If DTAA is silent on a particular type of income, it will not automatically become business Income

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ITAT CHENNAI

DCIT v. TVS Electronics Ltd.

IT Appeal NO. 811 (MDS.) of 2010

[ASSESSMENT YEAR 2005-06]

MAY 25, 2012

There is no dispute that money paid to the non-resident by the assessee was for a market survey, qualitative consumer measurement, retail store site information and compiling data for identifying opportunities for consumer electronics in the overseas market. Such a “market survey” definitely involved exercise of technical knowledge and skill by the persons doing the survey. We cannot say that the work done by the Mauritius company for the assessee was not a technical service. What assessee paid to Mauritius company was fees for technical services. Explanation 2 to Section 9(1)(vii) of the Act states that “fees for technical services” meant any consideration for rendering any managerial, technical or consultancy services. There is no case for the assessee that payments were made for any construction, assembly, mining or a project undertaken by the recipient which would fall under the head “salaries”. Therefore, by virtue of Explanation 2 to Section 9(1)(vii) of the Act, the type of service received by the assessee M/s Rosewell Group Services Ltd., Mauritius was nothing but fees for technical services. A.O. was justified in taking this view. But, nevertheless, argument of the assessee before the CIT (Appeals) was that it had a bonafide belief that DTAA between India and Mauritius saved it from liability to deduct tax at source. According to assessee, the said Mauritius company was not having a permanent establishment in India and technical services not being specifically provided under DTAA, the receipts in the hand of Mauritius company could only be considered as part of its business earnings. This argument was accepted by the CIT (Appeals). However, we find that this line of reasoning was never mentioned by the assessee before the A.O. and the Assessing Officer had no opportunity to express his opinion. When technical service is not mentioned in DTAA between India and Mauritius, whether fee received for such services could be considered as business earning in the hands of recipient has not been analysed by any of the authorities below. Admittedly, Chapter III of DTAA between India and Mauritius did not provide for taxing any fees paid for technical services. Only for a reason that DTAA is silent on a particular type of income, we cannot say that such income will automatically become business income of the recipient. In our opinion, when DTAA is silent on an aspect, the provisions of the Act has to be considered and applied. This aspect has not been dealt with by the authorities below. We are, therefore, of the opinion that this issue requires a fresh look by the A.O. Orders of lower authorities on payments made for market survey, are set aside and remitted back to A.O. for consideration afresh in accordance with law.