TMI Blog1996 (2) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... venture of two Canadian companies declared as a company under sec. 2(17) of the Income-tax Act by CBDT. SNC / ACRES (hereinafter referred as assessee) entered into an agreement with National Hydro-electric Power Corporation Ltd. (in short NHPC) on3rd August, 1984, to provide technical services to ensure timely completion of the Chamera Hydro-electric Project. Under the terms of the contract technical services are to be rendered by the assessee inIndiaas well as inCanadafor which fees are payable. The assessee filed returns for all the assessment years showing fee for technical services rendered inIndiaas taxable. It however claimed exemption in regard to the fee for services rendered in Canada amounting to Rs. 9,45,22,554 ; Rs. 4,95,05,764 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause (vii) of sub-sec. (1) of sec. 9 of the Act brought on the Statute. It was argued that clause (vii) of subsec. (1) of sec. 9 of the Act is worded in clear and unambiguous language which permits no two interpretations. Our attention was also drawn to the various terms of the contract which clearly showed that there existed a close nexus between the services carried on inIndiaand the one's performed inCanada. On the other hand on the issue whether the Legislature has extended its operation beyond the territorial jurisdiction as is stated to be the case of clause (vii) of sub-sec. (1) of sec. 9 of the Act, the same is stated to be pending before the Hon'ble Supreme Court for decision. In the circumstances, the assessee's contention had be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person inIndiaor for the purposes of making or earning any income from any source inIndia: Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government." It may be mentioned that clause (vii) of sub-sec. (1) of sec. 9 of the Act was inserted by the Finance Act, 1976 with effect from1-6-1976. While provisions of clause (i) cover different sources of income, that of (vii) cover only one source of income. Further unlike clause (i), clause (vii) does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al fees are payable to a non-resident by the resident and these are not for the services utilised in a business or profession carried on by the resident outsideIndia. These have also not arisen from any source outsideIndia. 5. Thus even in absence of any business connection the receipts on account of technical fees are to be covered under the provisions of sec. 9(1)(vii) of the Act. As to the assessee's stand that in spite of sec. 9(1)(vii) of the Act before the income of the non-resident could be brought to tax, there has to be a business connection, we find that the expression ' business connection ' has not been defined in the Act. The same is however not equivalent to carrying on a business. The expression ' business connection ' has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits or gains arise or accrue to a non-resident must be determined upon the facts and circumstances of the case." 6. Examining the assessee's case in the light of the norms as set out in the aforesaid judgment we find that as per the scope of work of SNC/ACRES as contained in Annexure ' A ' the services to be provided by the assessee were under the following heads : 1. Engineering and Project Management. 2. Technical services for procurement. 3. Supervisory Services for Construction Management. 4. Systems. 5. Technology Transfer and Technical Training Programmes. 6. To produce regular monthly progress reports. 7. To provide personnel in accordance with schedule approved by NHPC/SNC/ACRES. 7. As per Article 4 of the Gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e their Lordships of Hon'ble Supreme Court in the case of Electronics Corpn. of India Ltd v. CIT [1990] 183 ITR 43, have referred the matter to the Constitutional Bench with the following observations : " It is envisaged under constitutional scheme that Parliament inIndiamay make laws which operate extra-territorially. Art. 245(1) of the Constitution prescribes the extent of laws made by Parliament. They may be made for the whole or any part of theterritoryofIndia. Art 245(2) declares that no law made by Parliament shall be deemed to be invalid on the ground that it would have extra-territorial operation. Therefore, a Parliamentary statute having extra-territorial operation cannot be ruled out from contemplation. The operation of the law ..... X X X X Extracts X X X X X X X X Extracts X X X X
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