADRI REPRESENTED ON BEHALF OF THE ASSESSEE AND SHRI K. SUBRAMANIAM, SENIOR STANDING COUNSEL REPRESENTED ON BEHALF OF TH E REVENUE. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF COMMISSIONER OF APPEAL IS AGAINST THE PROVISIONS OF LAW AND CONTRARY TO THE FACTS OF THE CASE. 2. THE COMMISSIONER ERRED IN UPHOLDING THE DISALLO WANCE OF FEES FOR TECHNICAL SERVICES OF RS.1,15,36,306/- 3. THE LD. COMMISSIONER FAILED TO NOTE THAT THE FE ES FOR TECHNICAL SERVICES RENDERED FOR AUSTRIA IS NOT LIABLE TO TAX UNDER THE PROVISIONS OF DOUBLE TAXATION AVOIDANCE AGREEMENT ENTERED BETWEEN GOVERNMENT OF AUSTRIA AND INDIA DATED. 4. THE COMMISSIONER FAILED TO NOTE THAT THE NOTIFI CATION NO. 682(E) DATED 20.09.2001 251 ITR (ST) 97 UNDER WHIC H TAX IS TO BE LEVIED FOR SERVICES RENDERED FROM AUSTRIA CO MES TO EFFECT FROM 1.4.2002. ALSO THIS NOTIFICATION IS DA TED ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 2 20.09.2001 AND ACCORDINGLY ARTICLE 28 OF THE CONVE NTION WILL COME INTO FORCE FROM 01.04.2002 ONLY. 5. THE LD. COMMISSIONER FAILED TO OBSERVE THAT THE AMENDED TREATY BETWEEN GOVERNMENT OF INDIA AND AUSTRIA WIL L COME INTO EFFECT FROM 01.04.2002 ONWARDS AND ANY TECHNI CAL FEE ACCRUED PRIOR TO 01.04.2002 WILL BE GOVERNED BY TH E OLD TREATY AND AS PER THE OLD TREATY THE FEES FOR TECH NICAL SERVICES RENDERED FROM AUSTRIA IS NOT LIABLE TO TAX IN INDI A. FOR THESE AND OTHER GROUNDS THAT MAY BE AGITATED AT THE TIME OF HEARING OR EARLIER IT IS PRAYED THAT THE HONBLE TR IBUNAL MAY BE PLEASED TO ALLOW THE APPEAL AND RENDER JUSTICE. 2. IT WAS SUBMITTED BY THE LD. AR THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF EXECUTING TURNKEY PROJECT OF WATER/WAST E WATER TREATMENT AND SEWERAGE TREATMENT PLANTS. FOR THE YEAR UNDER CONSI DERATION, THE ASSESSEE FILED ITS RETURN OF INCOME ON 31.10.2002 DECLARING NIL TA XABLE INCOME. THE RETURN WAS PROCESSED BY THE ASSESSING OFFICER UNDER SECTION 14 3(1) ON 28.02.2003. ASSESSMENT WAS SUBSEQUENTLY REOPENED BY THE ASSESSI NG OFFICER BY THE ISSUE OF NOTICE UNDER SECTION 148 DATED 17.02.2006 FOR THE R EASONS THAT THE ASSESSEE HAS WRONGLY CLAIMED DEDUCTION UNDER SECTION 80IA. THE A SSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE IS MERELY A WORK CONTRACTOR EXECUTING CIVIL CONTRACT WORKS AND THEREFORE, IT WAS NOT ENTITLED TO DEDUCTION UND ER SECTION 80IA OF THE ACT. AS A RESULT, THE ASSESSING OFFICER HAS DISALLOWED THE EN TIRE DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 80IA TO THE EXTENT OF RS.2,7 6,46,265/-. IN ADDITION TO THE ABOVE, THE ASSESSING