INCOME TAX ACT, 1961

Section 9(1)(vii)

Income deemed to accrue or arise in India - Under section 9(1)(vii) - Fees for technical services - Taxability on accrual basis or receipt basis

Assessee, a company incorporated and operating in Germany, received a sum towards testing and inspection charges, which were in the nature of 'Fees for Technical Services'. It submitted that the said FTS received was taxable only in the year in which it was received. AO, however, did not accept the contentions of the assessee and took the view that under section 9(1)(vii), FTS income is charged on accrual basis and not on payment basis. Held: There is apparent conflict between the provisions of section 5(2)(b) of the IT Act and Article VIIIA of India-Germany Tax Treaty for avoidance of double taxation and it is also adverted to the accepted principles of interpretation that when there is such a conflict, the provisions of the treaty would have to prevail over the domestic law. In the light of this discussion, what emerges was that in the case of a non-resident, who was a resident of Germany, income arising to him in India by way of royalties or technical charges could be taxed in India but that could be only on the receipt basis. Following the same, addition made by AO assessing the impugned income received by assessee, a Germany company, on accrual basis was deleted and set aside.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2014-15

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