9911796707
TMI Blog1992 (12) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... e question for determination before the IAC (Asst.) was whether such fees is assessable to tax at the hands of the assessee in terms of proviso to section 9(1)(vii) of the Income-tax Act, 1961. 3. Before the IAC (Asst.) the assessee claimed that fees to be exempt on the ground that it is in accordance with article 1.6 of the Agreement entered into with the approval of the Central Government on 29-1-1976 which is prior to 1-4-1976 and the proviso to section 9(1)(vii) confers the exemption on it. According to the IAC (Asst.) article 1.6 of the agreement dated 29-1-1976 does not provide for any specified fees like the one under consideration though it speaks in general about providing technical services subject to feasibility and other terms to be mutually agreed upon from time to time. According to the IAC (Asst.) the fees under consideration has in fact been mutually agreed upon beyond April 1976 and it got the seal of approval of the Central Government as late as 18-4-1979. The IAC (Asst.) pointed out that the payment owes its origin entirely to this agreement which has been entered into later than 1-4-1976. Therefore, according to the IAC (Asst.), the fees is neither one payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue or arise in India. The High Court also clarified that if any of the inconsequential or minor clauses came to be altered at the instance of the Central Government, then approval need not be taken before 1-4-1976 and the payment is not income deemed to accrue or arise in India. The CIT(A) pointed out that in the assessee's case there is an agreement entered into before 1-4-1976, but the agreement leaves the matter relating to payment to non-resident technicians open to be settled as per terms to be mutually agreed upon from time to time. According to the CIT(A) in the instant case it is yet to be shown by the assessee that the terms of payment were only of minor nature, to warrant the application of the Gujarat judgment in Meteor Satellite Ltd.'s case. The CIT(A) further pointed out that the agreement dated 29-1-1976 is not exhaustive and leaves much of the matter open for future negotiations. He also pointed out that he is not impressed by the argument that the agreement should be considered as completed prior to 1-4-1976. The CIT(A) was of the view that in the absence of employer-employee relationship between BHEL and technicians of Sulzer Brothers, the remuneration of fees paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Hence according to the learned counsel, the payments of Rs. 11 1,212 and Rs. 82,553 were in pursuance of the agreement dated 29-1-1976. According to the learned counsel the assessing authorities erred in stating that the agreement for payment of fees has been made after 1-4-1976 and it got the approval of the Central Government on 18-4-1979. In this connection it was submitted that the approval of the Central Government accorded vide letter No. 11-8/75-HEM dated 8-91977 of the Government of India, Ministry of Industry (and not on 18-41979 as stated in the assessment order) was for the release of foreign exchange and also the rates for the special engineering services and was obtained by BHEL in pursuance of the condition (ii) in the Annexure to the Government of India's letter No. FC/190(75)/160(75) dated 11- 11-1975. Hence the Government's letter dated 8-9-1977 was not for the agreement dated 29-1-1976 for which the Government's approval was accorded as early as 11- 11-1975, according to the learned counsel. Therefore, the learned counsel for the assessee submitted that the payment of fees for technical services in pursuance of the agreement entered into before 1-4-1976 is exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of foreign technicians, not to speak of the payments made to them, were settled before 31-3-1976. 8. The learned Departmental Representative further pointed out that from the correspondence furnished by the assessee, it is apparent that the decision about hiring of foreign technicians was taken at a later date culminating with the approval of the Central Government in their letter dated 8-9-1977. Therefore, the agreement that existed before 1-4-1976 does not cover the payment that was subsequently made to the foreign technicians. Another submission made by the learned Departmental Representative was that under section 9(1)(vii), technical service fees are taxable. The same is exempt only when such fees are paid in pursuance of an agreement made before 1-4-1976 (vide the proviso). In the instant case the payments to foreign technicians cannot be said to have been made in pursuance of the agreement dated 29-1-1976. It is because the said agreement is silent about the number of personnel to be hired, the period of their engagement, the rate of remuneration to be paid to them and other terms and conditions which are necessary. The learned Departmental Representative also pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax (Appeals). He submitted that it could not be said that the agreement dated 28-10-1975 was approved by the Government earlier to 1-4-1976. He pointed out that the letter of the Government dated 3-12-1975 clearly stated that the agreement was approved subject to the conditions laid down in its letter dated 13-5-75 one of which was that the deputation of technicians was to be governed by a specific approval to be granted by the Government. He submitted that this specific approval was accorded only on 18-11-1976 i.e., after 1-4-1976. According to him, therefore. proviso to section 9(1)(vii) had no application to the case of the assessee. He also submitted that when the Income had accrued or arisen in India by virtue of the technicians having rendered the services in this country, there was no question of considering whether it also could be deemed to accrue or arise in India." While considering this line of argument the Tribunal held as under:-- "We have carefully considered the submissions placed before us on behalf of the rival parties. We will first deal whether the assessee is entitled to the exemption under the proviso to clause (vii) of section 9(1) of the Act. To claim e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable for German Technicians in terms of the proviso to clause (vii) of section 9(1) of the Act." 11. It is obvious from the language of the proviso that the approval of the Central Government even if granted on or after April 1, 1976 will not necessarily take the case out of the protection of the proviso--Meteor Satellite Ltd.'s case. Thus, considering the facts appearing in this case in the light of the above said order of the Tribunal and that of the decision of the Gujarat High Court, we hold that the amount paid by the assessee was covered by the proviso and so was saved