Fees for Technical Services, even if rendered outside India are taxable consequent to retrospective amendment in Section 9 by the Finance Act, 2010

Mumbai Tribunal Ruling: Fees for Technical Services, even if rendered outside India, are taxable consequent to retrospective amendment in Section 9 by the Finance Act, 2010 (Ashapura Minichem Limited Vs. ADIT) (ITA No. 2508/M/2008)

Facts:

Ashapura Mini chem Limited (AML/ Assessee), an Indian company entered into an agreement on 5 April 2007 with China Aluminum International Engineering Corp. Ltd. (CAIECL), a company based in China. AML, was in the process of building an alumina refinery in Gujarat and in this regard it was to pay a sum of USD one million in consideration of bauxite testing services availed from and for preparation of test reports by CAIECL. These services were rendered by CAIECL in its laboratories in China. These test reports of bauxite samples were to cover complete chemical composition of bauxite, physical phase constitution of bauxite, abradability test of bauxite, pre-desilication of bauxite, digestion performance test and red mud settling performance test.

AML approached Tax Department by filing an application under section 195 of the Income tax Act (Act) at the time of remittance of this sum to CAIECL for obtaining a nil withholding tax certificate. The Assessing Officer (AO) passed an order directing AML to deduct tax at source on the ground that these services rendered by CAICEL were in the nature of ‘fees for technical services’ as per Article 12 of India-China Double Tax Avoidance Agreement (‘tax treaty’).

On appeal, the Commissioner of Income tax [CIT (A)] upheld the order of the AO. Therefore, AML preferred an appeal before the Income tax Appellate Tribunal (Tribunal).

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