TMI Blog2007 (12) TMI 319X X X X Extracts X X X X X X X X Extracts X X X X ..... two orders of CIT(A), Bhatinda, arising from the orders under section 163 of the Act. In these appeals, the following common grounds have been taken : "1. The order dated 10-3-2003 passed under section 163 by the Assistant CIT, Range-3, Amritsar is without jurisdiction. 2. The order dated 10-3-2003 passed under section 163 holding the appellant to be an agent in relation to non-resident viz., Mr. Nishi Kawa (resident of Japan) is bad in law as well as on facts of the case. 3. The learned CIT(A) has erred in law as well as on facts in holding that reimbursement of expenses to the non-resident is income chargeable under the Income-tax Act. 4. The learned CIT(A) has erred in law as well as on facts in holding the appellant as agent of non-resident under section 163(1)( c )." 3. The material facts relating to these appeals are that M/s. Masuzawa Company Ltd., Japan and M/s. Birla VSL Ltd., Jamnagar entered into a joint venture agreement on 23-12-1996 in the name of M/s. Birla Masuzawa Silk Ltd. Two other agreements known as ( a ) licence and technical know-how assistance agreement, and ( b ) service personnel agreement. As per joint venture agreement, M/s. Masuzawa Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability of the assessee to reimburse the cost for a period of two years was never reached. Thus, it was contended that the assessee could not be appointed as an agent of the two personnels. However, the Assessing Officer referred to clause 5 of the service personnel agreement which stipulated that M/s. Birla Masuzawa Silk Ltd. shall pay to M/s. Masuzawa Company Ltd. or directly to the technical personnel, the charges/remuneration of a consolidated amount of JPY 20,00,000 per year per personnel and in addition, the Indian company was also required to arrange to meet the to and fro economy class air-fare between Japan and India for travelling during (including) home leave, the local transportation in India, living accommodation and office facilities. All these payments made for the technical personnel were made net of Indian taxes. Thus, the Assessing Officer treated the assessee, namely, M/s. Masuzawa Punjab Silk Ltd., as an agent in relation to two non-residents, namely, Mr. K. Kamaguchi and Mr. Nishi Kawa. 4. Being aggrieved, the assessee filed two appeals before the CIT(A) against the orders of the Assessing Officer under section 163 of the Act. Before the CIT(A), the submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mand report furnished by the Assessing Officer and agree with the observation of the Assessing Officer that the said payment was by virtue of clauses 5 and 16 of the services personnel agreement dated 16-7-1997. The appellant was thus under clear obligation to bear expenses of the said technical persons. The Assessing Officer has also admitted that the mention of clause ( a ) of section 163(1) was inadvertent and the case of the appellant is actually covered under clause ( c ) of section 163(1). The appellant could not provide any valid reasons as to how the provisions of section 163(1)( c ) are not applicable in his case. In view of the above, I am convinced that the order of the Assessing Officer is correct both in law as well as facts. I, therefore reject the contention of the appellant being without any merits." The assessee is aggrieved with the orders of the CIT(A). Hence, these appeals are before this Bench. 5. The learned counsel for the assessee, Sh. M.P. Sarda filed written submissions stating therein that the assessee entered into joint venture agreement dated 23-12-1996 with M/s. Masuzawa Company Ltd. of Japan (a copy of agreement is placed at pp. 7 to 21 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nel required in connection with the above. He then referred to clause (I) at p. 2 of the said agreement as per which MCL, Japan had agreed to arrange to make available to joint venture company, the technical personnel to render services in India to implement the project for setting up spun silk plant in India. The scope of the services to be provided by the technical personnel shall include the supervision and assistance in the operation of the plant for two years after commissioning and imparting adequate training to BMSL personnel so as to make them proficient in operation and maintenance of the plant. The cost of providing such technical personnel during the initial period of two years was to be borne by MCL and the cost of technical personnel after commissioning for a period of two years was to be borne by BMSL. He referred to clause ( v ) of the said agreement which provides that the cost of four engineers for an erection, installation and commissioning shall be borne by MCL. He submitted that the said agreement also provided that the Joint venture company, namely, BMSL was required to pay to MCL or directly to the technical personnel, the charges/remuneration of a consolidate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent by MCL, Japan for installation and commissioning of the plant. He submitted that as per service personnel agreement, the assessee was required to pay lump sum of JPY 20,00,000 to MCL or directly to the technical personnel per year per personnel, in addition to the obligation to meet the cost of travel between India-Japan, local transportation and living accommodation and office facilities. Therefore, both the technical personnel earned income while rendering services in India. Such salary income paid to non-residents for services rendered in India was taxable under the Act. Therefore, the assessee was rightly treated the agent of these two non-residents in respect of income earned through the assessee. 