OFFICER HAS DISALLOWED FEES FO R TECHNICAL SERVICES AMOUNTING TO RS.1,15,36,306/- BY INVOKING PROVISIONS OF SECTI ON 40(A)(I) OF THE ACT SINCE THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE WHILE MAKIN G THE SAID PAYMENT. AS A RESULT, THE REASSESSMENT HAS BEEN COMPLETED UNDER S ECTION 143(3) R.W.S. 147 ON ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 3 26.12.2006 DETERMINING TOTAL INCOME OF THE ASSESSEE AT RS.3,83,26,870/-. IT WAS THE SUBMISSION THAT IN APPEAL BEFORE THE LD. CIT(A) , THE LD. CIT(A) HAS UPHELD THE ACTION IN RESPECT OF THE FEES FOR TECHNICAL SERVICE S ON ACCOUNT OF NON-COMPLIANCE OF PROVISIONS OF SECTION 40(A)(I) OF THE ACT. IT W AS THE SUBMISSION THAT BOTH THE ASSESSING OFFICER AND THE LD. CIT(A) HAD NOT APPREC IATED THAT THERE WERE TWO TREATIES BETWEEN INDIA AND AUSTRIA. FIRST TREATY HA D BEEN ENTERED INTO BETWEEN INDIA AND AUSTRIA IN APRIL, 1963 AND THE SECOND TRE ATY IN SEPTEMBER, 2001. IT WAS THE SUBMISSION THAT THE ASSESSING OFFICER AND THE L D. CIT(A) FAILED TO APPRECIATE THAT IT WAS THE FIRST TREATY BEING THE TREATY ENTER ED INTO BY THE REPUBLIC OF INDIA AND GOVERNMENT OF THE REPUBLIC OF AUSTRIA IN 1963, WHIC H WAS APPLICABLE IN SO FAR AS, AS PER ARTICLE 28 OF NEW TREATY ENTERED INTO ON 05. 09.2001, THE NEW TREATY WAS CAME INTO TAKE EFFECT AND WAS TO EFFECT IN RESPECT OF THE INCOME ARISING IN ANY FISCAL YEAR BEGINNING ON OR AFTER 1 ST APRIL NEXT FOLLOWING THE CALENDAR YEAR IN WHICH THE EXCHANGE OF INSTRUMENT OF RATIFICATION TAXES PL ACE. THE INSTRUMENT OF RATIFICATION HAVING TAKEN PLACE AFTER SEPTEMBER, 20 01, THE SAID TREATY BETWEEN INDIA AND AUSTRIA WOULD HAVE EFFECTED ONLY FROM 01. 04.2002 RELEVANT TO THE ASSESSMENT YEAR 2003-04. IT WAS THE SUBMISSION THAT THE ASSESSMENT YEAR IN APPEAL IS 2002-03. IT WAS THE SUBMISSION THAT AS PE R THE OLD TREATY BETWEEN INDIA AND AUSTRIA, ARTICLE 7 PROVIDED FOR THE TAXATION OF THE FEE FOR TECHNICAL SERVICES. IT WAS THE SUBMISSION THAT AS PER THE ARTICLE 7, THE F EE FOR TECHNICAL SERVICES PAID BY THE INDIAN COMPANY TO THE AUSTRIAN COMPANY WAS NOT LIABLE TO TAX IN INDIA. CONSEQUENTLY, NO TDS WAS LIABLE TO BE MADE. IT WAS THE SUBMISSION THAT IN VIEW OF THE FACT THAT NO INCOME OF THE AUSTRIAN COMPANY WAS LIABLE TO BE TAXED IN INDIA ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 4 IN VIEW OF THE APPLICABILITY OF THE DTAA BETWEEN IN DIA AND AUSTRIA AS WAS APPLICABLE FOR 2002-03, THE PROVISION OF SECTION 40 (A)(I) OF THE ACT COULD NOT BE INVOKED TO MAKE THE DISALLOWANCE. THE LD. AR DREW O UR ATTENTION TO THE COPY OF THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH M/S . VA TECH WABAG LTD., AUSTRIA, WHEREIN IT HAS BEEN SPECIFICALLY PROVIDED THAT THE AUSTRIAN COMPANY WOULD PROVIDE THE ASSESSEE TECHNICAL SUPPORT FROM T HEIR PREMISES IN AUSTRIA. HE FURTHER DREW OUR ATTENTION TO CLAUSE 1 TO 5 OF THE SAID AGREEMENT, WHICH IS AS FOLLOWS: 1. THE SERVICES PROVIDED TO WABIND BY WABAG VIENNA SHALL BE FROM WABAG VIENNAS REGISTERED OFFICE AT SIEMENS STRASSE 89, A-1210, VIENNA IN CONNECTION WITH THE PROJECT. WABAG VIENNA SHALL OBTAIN ALL RELEVANT INFORMATION AND DA TA NECESSARY TO PERFORM ITS OBLIGATIONS UNDER THE AGRE EMENT FROM WABIND. 2. WABAG VIENNA SHALL MAINTAIN THE CLOSEST CO-OPER ATION AND CO-ORDINATION WITH WABINDS PROJECT MANAGERS/ CONSU LTANTS IN INDIA FOR THE INTERPRETATION OF THE REQUIREMENTS OF WABIND. 3. WABIND SHALL ASSIGN/DEPUTE HIGHLY TECHNICALLY C OMPETENT AND EXPERIENCED PERSONNEL TO VIENNA TO ASSIST AND HELP WABAG VIENNA PERFORM THE SERVICES AS CONTEMPLATED UNDER T HIS AGREEMENT. IF REQUIRED, WABAG VIENNA SHALL PROPOSE DETAILED MANNING SCHEDULE FOR THE WORKS. 4. THE TECHNICAL SUPPORT MENTIONED ABOVE SHALL INC LUDE THE FOLLOWING SUPPORT PROVIDED FROM VIENNA: - REVIEW OF TECHNICAL SPECIFICATIONS AS PER WABIND S CLIENT AND PROVIDE NECESSARY TECHNICAL ADVICE ON TH E SAME. - DISCUSS SPECIFIC TECHNICAL ISSUES AND PROVIDE SOL UTIONS. - REVIEW OF THE PRELIMINARY DRAWINGS AND PROVIDE COMMENTS THEREON. ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 5 - ASSIST IN SOURCING OF COMPONENTS IN THE FORM OF TECHNICAL EVALUATION OF VENDORS IN AUSTRIA AND NEIGHBORING COUNTRIES. 5. WABAG VIENNA SHALL IN ITS OFFICE AT VIENNA, USE FACILITIES VIZ., TELEPHONE, TELECONFERENCING, TELE-FAX, PHOTO-COPIE S, PRINTING AND STATIONARY ETC., FOR THE PURPOSES OF COMMUNICATING WITH THE PERSONAL OF WABIND AND PROVIDING TECHNICAL EXPERTI SE TO WABIND. THE DESIGNS IF ANY TRANSFERRED SHOULD BE E -MAILED TO THE PROJECT MANAGER IN CHARGE OF THE PROJECT, WHOS E NAME WILL BE COMMUNICATED FOR EACH SPECIFIC WORK AND WOULD B E AGREED UPON AS EACH PROJECT BEINGS. ACKNOWLEDGEMENT BE OB TAINED FOR SUCCESSFUL TRANSMISSION TO WABIND. THE DELIVERABLE S MAY BE SENT BY COURIER TO THE PROJECT MANAGER IN INDIA AS WELL TO THE ADDRESS OF THE DESIGNATED PROJECT MANAGER IN WABIN D. 2.1 IT WAS THE SUBMISSION THAT BASIC ADVISORY AND T ROUBLE SHOOTING FACILITIES WERE PROVIDED BY THE AUSTRIAN COMPANY AT VIENNA AND CONSEQUENTLY NO INCOME OF THE AUSTRIAN COMPANY WAS LIABLE TO BE TAXED IN INDI A. THE LD. AR DREW OUR ATTENTION TO THE DECISION IN THE CASE OF