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TMI Blog1987 (5) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... al blasting of explosives, the non-resident was to supply plant and machinery for carrying out commercial blasting explosives project and render various other services in relation to the working of the plant. The assessee had to depute its technicians to supervise the erection of the plant in India. The dispute in these appeals relate to the payments made by the Indian company to the assessee on account of know-how, documentation and deputation of foreign technicians. The following statement will give the details of such payments made to the assessee Assessment Years ------------------------------------------------------------------------------- 1977-78 78-79 79-80 80-81 ------------------------------------------------------------------------------- Rs. Rs. Rs. Rs. 1. Fees for documentation & know-how 3,83,035 16,99,482 2,46,400 2,97,917 2. Fees for technical services in India (subsistence allowance paid to foreign technicians in India @ D.M. 60 per day per person) ---- ---- 93,009 3,45,306 3. Daily rate bill paid abroad @ D.M. 358 per day per person ---- ---- ---- 12,20,364 ---------------------------------------------------------------------------------- 3,83,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The CIT (Appeals) was of the opinion that a firm decision to enter into the alleged contract with the non-resident had been made prior to 1-4-1976 but the actual contract was signed after that date. The assessee could certainly get the benefit of the exception provided for if it had exercised its option under Explanation 1 to section 9(1)(b). However, the assessee had not exercised its option within the time prescribed by the law, so much so that in the first three years the proceedings had to be commenced by the ITO by issuing a notice to the assessee through the Indian company under section 163(2) of the Income-tax Act. Therefore, the provisions of clauses (vi) and (vii) would come into operation. The ITO was, therefore, right in holding that the income by way of royalty etc. should be deemed to accrue or arise in India and be taxable under section 115A of the Income-tax Act, 1961. 7. However, at the time of hearing, the CIT (Appeals) was of the opinion that there was an agreement for avoidance of double taxation entered into between India and the Federal Republic of Germany vide notification No. 1090 dated 13-9-1960. This was a comprehensive agreement covering various items o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ians were in India for short duration to supervise the erection and commissioning of the plant in terms of Annexure VI to the contract. These technicians were paid a, daily allowance in India for their living expenses. The Indian party also reimbursed their wages to the non-resident at the rate of D.M. 358 per calendar day." Ultimately, he came to the conclusion that the entire contract should be read as one and not in parts. There was only one single contract for the supply of plant and machinery, documentation, technical know-how, training as well as assistance in the erection and commissioning of the plant. The last part formed only a small portion of the entire contract. By itself, it would not amount to " a construction, installation or assembling project or the like ". This contract was not a turn-key contract where the non-resident had to set up the entire project under its responsibility and hand it over as a running concern with guaranteed performance. He, therefore, was of the opinion that the agreement for avoidance of the double taxation altogether exempted the assessee from tax for all the years in question. The revenue has come up in second appeal before the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o only was the appellant in the present cases. The letter making the request was signed by the Commissioner of Income-tax who had no locus standi to do so. All that the Commissioner could do was to direct the ITO to take an additional ground. Secondly, it was objected to that this kind of substitution is not permissible by the law and an additional ground can be taken only when same appeal was in existence. Since the original grounds had been withdrawn, the question of taking any additional ground would not arise because nothing can be added to anything which itself Is not in existence. Lastly, taking of additional ground was also objected to on the ground that this was not the stage to allow the taking of new ground, after limitation for filing the appeal had already expired. 11. After careful consideration of the facts and circumstances of the case, we are of the view that these revised grounds need be looked into. Our attention was drawn, in this behalf, by the Representative of the Department to the following order sheet entries in the Department's file : " Approved that authorisation is to be issued in item No. 3 only. However, I would like to caution that grounds of appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the said enterprise situated in the first-mentioned territory. If profits are so derived, tax may be levied in the first-mentioned territory on the profits attributable to the said permanent establishment." The CIT (Appeals) has elaborately discussed the matter and has pointed out that though there was sub-article (3) which excluded rents, royalties, interest, dividends, management charges, remuneration for labour or personal