Any other consideration would be taxable in India only if it is for services rendered in the country or the amount is paid in India. This point was considered by the Mumbai High Court in an interesting case where commission was paid to a foreigner for foregoing in favour of an Indian company several export markets and for transferring to the Indian company a few export orders.

In Ceat International vs CIT ((1999) 103 Taxman 153), consideration was payable by the Indian company to the foreign assessee in respectof the following services rendered by the foreign company:

(a) It would forego in favour of the Indian company exports in various markets and, in certain cases, export orders were to be transferred to the Indian company.

(b) The foreign company was to allow the use of channels distribution in overseas markets to the Indian company and after sales services in those markets.

(c) Detailed market information was to be furnished to the Indian company through their representatives in major international markets at the expense of the foreign company.

(d) The benefit of advertising expenditure of the foreign company to establish Ceat brands in overseas markets was to be permitted.

The assessing officer and the commissioner of income-tax (appeals) held that the payment of commission fell within the meaning of the word "royalty" under Section 9(1)(vi) of the act. The tribunal held that the payment on account of services referred to in clauses (b), (c) and (d) amounted to royalty or fees for technicalservices within the meaning of Section 9(1)(vi) and 9(1)(vii).

The tribunal, therefore, held that 75 per cent of the amount of Rs 23,75,366 received by the assessee was taxable under the act. However, it was of the opinion that the remaining 25 per cent of the said amount, which was attributable to the services falling under clause (a), did not amount to royalty or fees for technical services and, hence, was not taxable under the act.

As a result, the tribunal held that 75 per cent of the export commission was taxable under Section 9(1) (vi) and 9(1)(vii). In other words, according to the tribunal, 75 per cent of the amount of Rs 23,75,366 was taxable under the act and the remaining 25 per cent, ie, Rs 5,93,840 was not taxable, as it was attributable to the services referred to in clause (a).

On a reference, the Bombay High Court observed that the dispute pertained to the export commission received by the assessee from the Indian company, Ceat Tyres India Ltd, as per the agreement dated September 9,1977.

The Bombay High Court held that the commission did not fall either within the meaning of the word "royalty" or "fees for technical services" and no amount was taxable under Section 9(1)(vi) or 9(1)(vii).

In case of remuneration earned by a foreigner, the question of accrual of income in India is very crucial because even if the remuneration is received by the foreigner outside India, if it is for services rendered in India, tax will be chargeable in the country. Thus, the "place of accrual" has a vital bearing on the taxability of income.

An interesting question arose in the case of Dieter Eberhard Gustav Von Der Mark vs CIT (235 ITR 698) before the Authority for Advance Rulings (AAR). The applicant was a qualified and experienced engineering consultant.

According to the applicant, he had been approached by P for technical and marketing consultation in respect of their process equipment, viz, super centrifuge, super D-canter and vibrating screens.

The services were to be rendered fromGermany. The purpose of consultancy was technical advancement of the company's products and development of export potential in the European market. An agreement was entered into for rendering technical and marketing service. Prior to this agreement, he was also appointed as a non-whole-time non-resident additional director or director of the company for promotion of the company's products overseas on a fee not exceeding Rs 4,00,000 per annum.

In an application for an advance ruling, it was claimed that the services rendered by the applicant were entirely in Germany and Europe and no part of the services had been rendered in India. It was also claimed that the professional fees received by the applicant were solely in respect of the services rendered and, hence, the amounts received were not taxable in India.

The AAR held that it was not possible to accept the views of the tax department that the applicant had a fixed base in India or that the services rendered by him fell within the purview of Article 16.There was no relationship of employer and employee between P and the applicant so as to attract Section 15 of the Income-Tax Act, 1961, which deals with the income chargeable under the head "salaries".

The AAR agreed with the argument of the counsel for the applicant, that the expression "professional services" was wide enough to include services, if any, rendered by the applicant as an engineer and that the various services rendered by Von Der Mark were in the nature of professional services falling under Article 14 of the Double Taxation Avoidance Agreement (DTAA) between India and the Federal Republic of Germany.

The conditions mentioned in the said article were clearly satisfied, as there was no permanent establishment in India in the facts and circumstances of the present case and the stay of the applicant in the relevant financial years had been for less than 120 days. The reliance by the department on CBDT vs Oberoi Hotels (India) Private Limited (231 ITR 148(SC)) in support of the conclusion thatthe professional services included technical services so as to attract Article 12(4) of the DTAA was misplaced.

The intendment of Section 80-O of the Income-Tax Act, 1961, is to extend the benefit of income-tax deduction of the assessee while computing his total income, with the twin objective of encouraging the export of Indian technical know-how and augmentation of foreign exchange resources of the country.

It was held that this case was not relevant for the present purposes and was clearly distinguishable on the facts and the applicable treaty provisions.

It was further observed that if the applicant's case fell under a more beneficial provision, it would be futile to stretch the interpretation to bring it under some other provision of the treaty or the Income-Tax Act.Hence, the AAR concluded that the services were covered by Article 14 of the DTAA, and the professional fees received by the applicant were not taxable in India. The AAR further held that the fees received by the applicant for sittingsof the board of directors and similar payments, if any, would be liable to be taxed under Article 16 of the DTAA between India and the Federal Republic of Germany and, in this regard, tax was deductible at source. The rule contained in Article 16 is an exception to the more general rule in Article 14. Hence, in determining whether the director's fee paid to a non-employee director is subject to tax in the country of residence of the corporation, it is not necessary to establish that the fee is attributable to a fixed base in that country. The resolution of the board of directors of P at its meeting held on September 29, 1997, clearly envisaged sitting fee for attending meetings of the board or a committee thereof. Therefore, the fee paid in this regard to the applicant attracted Article 16 of the DTAA.

The aforesaid decisions throw light on the subject of taxation of income arising to a foreign company or a professional, apart from the general provisions of Section 5,9 and 28 of the Income-Tax Act, 1961.The clauses of a tax treaty which India may have entered into with a foreign country would have to be considered, and if the provisions of the treaty cover the situation, the treaty will prevail over the provisions of the Indian tax law.

The author is a Supreme Court advocate