AT AND S I NDIA (P) LTD. V. CIT (287 ITR 421(AAR), WHICH HAS BEEN RELIED UPON BY THE LD. CIT (A) IN PARA 4.6 OF HIS ORDER. IT WAS THE SUBMISSION THAT IN THE SAID DECISION, THE I SSUE WAS IN RESPECT OF THE FEE FOR TECHNICAL SERVICES AS PER THE NEW DTAA ENTERED INTO BETWEEN INDIA AND AUSTRIA IN SEPTEMBER, 2001. IT WAS THE SUBMISSION T HAT THE SAID DECISION HAD NO APPLICABILITY. HE SPECIFICALLY DREW OUR ATTENTION T O PARA 3 OF THE SAID DECISION, WHEREIN IT WAS CLEARLY STATED THAT THE NEW DTAA WAS BEING CONSIDERED. IN RESPECT OF THE DECISION RELIED UPON BY THE LD. CIT(A) IN TH E CASE OF IMT (LABS) (I) P. LTD. [287 ITR 450 (AAR)], IT WAS THE SUBMISSION THAT THE SAID DECISION WAS IN RESPECT OF THE DTAA ENTERED INTO BETWEEN INDIA AND USA, WHE REIN THE WORDS WERE TOTALLY DIFFERENT. IT WAS THE FURTHER SUBMISSION THAT BOTH THE DECISIONS RELIED UPON BY THE LD. CIT(A) WAS COMPLETELY DISTINGUISHABLE FROM THE FACTS OF THE ASSESSEES CASE. ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 6 HE FURTHER PLACED RELIANCE OF THE COORDINATED BENCH OF THIS TRIBUNAL IN THE CASE OF TVS SUZUKI LTD. V. ITO (73 ITD 91), WHICH HAD CONSI DERED THE ISSUE OF THE FEE FOR TECHNICAL SERVICES PAID TO A RESIDENT IN AUSTRIA AN D WHICH WAS ALSO IN RELATION TO THE OLD DTAA BETWEEN INDIA AND AUSTRIA, WHICH WAS A PPLICABLE TILL THE ASSESSMENT YEAR 2002-03. IN THE SAID DECISION, THE COORDINATED BENCH OF THIS TRIBUNAL HAS HELD AS FOLLOWS: LET US ALSO CONSIDER THE DECISION OF THE PATNA BEN CH OF THIS TRIBUNAL BY DY. CIT VS. TATA YODOGAWA LTD. (1999) 68 ITD 47 (PAT). THE FACTS OF THIS CASE ARE THAT THE ASSESSEE ENTERED INTO TEC HNICAL COLLABORATION AGREEMENT, DULY APPROVED BY THE GOVERNMENT OF INDIA AND RBI WITH AN AUSTRIAN COMPANY. IN TERMS OF THE AGREEMENT THE ASSESSEE WAS REQUIRED TO REMIT BY WAY OF LUMP SUM TECHNICAL KNOW -HOW FEES TO THE FOREIGN COMPANY IN THREE INSTALMENTS. THE AO ASKED THE ASSESSEE TO DEDUCT TAX ON THE PAYMENTS BEING MADE TO THE SAID C OMPANY AS THEY WERE FEES FOR TECHNICAL SERVICES. ON APPEAL, THE CI T(A) HELD THAT DEDUCTION OF TAX AT SOURCE WAS NOT CALLED FOR IN VI EW OF THE PROVISIONS OF DOUBLE TAXATION AGREEMENT BETWEEN INDIA AND AUST RIA. ON THE REVENUES APPEAL THE TRIBUNAL HELD THAT IN VIEW OF ART. 7 OF THE DOUBLE TAXATION AGREEMENT BETWEEN INDIA AND AUSTRIA THE AMOUNTS PAID TO THE AUSTRIAN COMPANY FOR TECHNICAL SERVICES RENDERED IN AUSTRIA ARE TAXABLE IN AUSTRIA AND NOT IN INDIA. IN VIEW OF THIS THERE WAS NO QUESTION OF DEDUCTION OF TAX AT SOURCE FROM THE PAYMENTS IN QUESTION. IN THE INSTANT CASE THE