7. We have heard both the parties at some length and given our thoughtful consideration to the rival submissions, examined the facts, evidence and material placed on record. The sum and substance of the submissions of the learned counsel is that as per the joint venture agreement, it was the obligation of MCL, Japan to supply plant and machinery and also to depute its technical personnel to install, commission and to provide technical know-how for manufacture of spun silk of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al personnel as above shall be net of India taxes/subject to applicable taxes in India. Thus, a bare reading of the above clause shows that though services of 5 engineers were to be made available to BMSL during the period of erection, installation and commissioning up to the stage of start of commercial production, yet the cost to be borne by M/s. MCL, Japan was only for four engineers. This shows that the cost of one engineer was to be borne by BMSL. Further, the obligation of MCL, Japan was to depute two engineers in the first year of operation and one engineer in the second year of operation. Now in this case, we find that the assessee has been held agent of two non-residents personnel. Therefore, it is clear that comer-cial production had started after erection, installation and commissioning of the plant. May be, the production of spun silk was not of desired quality and quantity. The liability to bear the cost after commissioning of the plant was of the assessee. No doubt, article 4 and clause F of licence and technical know-how assistance agreement stipulate that MCL, Japan shall provide plant and machinery, erect, install and commission in the BMSL unit in India, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. Now, in this case, even if there was no service contract entered into by the engineers with the assessee yet, both technical personnel had earned salary income for the services rendered in India. It was immaterial whether the salary was paid in India or outside India with the assessee. Therefore, such income was liable to tax in India and directly or through MCL of Japan. Now, section 163 provides as to who may be regarded as agent. For the sake of convenience, we consider it appropriate to reproduce the same as under: "163. (1) For the purposes of this Act, "agent" in relation to a non-resident, includes any person in India ( a )who is employed by or on behalf of the non-resident; or ( b )who has any business connection with the non-resident: or ( c )from or through whom the non-resident is in receipt of any income, whether directly or indirectly; or ( d )who is the trustee of the non-resident;" Clause ( c ) regards a person as an agent through whom non-resident is in receipt of any income whether directly or indirectly. No doubt, technical persons deputed by the MCL, Japan are the employees of the said company, yet the salary income earned by these persons w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the Tribunal upheld the order of the Assessing Officer. On a reference, the Hon ble Andhra Pradesh High Court held as under (headnote) : " Held , though the agreement provided for the delivery of machinery, equipment and instruments, etc., f.o.b. European port and the sale of the machinery must be deemed to have taken place outside the country, a combined reading of the two agreements establishes that there was real and intimate connection between two agreements establishes that there was real and intimate connection between the assessee and the non-resident within the taxable territories and this relationship amounted to a business connection through or from which income accrued or arose to the non-resident. It is not as if there was a stray or isolated transaction. There is an element of continuity between the business of both the assessee and the non-resident. The foreign personnel deputed by the non-resident were not taken on the rolls of the assessee-company. Hence, there was business connection between the assessee-company and non-resident within the meaning of section 163(1)( b ) of the Income-tax Act : Carborandum Co. v. CIT 1977 CTR (SC) 209 : [1977] 108 ITR 335 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee on this aspect of the case. 7.2 Thus, having regard to the facts and circumstances of the case and the legal position discussed above, we are of the considered opinion that the case of the assessee is covered under section 163(1)( c ) of the Act. As already mentioned, clause ( c ) of sub-section (1) of section 163 is of wide amplitude and also covers the receipt of any income by non-resident from a person whether directly or indirectly. Even if the assessees ( sic -non-residents) are said to have received salaries from M/s. MCL Ltd. yet, the same were received for services rendered to the assessee in India and, therefore, such receipts were taxable under section 9(1)( ii ) of the Act. Therefore, we are of the considered opinion that the learned CIT(A) was justified in upholding such orders of the Assessing Officer. 