from the Indian tax net. 12. Alternatively the Departmental Representative submitted that if the amount is held as not taxable under the deeming provisions of section 9(1)(vii), the same would fall to be taxed under section 5(2)(b). According to the learned Departmental Representative under section 5(2)(b), the income accruing or arising to a non-resident in India is taxable. In the instant case the assessee is a non-resident and it rendered service in India through its personnel. The payments which were made towards such services therefore directly accrued to the assessee in India. Thus, if the income is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC) - also see H.E.H. Nizam's Religious Endowment Trust v. CIT [1966] 59 ITR 582 (SC), CET v. Sheth Motilal Karsondas [1971] 82 ITR 333 (Guj.), Dilip Kumar Roy v. CIT [1974] 94 ITR 1 (Bom.), Raja Ragavendra Singh v. State of Punjab [1976] 102 ITR 40 (Punj. & Har.). CIT v. Chrestian Mica Industries Ltd. [1977] 109 ITR 517 (Cal.), S.A. Ramakrishnan v. CIT [1978] 114 ITR 253 (Mad.), Addl. CIT v. S. Krishnaswamy Reddiar [1978] 115 ITR 505 (Mad.) and Maharaja DharmendraPratap Narain Singh v. State of U.P. [1980] 121 ITR 806 (All.). Thus in the instant case the assessee has proved that the agreement in question was entered into prior to 1-4-1976 in accordance with the provisions contemplated under the proviso to sub-clause (vii) of section 9(1). 15. The Finance Act, 1976 inserted a new clause (vii) in section 9(1) of the Income-tax Act. w.e.f. 1-6-1976 specifying the circumstances in which income by way of fees for technical services will be deemed to accrue or arise in India and also defining the expression "fees for technical services". Under the above said clause (vii) income by way of fees for technical service is deemed to accrue or arise in India. The Finance (No. 2) Act, 1977 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 115A will not apply If the proviso to sub-clause (vii) to section 9(1) applies. So also section 44D will not apply where the proviso to sub-clause (vii) to section 9(1) applies. Accordingly, considering the facts appearing in this case in the light of the decision of the Madras High Court cited supra, we hold that the assessee Is entitled to exemption from tax the fees received from BHEL in terms of the proviso to clause (vii) of section 9(1) of the Act. In that view of the matter, the orders passed by the authorities below on this point are reversed and additions made under this head are deleted. In the result the appeals filed before assessee are allowed. Per Shri T.V.K. Natarajachandran, Accountant Member--I have gone through the order proposed by my learned brother, but I am unable to agree with his decision. Hence I am recording my note of dissent. In this appeal the question is whether the fees paid by M/s Bharat Heavy Electricals Ltd. (BHEL for short) for services rendered by the engineers of M/s Sulzer Brothers Ltd. (Sulzer for short) are assessable under section 9(1)(vii) or not. For the sake of facility the relevant facts are stated briefly. M/s BHEL entered into a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... left to be decided separately and they did not form part and parcel of the agreement reached between BHEL and Sulzer on 29-1-1976. Therefore though the agreement is prior to 1-4-1976 and the approval of the Government was prior to 1-4-1976 but nonetheless the approval dated 4-3-1976 was subject to the terms and conditions specified in Government's letter dated 11-11-1975, according to which the specific approval of the Government should be obtained regarding deputation of personnel and experts and terms and conditions of their payment. In other words the approval to the agreement granted by the Government was limited in scope and only on 6-2-1980 the Government approved the contract of service of the technicians. In other words so far as the question in these appeals is concerned the approval was granted by the Government only after 1-4-1976. In the circumstances the proviso to section 9(1)(vii) is not applicable. Similarly the Explanation 1 thereto also is not applicable inasmuch as the agreement made after 1-4-1976 was not in accordance with the proposals approved by the Central Government before that date. In this connection I wish to point out that the decision of the Gujarat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign exchange. Accordingly, Mr. Konard Kuri visited India between 11-11-1977 and 18-12-1977 for checking the designs for which SW Fr. 29,468 amounting to Rs. 1,11,212 was paid and the tax of Rs. 44,485 was deducted at source. Similarly, an application was made on 27-4-1978 by BHEL for release of foreign exchange for a visit of Mr. P. Wilhelm from 5-6-1978 to 1-7-1978. This was approved by the Central Government on 18-4-1979 and an amount of SW Fr. 18,656 equivalent to Rs. 82,553 was paid and tax of Rs. 33,020 was deducted at source. The Assessing Officer while making the assessments for the assessment years 1979-80 and 1980-81 came to the conclusion that the amounts received by the assessee for the two visits of the experts of the assessee-company had to be assessed as income arising from two separate subsequent agreements approved by the Government after 1-4-1976 and, therefore, assessable under section 9(1)(vii) of the Income-tax Act, 1961. This was confirmed on appeal. 3. When the assessee appealed further, the learned Judicial Member came to the conclusion that these visits were pursuant to the collaboration agreement already approved by the Government prior to 1-4-1976 and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth sides and have perused the collaboration agreement and the orders of the authorities below as well as the orders of the Members who have heard the case earlier. I find that Article 1.6 of the collaboration agreement clearly stipulated an obligation on the part of the assessee to depute an expert for checking the designs if required by BHEL. It may be that the consideration for such consultation service had to be mutually agreed and it was negotiable and subject to the approval of the Government. But the obligation to render service emanated from the collaboration agreement and it is that obligation which had been approved by the Government even earlier to 1-4-1976. In the circumstances, I agree with the learned Judicial Member that the application for release of foreign exchange for the visit of the experts did not amount to separate application for approval of any fresh agreement. It follows that the amount received by the assessee was saved by the proviso to section 9(1)(vii) which specifically states that nothing contained in that section shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before 1-4-1976 and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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