TECHNICAL SERVICE S FOR WHICH THE PAYMENTS WERE MADE WERE RENDERED IN AUSTRIA AND NOT IN INDIA. HENCE THE CIT(A) WAS RIGHT IN HOLDING THAT THE DEDU CTION OF TAX AT SOURCE WAS NOT CALLED FOR IN THIS CASE AND THE AO S HOULD HAVE ISSUED NO OBJECTION CERTIFICATE FOR THE REMITTANCES OF TEC HNICAL KNOW-HOW FEES ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 7 WITHOUT DEDUCTION OF TAX AT SOURCE. THUS, THE DEPA RTMENTAL APPEAL WAS DISMISSED. THE FACTS OF THE CASE IN HAND ARE ID ENTICAL WITH THOSE IN THE CASE CONSIDERED BY THE PATNA BENCH OF THIS TRIB UNAL. IN THE INSTANT CASE ALSO THE AUSTRIAN COMPANY (AVL) HAD NO PERMANE NT ESTABLISHMENT IN INDIA AND THE TECHNICAL SERVICES W ERE ALL RENDERED IN AUSTRIA, I.E., OUTSIDE INDIA. ALSO THE PAYMENT WAS NOT IN THE NATURE OR ROYALTY, AS HAD BEEN ALREADY HELD BY US. 2.2 IT WAS THE FURTHER SUBMISSION THAT THE LD. CIT( A) HAD ALSO RELIED UPON THE PROVISIONS OF THE SECTION 195 AND 195(2) OF THE ACT . IT WAS THE SUBMISSION THAT THE SAID PROVISIONS HAD NO APPLICABILITY IN SO FAR AS, AS PER THE DTAA ENTERED INTO BETWEEN INDIA AND AUSTRIA, WHICH OPERATED DURING 20 02-03, THE INCOME OF THE AUSTRIAN COMPANY ITSELF WAS NOT TAXABLE IN INDIA. I T WAS THE FURTHER SUBMISSION THAT IN THE EVENT THAT IT IS HELD THAT THE DTAA BETWEEN INDIA AND AUSTRIA, WHICH WAS ENTERED INTO IN 1965 WAS HELD TO BE NOT APPLICABLE AND THE TREATY AS ENTERED INTO IN SEPTEMBER, 2001 WAS APPLICABLE THEN AS PER ARTIC LE 24 OF THE NEW TREATY BEING THE NON-DISCRIMINATORY CLAUSE, THE INCOME OF THE AU STRIAN COMPANY WAS STILL NOT TAXABLE IN INDIA. IT WAS, THUS THE SUBMISSION THAT THE ORDERS OF THE LD. CIT(A) AND THE ASSESSING OFFICER ARE LIABLE TO BE REVERSED AND THE DISALLOWANCE MADE AND CONFIRMED IS LIABLE TO BE DELETED. 3. IN REPLY, THE LD. DR SUBMITTED THAT THE APPLICA BILITY OF SECTION 195 (2) WAS MANDATORY AND IF THE ASSESSEE DID NOT WANT TO DEDUC T TDS ON THE PAYMENTS TO THE NON-RESIDENT, IT WAS INCUMBENT UPON THE ASSESSE E TO MAKE AN APPLICATION UNDER SECTION 195(2) OF THE ACT. IT WAS FAIRLY AGRE ED BY THE LD. DR, ON A SPECIFIC QUERY BY THE BENCH, THAT THE OLD TREATY BETWEEN IND IA AND AUSTRIA, WHICH WAS ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 8 ENTERED INTO IN 1965 WOULD BE APPLICABLE FOR THE RE LEVANT ASSESSMENT YEAR. IT WAS THE FURTHER SUBMISSION THAT AS PER THE PROVISIONS O F SECTION 40(A)(I), THE EXPENDITURE CLAIMED WAS LIABLE TO BE DISALLOWED. IT WAS THE FURTHER SUBMISSION THAT THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF ITO V. PRASAD PRODUCTION LTD. & OTHERS [(2010) 3 ITR (TRIB)) 58 ( CHENNAI)(SB)] WAS NOT APPLICABLE IN SO FAR AS IT HAD NOT CONSIDERED THE D ECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. SAMSUNG ELECTRONIC S LTD. [2010] 320 ITR 209 (KARN) IT WAS THE FURTHER SUBMISSION THAT THE NON-D ISCRIMINATORY CLAUSE OF THE DTAA ENTERED INTO BETWEEN INDIA AND AUSTRIA IN SEPT EMBER, 2001 DID NOT APPLY TO THE ASSESSEES CASE. IT WAS THE FURTHER SUBMISSION THAT CIRCULAR ISSUED BY THE RBI IN RESPECT OF THE NON-OBTAINING OF THE NO OBJECTION CERTIFICATE DID NOT MEAN THAT THE PROVISIONS OF SECTION 195(2) HAD NO APPLICABILI TY. HE VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A) . 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE DTAA ENTERED INTO BETWEEN INDIA AND AUSTRIA CLEARLY SHOWS THAT T HE DTAA ENTERED INTO BETWEEN INDIA AND AUSTRIA ON 05.09.2001 WOULD BE APPLICABLE IN RESPECT OF THE ASSESSMENT YEAR 2003-04. THE DTAA ENTERED INTO BETWEEN INDIA A ND AUSTRIA IN APRIL, 1965 WOULD BE THE DTAA, WHICH IS APPLICABLE TILL THE ASS ESSMENT YEAR 2003-04. THE ASSESSMENT YEAR IN APPEAL BEFORE US IS THE ASSESSME NT YEAR 2003-04. A PERUSAL OF THE ARTICLE 7 OF THE SAID DTAA READS AS FOLLOWS: ARTICLE 7 - FEES FOR TECHNICAL SERVICES AMOUNTS PAID BY AN ENTERPRISE OF ONE OF THE TERRIT ORIES FOR TECHNICAL SERVICES FURNISHED BY AN ENTERPRISE OF TH E OTHER TERRITORY SHALL NOT BE SUBJECT TO TAX BY THE FIRST-MENTIONED TERRITORY EXCEPT IN SO FAR AS SUCH AMOUNTS ARE ATTRIBUTABLE TO ACTIVITIES ACTUALLY PERFORMED ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 9 IN THE FIRST-MENTIONED TERRITORY. IN COMPUTING THE INCOME SO SUBJECT TO TAX, THERE SHALL BE ALLOWED AS DEDUCTIONS THE EXPEN SES INCURRED IN THE FIRST-MENTIONED TERRITORY IN CONNECTION WITH THE AC TIVITIES PERFORMED IN THAT TERRITORY. AS PER THE SAID ARTICLE 7 OF THE DTAA, THE AMOUNTS PAID BY THE INDIAN ENTERPRISES FOR TECHNICAL SERVICES FURNISHED BY AN AUSTRIAN ENT ERPRISES IS NOT SUBJECTED TO TAX BY THE INDIA EXCEPT IN SO FAR AS SUCH AMOUNTS ARE A TTRIBUTABLE TO THE ACTIVITIES ACTUALLY PERFORMED IN THE INDIAN TERRITORY. A PERUS AL OF THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND THE AUSTRIAN ENTERPRISES C LEARLY SHOWS THAT THE TECHNICAL SERVICES ARE PROVIDED BY THE AUSTRIAN ENT ERPRISE AT ITS ESTABLISHMENT IN VIENNA AND NO PORTION OF THE SERVICES ARE PROVIDED IN INDIA. THUS, AS PER THE DTAA ENTERED INTO BETWEEN INDIA AND AUSTRIA AS IS A PPLICABLE FOR THE RELEVANT ASSESSMENT YEAR, NO INCOME OF THE AUSTRIAN ENTERPRI SES IS LIABLE TO TAX IN INDIA. A PERUSAL OF THE PROVISIONS OF SECTION 