A division bench comprising justices BP Saraf and SH Kapadia held that overseas technicians of French construction giant Spie-Capag working on Indian projects are eligible for I-T exemptions, as has been spelt out in the double taxation avoidance agreement with France.

The multinational had argued that remuneration of the technicians of the MNC working on the construction of Bandra and Worli outfalls in Mumbai cannot be subjected to tax in the country.

Arguing for the French company, senior advocate Dinesh Vyas said that since the services were rendered by French technicians, tax could not be levied in India in view of the taxation avoidance agreement with France.

The Municipal Corporation of Greater Mumbai had entered into an agreement with Spie-Capag for construction of the Bandra and Worli outfalls. The French company deputed technicians to India for execution of the contract. The technicians also rendered services in France in relation to the Indian project.

Spie-Capag, while filing returns for the technicians, claimed exemption in relation to the remuneration paid to them for services rendered while they were in France. However, the Income-tax authorities rejected the claim and held that under Section 9(1)(ii) of the I-T Act, the entire remuneration received by the technicians for the relevant year was taxable as salary.

The tax department had argued that since the services were in relation to an Indian project, the entire remuneration, whether in respect of services rendered in the country or for services rendered in France, was taxable in the country.

Spie-Capag preferred an appeal before the Income Tax Appellate Tribunal seeking exemptions. The tribunal accepted the argument of Vyas that in view of Article 14(1) of the tax avoidance treaty between India and France, Spie-Capag was entitled to claim exemption for remuneration earned by the French technicians for services rendered in France.

The Commissioner of Income Tax took up the matter before the Mumbai High Court. The court upheld the decision of the tribunal and reiterated that the provisions of the tax treaty would prevail over the Income Tax Act with regard to provisions which benefit the taxpayer.

INSIGHT
Verdict reaffirms position

Sec 90(2) of the Income Tax Act says that the provisions of double tax avoidance agreement or the provisions of the domestic law whichever is more favourable will prevail. One can also refer to the CBDT circular No:333 issued in April 1982. A case in point is American banks operating in India which do not pay 48 per cent tax payable by foreign companies because of Indo-US DTAA. The Mumbai High Court's judgment reiterates the position on this matter.