ORDER
Shri Sikander Khan, Accountant Member
1. In the appeal under consideration the Revenue has challenged the order dated 27-4-1993 of the ld. CIT (A), Jamshedpur, whereby he held that no deduction of tax at source was deductible under section 195(2) of the I.T. Act from the technical fees payable to M/s. Eisenwerk Sulzau-Werfen (ESW), Austria, by M/s. Tata Yodogawa Limited (TAYO).
2. M/s. TAYO entered into Technical Collaboration Agreement dated 6-9-1989 with M/s. ESW, Austria, which was duly approved by the Government of India and R.B.I. In terms of Article 13.1 of the Agreement M/s. TAYO, i.e., the assessee was required to remit by way of lump sum technical know-how fees of DM 20,00,000 in three instalments. In this connection the assessee submitted Application dated 9-12-1991 under section 195(2) of the I.T. Act for grant of permission for remittance of the amount to M/s. E.S.W., Austria, without deduction of tax at source.
3. The Assessing Officer vide his Intimation dated 23-12-1991 and 1st July, 1992 asked the assessee to deduct taxes on the instalments of the payment being made to M/s. ESW, Austria. He observed that the payments to M/s. ESW, Austria, were fees for technical services. Hence deduction of tax should be done in India. He also mentioned the following reasons in support of his orders :
“1. Agreement is in totality for payment for technical services rendered by ESW. This includes by the way royalty too.
2. The activities actually performed relates to advise and counsel by ESW with regard to selection adoption and purchase of equipments necessary for upgradation and modernisation of technology for manufactures of roll by specified process already existing at Gamharia in Singhbhum District of Bihar, India and also for manufacture of rolls by centrifugal casting method by centrifugal casting machine. Articles 4.2 and 4.1 are inter-related and has been required together in your application for No Objection Certificate in para-2 of your letter. Article 13.1 of agreements also refers to 4.2 and 4.1 together.
3. Article 4.2 cannot be read in isolation. For example, the advise and counsel of ESW in coupled with assistance to TAYO in establishing commercial production of centrifugal cast rolls. Article 4.5 and Article 4.6 specifically relates to upgradation and modernisation of the manufacture of Rolls which are presently cast by conventional methods at TAYO, Gamharia, Bihar.
4. The 3rd payment of his lump sum referred to in Article 13.1 is in a time-frame after commencement of production. All activities prior to commencement of production contain many ingredients which must be performed in India before such commencement of production and for which this amount is to be paid to ESW.”
4. Aggrieved, the assessee went up in appeal before the ld. CIT (A), who held that no deduction of tax was called for in the case in view of the provisions of Double Taxation Agreement (D.T.A.) between India and Austria.
5. Aggrieved, the Revenue has come up in appeal before this Tribunal.
6. The ld. Senior Departmental Representative (D.R.) submitted before us that the order of the ld. CIT(A) was wrong inasmuch as tax at source was deductible from the fees of the technical services payable to M/s. ESW, Austria. He reiterated the aforesaid grounds given in the order of the Assessing Officer.
7. The ld. counsel for the assessee, on the other hand, supported the order of the ld. CIT(A). He referred to Articles 3, 6, 7 and 17 of the D.T.A. between India and Austria, Article 13.1 of the Collaboration Agreement dated 6-9-1989, Letter dated 13-5-1992 of M/s. ESW, Austria (page 34 of the Paper Book) and Letter dated 13-5-1992 of TAYO (Page 35 of the Paper Book). With the help of these documents the ld. counsel explained before us that the – amendments in question were to be made in view of the provisions of Article 13.1 of the Collaboration Agreement. The technical services for which the payments in question were to be made to M/s. ESW, Austria, were rendered in Austria which fact was established by Letter dated 13-5-1992 of M/s. ESW, Austria, and Letter dated 13-5-1992 of M/s. TAYO referred to above. He stated that M/s. ESW, Austria, did not have permanent establishment in India which fact was not disputed by the revenue. In view of these facts, tax was not leviable as per Article 3 of D.T.A. He further submitted that Article 7 of the D.T.A. clearly exempts the payments in question from deduction of tax at source because the technical services for which the payments were to be made, were rendered in Austria and not in India. He further submitted that under Article 6 of the D.T.A. royalties were also taxable in the hands of M/s. ESW in Austria. He also referred to the I.T.A.T., ‘D’ Bench, Mumbai, order dated 24-4-1996 in I.T.A. No. 9504/Bom./89 for Assessment Year 1986-87 in which it was held that in view of Article 14.1 of D.T.A. between India & France, salaries for services rendered in India only were taxable in India. The salaries for services rendered in France were not taxable in India. He rounded up his arguments by submitting that the ld. DCIT was not justified in refusing to grant No Objection Certificate (N.O.C.) for reminding the amount of technical know-how fees to M/s. ESW, Austria, and the ld. CIT(A) was justified in holding that no deduction of tax at source was called for in the case.
8. We have carefully considered the facts and circumstances of the case and the submissions and contentions of the rival parties. We are in agreement with the ld. CIT(A) that the amounts in question payable to M/s. ESW, Austria, were not subject to taxation in India and no deduction of tax at source was called for in the case. The submissions and contentions of the ld. counsel in support of the order of the ld. CIT(A) as above, are found to be correct. Under article 7 of the D.T.A. between India and Austria amounts paid to M/s. ESW, Austria, for technical services rendered in Austria were 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. There was no dispute about the fact that the technical services for which the payments in question were made, were rendered in Austria and not in India. Letter dated 13-5-1992 of M/s. ESW, Austria (page 34 of Paper Book) and Letter dated 13-5-1992 of TAYO (Page 35 of Paper Book) clearly establish the fact that the technical services in question were rendered in Austria. In fact, in course of discussions before us, this fact was not disputed by the ld. Sr. D. R. It may also be added here that M/s. ESW, Austria, did not maintain permanent establishment in India. The order of the I.T.A.T., ‘D’ Bench, Mumbai, referred to above, is also very relevant to the issue in the present case. This order supports the assessee’s case.
9. On the facts and in the circumstances of the case, therefore, agreeing with the ld. CIT(A) we hold that deduction of tax at source was not called for in the case and the Assessing Officer should have issued No Objection Certificate for remittance of the technical know-how fee meant to M/s. ESW, Austria, without deduction of tax at source under section 195(2) of the I.T. Act.
10. In the result, the departmental appeal is dismissed.
11. In the Cross-Objection (C.O.) the assessee has supported the order of the ld. CIT(A). He has added that the ld. CIT(A) ought to have also referred to the decision of the I.T.A.T., ‘A’ Bench, Delhi, in Swadeshi Polytex Ltd. v. ITO [1991] 38 ITD 328 on which the assessee had relied in his appeal case before him.
12. Since we have dismissed the departmental appeal, the C.O. is treated as allowed.
13. In the result, the C.O. is allowed.