Even if not assessable as “fees for technical services” under DTAA, bar in s. 44D against deduction of expenses will apply

DIT vs. Rio Tinto Technical Services (Delhi High Court)

The assessee, an Australian company, set up a permanent establishment (PE) in India to render technical services for evaluation of coal deposits and conducting feasibility studies for transportation of iron ore. The AO & CIT (A) held that the payments received by the assessee were taxable as “fee for technical services” u/s 9(1)(vii) read with s. 115A on a gross basis without any deduction in view of s. 44D at the rate of 20%. On appeal, the Tribunal (39 DTR 327 (Del)) held that as the assessee had a PE in India, the receipts were chargeable to tax as “business profits” after deduction of expenses under Article 7 of the DTAA and s. 44D & 115A did not apply. On appeal by the department, HELD partly reversing the Tribunal: