Is tax to be withheld on annual maintenance charges and repair charges paid to a foreign company

The gist of the Tax Tribunal ruling was:

• IT/ILT: Where a US company was paid annual maintenance charges (AMC) in connection with rendering annual maintenance services relating to an equipment sold to assessee, it was required to be considered whether so called AMC services rendered constituted ‘included services’ in sense of article 12(4)(a) to find out whether AMC payment constituted ‘fees for included services’
• IT/ILT: Payment for repairs of machinery does not constitute ‘fees for technical services’

Facts of the Case as below:

• Section 9 of the Income-tax Act, 1961, read with Article 12 of the DTAA between India and USA – Income – Deemed to accrue or arise in India [Fees for technical services] – Assessment years 2005-06 and 2006-07 – Assessee, engaged in business of providing broadband services, purchased an equipment, i.e., Dense Wave Multiplexing Equipment, from a US company – Later on, assessee paid a sum to said US company as annual maintenance charge (AMC) for rendering annual maintenance service in connection with functioning of said equipment – Assessing Officer held that payment of AMC constituted ‘fees for technical services’ and he, accordingly, disallowed payment under section 40(a)(i) – Commissioner (Appeals) however held that AMC did not constitute ‘fees for technical services’ as per article 12(4)(b) of DTAA – Whether since US company allowed assessee to reach it through online/web-based processes developed and owned by it, Commissioner (Appeals) was required to consider whether so called AMC services rendered constituted ‘included services’ in sense of article 12(4)(a) of Indo-USA DTAA – Held, yes – Whether otherwise it was a case of mere attending to services by US company to complaint of assessee’s customers through online request – Held, yes – Whether, therefore, for limited purpose of examining applicability of article 12(4)(a) matter was to be remitted back to Commissioner (Appeals) – Held, yes [Paras 15, 18 & 20] [Matter remanded]

• Section 9 of the Income-tax Act, 1961, read with article 12 of the DTAA between India and USA – Income – Deemed to accrue or arise in India [Fees for technical services] – Assessment years 2005-06 and 2006-07 – Assessee purchased an equipment from a US company – It paid certain sum to said company as repair charges in connection with such machinery – Whether payment for repairs of machinery did not constitute ‘fees for technical services and, therefore, there was no need to deduct TDS on such payment