HCL Comnet Ltd. ("the Assessee"), a company incorporated in India is engaged in the business of designing, delivering, installation and commissioning of networking solution and providing professional services for management and maintenance of networking solution. During the relevant assessment year, the Assessee made payments under annual maintenance contracts (AMC) to various foreign companies without deducting taxes at source. The payment for AMC contract comprised payment for warranty charges and extended warranty charges, which were in the nature of repair/ replacement of equipment. As per the terms of the contract, equipment was sent outside India for any repair/ replacement and was re-imported in India after the repair work was done.

During the course of assessment, the Assessing Officer held that deduction of the said payment could not be allowed to the Assessee as no taxes were withheld by the Assessee on the said payments. The decision of the Assessing Officer was dismissed by the CIT(A) stating that no taxes were required to be deducted and accordingly, the payments should be allowed as a deduction. Aggrieved the Assessing Officer filed an appeal before the Tribunal. In this decision, the Tribunal has stated that routine maintenance repair will not tantamount to 'make available' of technical knowledge, skill, experience, know how etc and hence, would not be taxable in India in the absence of a permanent establishment. Since the amount is not taxable in India, no taxes are required to be deducted by the Assessee.

Nangia's take 

In this decision, the Tribunal has examined India Israel treaty and provided benefit of limited definition of 'fees for technical services' as per the most favored nation clause in the Protocol to India Israel treaty. By virtue of the said clause, the scope of definition of 'fees for technical services' was restricted to 'make available' of technical knowledge, skill, experience, know how etc which proved to be beneficial in case of the Assessee.

[Source: ITA Nos 321/Del/2002]

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