services or income from the operation of ships or aircraft, it did not apply to the present case. To our mind, the CIT (Appeals) has not correctly understood the scope of this sub-article. The very fact that the rent, royalties, interest, dividends, management charges, remuneration for labour or personal services or income from the operation of ships or aircraft are excluded from the scope of this article, would show that the intention of the contracting parties representing the two countries was not to exempt all the income earned by the non-resident. Whereas the earlier provisions contained in sub-article (1) sought to exclude all the industrial or commercial profits of the enterprises of the other territory unless profits were derived in the first- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or services of a managerial, technical or consultancy nature, including the provision of services of technical or other personnel. (5) The provisions of paragraphs (1) and (2) of this Article shall not apply if the beneficial owner of the royalties or fees for technical services being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise through a permanent establishment situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment in such case, the provisions of Article III shall apply. (6) Royalties and fees for technical services shall be deemed to arise in a Contracting State where the payer is that State itself, a land, a political sub-division, a local authority or a resident of that State. Where however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment in connection with which the obligation to make the payments was incurred and the payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a specified percentage tax can be charged in the other country which otherwise could have been a much higher percentage. In these circumstances, apparently the order of the Commissioner of Income-tax (Appeals) holding that the entire agreement of sale of plant and machinery should be deemed to have been concluded outside India appears to be wrong because the German company, i.e., the assessee was certainly receiving something on account of royalties and fees for technical services within the meaning of Article VIIIA of the agreement as now provided for. It was, therefore, taxable in respect of these two items. The order of the Commissioner of Income-tax (Appeals) on this point is wrong and is hereby reversed. 13. However, so far as the income by way of fees for technical services is concerned, the agreement though technically entered into after the first day of April, 1976 was approved by the Central Government before that date and, therefore, under proviso to clause (vii) read with Explanation I thereof, the assessee would not be liable to tax in respect of fees for technical services because such tax is excluded from the definition of income which is deemed to accrue or arise i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sense conveyed by the term. As against this, the argument of the Departmental Representative was that this agreement in that case was entered into in 1973 and the draftsmen of this agreement could be deemed to have understood the word ' royalty ' in a different sense, from the sense in which the word was used in section 9(1) of the Income-tax Act, but now the word ' royalty ' had been defined in the Income-tax Act very clearly and though this was added with effect from 1-6-1976, at the time when the negotiations for entering into the agreement in question were going on, the sense in which the word was used by the framers of the present agreement should be considered to be the same as in sec. 9(1) of the Income-tax Act. According to him, the golden rule of interpretation that a word used in a particular document should be given the same meaning in the other cognate document should be applied. To our mind, there is force in the Departmental Representative's contention. May be since the agreement in the case of M/s. Siemens Aktiengesellschaft West Germany was entered into on 23-2-1973, the parties may have used the word ' royalty ' in a particular and different sense that the sense i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. According to the assesses, no person could be treated as agent of the non-resident unless he had an opportunity of being heard provided by the ITO as to his liability to be treated as such. Since no such opportunity was specifically given by the ITO before the assessment, the assessment itself was bad in law. To our mind, this again is a wrong notion. Section 163 does not require any particular kind of order. All that is required in this section is that a person who is sought to be held liable for the tax of the non-resident should be given an opportunity of being heard by the ITO, as to his liability to be treated as such, but in the present case, the Indian company had itself filed the return on behalf of the non-resident and did not dispute its liability to be treated as the representative of the non-resident. Consequently, the Indian company could not have any grievance against the order of the ITO treating it as such. The CIT (Appeals) was, therefore, wrong in holding that the ITO did not pass an order under section 163 treating the assessee as agent of the non-resident because such an order is not absolutely necessary. The order of the CIT (Appeals) in this behalf is reve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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