195 OF THE ACT CLEARLY SHOWS THAT IF ANY SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT IS PAID TO A NON-RESIDENT FOREIGN COMPANY, THEN TDS IS LIABLE TO BE DEDUCTED. HERE, W HAT IS IMPORTANT IS THE SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT. IT IS U NDISPUTED THAT THE PROVISIONS OF SECTIONS 90 AND 91 WOULD OVERRIDE THE OTHER PROVISI ONS OF THE ACT. THUS, WHEN THE TRANSACTION IS COVERED UNDER THE PROVISIONS OF THE DTAA, IT IS TO BE FIRST SHOWN THAT THE DTAA DOES NOT APPLY OR THAT THE PARTICULAR INCO ME IS TAXABLE IN INDIA UNDER THE PROVISIONS OF ACT IF THE PROVISIONS OF SECTION 195 ARE TO BE INVOKED. THE ARTICLE 7 OF THE DTAA ENTERED INTO BETWEEN INDIA AND AUSTRIA REL EVANT TO THE ASSESSMENT YEAR 2002-03 CLEARLY HELD THAT THE INCOME OF THE AUSTRIA N ENTERPRISE IS NOT TAXABLE IN INDIA IN VIEW OF THE FACT THAT NO PORTION OF THE AC TIVITIES WERE PERFORMED BY AUSTRIAN ENTERPRISE IN INDIA. IN THE CIRCUMSTANCES, AS IT IS FOUND THAT THE INCOME OF THE ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 ITA NO. 1893/MDS/07 10 AUSTRIAN ENTERPRISE IS NOT TAXABLE IN INDIA ON ACCO UNT OF ARTICLE 7 OF THE DTAA ENTERED INTO BETWEEN INDIA AND AUSTRIA RELEVANT TO THE ASSESSMENT YEAR 2002-03, THERE CAN BE NO SUM CHARGEABLE UNDER THE PROVISIONS OF THE INCOME TAX ACT, 1961, WHICH HAS BEEN PAID BY THE ASSESSEE TO THE FO REIGN COMPANY ON ACCOUNT OF THE FEE FOR THE TECHNICAL SERVICES. IN THE CIRCUMST ANCES, THE PROVISIONS OF SECTION 195 OF THE ACT WOULD NOT BE APPLICABLE TO THE PAYME NT MADE BY THE ASSESSEE TO THE AUSTRIAN ENTERPRISE ON ACCOUNT OF THE FEE FOR T ECHNICAL SERVICES FOR THE ASSESSMENT YEAR 2002-03. IN THE CIRCUMSTANCES, AS T HE PROVISION OF SECTION 195 DOES NOT APPLY, THE REQUIREMENT OF THE ASSESSEE TO OBTAIN CERTIFICATE UNDER SECTION 195(2) ALSO DOES NOT SURVIVE. AS THE PROVISION OF S ECTION 195 DOES NOT APPLY, THE PAYMENT MADE BY THE ASSESSEE TO THE AUSTRIAN ENTERP RISE ON ACCOUNT OF THE FEE FOR TECHNICAL SERVICES WOULD NOT BE HIT BY THE PROV ISIONS OF SECTION 40(A)(I) OF THE ACT AND CONSEQUENTLY, NO DISALLOWANCE OF THE EXPEND ITURE ON ACCOUNT OF THE FEE FOR THE TECHNICAL SERVICES PAID TO THE AUSTRIAN ENT ERPRISE CAN BE MADE. IN THE CIRCUMSTANCES, THE DISALLOWANCE OF THE EXPENDITURE AS MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(A) STANDS DELE TED. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09.07.2010. SD/- SD/- (PRADEEP PARIKH) VICE-PRESIDENT (GEORGE MATHAN) JUDICIAL MEMBER CHENNAI, DATED, THE 09.07.2010 VM/- COPY TO : APPELLANT/RESPONDENT/CIT(A)- /CIT, /DR