Sintex Industries Ltd. v. ADIT (IT) (2013)141 ITD 98/ 22 ITR 182(Ahd.) (Trib.)

S.9(1) (vii): Income deemed to accrue or arise in India-Fees for technical services -Deduction at source-DTAAIndia- UK-Fabric design-Design supplied by consultant becoming property of assessee, payment is fees for

technical service, assessee isliable to deduct tax at source-[S.195,Art. 13(4) (c)]

The assessee entered into an agreement with a consultant in the U. K., which was required to deliver 9,000 fabric designs for cotton shirting to the assessee every quarter. The consultant was also required to show or make available all documents and reports in respect of the transaction relating to this agreement and to provide detailed quantity report in writing to the assessee, along with specific or new design developed by the consultant. The compensation was payable by the assessee to the consultant for each design supplied by the consultant. On expiry or termination of this agreement, the consultant was required to return all the documents and other internal documents of the assessee but there was no clause in the agreement to say that the client, i.e., the assessee is required to return the designs supplied by the consultant. On the question whether the payment to be made to the consultant was covered by the definition of the term "fees for technical services" under article 13 of the Double Taxation Avoidance Agreement between India and the U. K. and hence is taxable in India and accordingly tax is required to be deducted at source under section 195 of the Act :On appeal by assessee Tribunal held that the design supplied by the consultant to the assessee became the property of the assessee and could be used by the assessee for its own business and be sold by the assessee to any outsider for consideration. The services rendered by the consultant to the assessee-company fell within article 13(4) (c) of the Double Taxation Avoidance Agreement and, therefore, the payment therefore was fees for technical services. According to the

memorandum of understanding between India and the U.S.A., it was provided that there will be no fees for technical services if technology is not made available to the person acquiring the services. It was also specified that technology will be considered "made available" when the person acquiring the services is enabled to apply the technology. In the present case, fabric design was made available to the assessee and the assessee could apply such fabric design to process and produce garments and it could also sell and transfer such fabric design to outsiders for consideration and there was no restriction on the assessee in this regard in the agreement between the assessee and the consultant. Considering all these facts, the services received by the assessee and provided by the consultant were nothing but technical services and hence, tax was deductible by the assessee from the payments made by the assessee, to the consultant. (A.Y.2009-2010, 2010-2011)