TMI Blog1997 (1) TMI 479X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement dated 25-3-1976, the assessee purchased bulk material and spares required for setting up of a Fertiliser Plant in the State of Gujarat. These purchases were charged from the Indian concern, i.e. Gujarat State Fertilisers Company at cost plus 4% procurement charges. The Assessing Officer treated this receipt of 4% procurement charges as royalty because in the earlier year it was treated so and because the procurement require industrial and scientific experience and the assessee was imparting information concerning industrial and scientific experience by assisting the Indian concern in procuring these materials. He therefore assessed it as royalty by invoking provisions of section 9(1)(vi) read with Explanation 2 thereunder. The CIT(A), however, held that the receipt of 4% procurement charges was a fees for technical services to the extent of 50% being relating to inspection etc. and 50% as industrial and commercial profit by observing as under : "10. I have carefully considered the submissions of the learned counsel and also Shri Kabra, the then Assessing Officer. After perusing the terms of the contract and the correspondence papers relating to this activity, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers and ensuring their supply to India. It cannot be denied that inspection and tests as well as arranging the flow of material in terms of the operational charts in India are in the nature of technical services. I, therefore, hold that a fair part of the procurement fee is to be taxed as fees for technical services ." 3. Both the assessee and the revenue are in appeal. The revenue s claim is that the entire amount is royalty and for fees for technical services, whereas the assessee s claim is that the entire amount is industrial and commercial profit and therefore not liable to tax under Double Taxation Agreement between India and West Germany. 4. On a reading of the agreement dated 25-3-1976 the facts as emerge out are that the Gujarat State Fertiliser Company entered into an agreement with the assessee for establishing a new fertiliser project in the State of Gujarat and for that purpose it awarded a contract to the assessee for 1350 tonnes per day capacity Ammonia plant. The contract price of the agreement, is defined in Article 1.06 which reads as under : "CONTRACT PRICE means the total price payable after adjustments for change in scope and escalations, if any, by OWNE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to OWNER or its authorised representative all inspection/test reports/certificates. 3.104 CONTRACTOR shall send out inquiries for spares along with main IMPORTED ITEMS and shall place orders for spares in consultation with OWNER within 3 months of placement of orders of concerned imported items." 6. On a careful consideration of these various clauses of the agreement and the material on record, we are of the opinion that the 4% procurement fees is nothing but a service for making purchases by the assessee to be used in fabricating the plant in India. This is a pure commercial service and therefore the fees received for arranging or procuring these equipments would be commercial profit within the meaning of Article III of the Double Taxation Agreement between India and West Germany. It is true that all the purchases for which the procurement fees was paid had a close connection with fabrication of plant and procurement required industrial and scientific experience, it cannot be said to be imparting information concerning the technical know-how by making purchases for the Indian concern as held by the Assessing Officer. We may state here that the Assessing Officer has applied sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice came up before the Delhi High Court in the case of J.K. (Bombay) Ltd. v. Central Board of Direct Taxes [1979] 118 ITR 312. This was a case under section 80-O of the Act, wherein also the deduction is available on rendering of technical services. The Court held that technical services under section 80-O would not include commercial services or managerial services. Managerial services, it was held, may be professional services like legal or medical service, but it would not be technical service like engineering service. Their Lordships of Delhi High Court referred to an article on Management Sciences in 14 Encyclopaedia 747, wherein it is stated that the management in organisations include at least the following : (a) discovering, developing, defining and evaluating the goals of the organisation and the alternative policies that will lead towards the goals; (b) getting the organisation to adopt the policies; (c) scrutinising the effectiveness of the polices that are adopted; (d) initiating steps to change policies when they are judged to be less effective than they ought to be. Management thus pervades all organisations. A reference to the Fontana Dictionary of Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice of commercial and industrial nature. It therefore cannot be termed as a technical service for which the procurement fees charged by the assessee cannot be a consideration for technical services. The third category is managerial service. The managerial service, as aforesaid, is towards the adoption and carrying out the policies of an organisation. It is of permanent nature for the organisation as a whole. In making the stray purchases, it cannot be said that the assessee has been managing the affairs of the Indian concern or was rendering managerial services to the assessee. The learned Departmental Representative brought to our notice a concept of marketing management but such marketing services are to be, as aforesaid, on a regular basis, i.e., when the purchases of the assessee on a permanent or semi-permanent or at regular interval basis. It does not include the purchases made only to be utilised for a particular venture taken up by the assessee, which in this case is fabrication of a new scientific plant. It being a one time job and not marketing management of making purchases by the assessee for the new concern. The assessee is remunerated for its efforts and time spent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t source. No interest under section 217 of the Act can be charged. In this connection we may refer to the decision of the Tribunal in the case of Siemens Aktiengesellschaft v. IAC in ITA No. 346/Bom/88, order dated 7th May 1992, wherein paragraph 6 it was observed as under : "We have carefully considered the rival submissions and also perused the records. The Tribunal, in the assessee s own case has accepted the assessee s contentions in earlier years. Under the provisions of section 209 of the Income-tax Act, the advance tax has to be calculated on the basis of the current income which was to be reduced by the amount of income-tax that would be deductible during the Financial year in accordance with provisions of sections 192 to 194, 194A, 194C, 194D and 195 of the Income-tax Act, 1961. It is undisputed that the royalty and dividend income received by the assessee are subject to tax deducted at source under the provisions of section 195 of the Act. The assessee, in our view, is not required to pay any advance-tax considering the tax deductible at source. Under these circumstances, the assessee is not liable to pay any interest under section 217 of the Act. Following our own view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee s ground No. 1 wherein it was held that in view of the decisions of the Andhra Pradesh High Court Visakhapatnam Port Trust s case (supra) Calcutta High Court and the Board Circular 131 ITR 1st., (supra), the provisions of the treaty are to prevail over the provisions contained in the Income-tax Act. The ground is accordingly rejected. 16. The second common ground in these three appeals of the revenue is to be decided against the revenue in view of the discussion of the Tribunal, order dated 18th July, 1995 in the case of Sandvik A B Sweden in I.T.A. Nos. 804/PN/87 and 1783 1784/PN/88 for assessment year 1984-85, which is reproduced below : "The next issue discussed at the Bar was, as to whether the payment was a lump-sum payment so as to fall within the Item (1) of sub-clause (ii) of clause (b) of sub-section 115A of Item (2) of that sub-clause. Item (1) provided the rate of 20% on the lump-sum payment and Item (2) provided the rate of 40% on the lump-sum payment. In the present case, from a reading of the agreement dated 30-12-1982, it can safely be concluded that this was a case of lump-sum payment, although the amount was made payable in 4 equal yearly ins ..... X X X X Extracts X X X X X X X X Extracts X X X X
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