7.3 However, before parting with this issue, we would like to refer to the two judgments relied upon by the learned Authorised Representative. The first judgment is in the case of Morgenstern Werner ( supra ). The facts of the case were that the assessee was a technician working with a company in Germany and drawing his salary in Germany. He was de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dhra Pradesh High Court was whether the allowances received by the technical personnel formed part of technical know-how fees. However, it was part of the contract for supply of plant and machinery. Moreover, the nature of receipt was exempt under section 9(1)( vii ). In this case, the issue involved is different and the salary received by two technical personnel for services rendered in India is not exempt and is covered under section 9(1)( ii ) of the Act. Moreover, it is settled law that the judgment of the Court takes its colour from the facts and the issues involved in this case. It is not correct to pick up an isolated sentence without considering the context in which the Court made such observations. Reliance in this regard is placed on the celebrated judgment of Hon ble Supreme Court in the case of CIT v. Sun Engineering Works (P.) Ltd. [1992] 198 ITR 297 1 . We are, therefore, of the opinion that this judgment is not applicable to the facts of the present case. 7.5. As regards the merits of the claim of the assessee that reimbursement of actual travel expenses does not amount to income and is exempt under section 10(14) of the Act, the same would be considered whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was directly covered by the judgment of Hon ble Andhra Pradesh High Court in the case of Bharat Heavy Plates Vessels Ltd. ( supra ) and the assessee was rightly treated as an agent under section 163(1)( b ) of the two non-residents. He also upheld the income assessed by the Assessing Officer in the hands of the assessee as an agent of two non-residents. The relevant findings recorded by the CIT(A) in the impugned order are as under : The issue to be decided is whether the appellant s case is covered by clause ( b ) of sub-section (1) of section 163 of the Income-tax Act, which requires that such person should have any business connection with the non-resident. In this case, as already mentioned above, the MC Ltd. (J) had agreed to supply the machinery for manufacture of spun silk to BMS Ltd./ now MPS Ltd. and the MPS Ltd. in turn had agreed to allow equity participation to the extent of 25 per cent to MC Ltd. (J) in its total issued capital. MC Ltd. (J) had also agreed in consideration of the above to provide technical know-how assistance and service in installation, commissioning, running and maintenance of the machinery and equipment and give licence to manufacture spun s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . v. CIT [1969] 73 ITR 283 is satisfied that wherein it was held that in order to constitute a business connection as contemplated by these provisions, there must be an activity in India of the non-resident having an intimate and real relation of a continuous character with the business of the non-resident and contributing to the earning of profits by the non-resident in his business. The business connection undoubtedly is a commercial connection which is really and intimately connected with the business activity of the non-resident in India and is contributory to the earning of profits in the said trading activity. Moreover, I find that facts of the present case are clearly covered by the decision of the Hon ble Andhra Pradesh High Court in the case of Bharat Heavy Plates Vessels Ltd. ( supra ) whetein it was held as under : " Held , though the agreement provided for the delivery of machinery, equipment and instruments , etc., f.o.b. European port and the sale of the machinery must be deemed to have taken place outside the country, a combined reading of the two agreements establishes that there was real and intimate connection between the assessee and the non-residen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an and India for travel during (including) home leave, the local transportation in India, suitable living accommodation and office facilities. All payments to be made by BMSL for the technical personnel as above shall be net of India taxes/subject to applicable taxes in India. A perusal of the above clause 5 of the above agreement leaves no scope for any doubt that remuneration of the two engineers were required to be paid by BMSL Ltd./MPS Ltd. and not by the Japanese company because this is the stage well beyond the erection, installation and commissioning of the plant which started in the year 1997. The present assessment year being assessment year 2000-01 which is a period falling within two years of operation of the said plant, obligation for making payment to the above two engineers, Mr. Nishi Kawa and Mr. K. Kamaguchi falls on BMS Ltd./MPS Ltd. as per clearly stated terms and conditions of the agreement dated 16-7-1997 ( supra ). Hence, there is no substance in the appellant s contention that the appellant had not made any payment to Mr. Nishi Kawa and Mr. K. Kamaguchi. Further, the technical services have been rendered by the two persons within India and the income accrue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kamaguchi, if such payment was not made by the appellant. Further, as already mentioned above, as per clause 5 of the agreement between the two companies, the said two engineers were to be deputed within the 1st and 2nd year of the operation of the plant and they were to render services to the appellant in day-to-day running of its plant for which they were to be paid by the appellant and hence there was clearly an employer-employee relationship and therefore, the Assessing Officer was justified in holding that the said remuneration along with the perquisite are taxable in India. Since the said two engineers have already left the country and no return of income have been filed by them and, therefore, the BMS Ltd./MPS Ltd. is liable as an agent for the payment of tax on the said income. The Assessing Officer was justified in assessing the amount of Rs. 3,70,429 as taxable salary and perquisite and the same stands confirmed." The assessee is aggrieved with the orders of the CIT(A). Hence, these appeals before this Bench. 10. At the time of hearing of the appeal, the learned Authorised Representative did not advance any arguments about the merits of the addition. However, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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