TMI Blog1987 (12) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... o tax at the hands of the assessee in terms of the proviso to section 9(1)(vii) of the Income-tax Act, 1961. Before the Inspecting Assistant Commissioner (Assessment) the assessee claimed the 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 January 29, 1976, which is prior to April 1, 1976, and the proviso to section 9(1)(vii) confers the exemption on it. According to the Inspecting Assistant Commissioner (Assessment), article 1.6 of the agreement dated January 29, 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 Inspecting Assistant Commissioner (Assessment), the fee 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 April 18, 1979. The Inspecting Assistant Commissioner (Assessment) pointed out that the payment owes its origin entirely to this agreement which has been entered into later than A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er directly or indirectly in India, whereas section 9(1)(vi) dealt with income by way of royalty alone. It was also pointed out in that case that, under the proviso to clause (vi), if there is an agreement made before April 1, 1976, and that agreement has been approved by the Central Government, then income by way of royalty payable under the agreement is not to be deemed to accrue 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 April 1, 1976, and the payment is not income deemed to accrue or arise in India. The Commissioner of Income-tax (Appeals) pointed out that, in the assessee's case there is an agreement entered into before April 1, 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 Commissioner of Income-tax (Appeals), 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 Sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment of India, Ministry of Industry and Civil Supplies. The agreement was subsequently entered into with M/s. Sulzer Brothers Ltd. on January 29, 1976, and was submitted to the Government and was also approved by the Government, vide letter No. 11-S/75-HEM, dated March 4, 1976, of the Ministry of Industry and Civil Supplies, Government of India. According to learned counsel appearing for the assessee, the services of the assessee's technical experts are made available to BHEL under article 1.6 of the agreement which provides for such technical experts being sent to India for technical services at BHEL's manufacturing and erection sites. For these technical services, separate fees will have to be paid as per the agreement. Hence, according to learned counsel, the payments of Rs. 1,11,212 and Rs. 82,553 were in pursuance of the agreement dated January 29, 1976. According to learned counsel, the assessing authorities erred in stating that the agreement for payment of fees has been made after April 1, 1976, and it got the approval of the Central Government on April 18, 1979. In this connection, it was submitted that the approval of the Central Government accorded, vide letter No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he annexure reads as follows : "The deputation of technicians either way shall be governed by specific approval to be granted by the Government on application in terms of numbers, period of assistance and training, rate of allowances to be paid, travelling charges and other items of expenses, etc. " Therefore, according to the learned Departmental Representative, so far as deputation of technicians was concerned, the same was to be dealt with separately on the basis of a separate application to be made by the applicant from time to time indicating the terms and conditions in each case. Another submission made by the learned Departmental Representative was that the Government, in its letter dated March 4, 1976, took on record the agreement subject to the terms and conditions which were imposed in its earlier letter dated November 11, 1975. Thus, there is no evidence that the terms and conditions relating to deputation of foreign technicians, not to speak of the payments made to them, were settled before March 31, 1976. The learned Departmental Representative further pointed out that, from the correspondence furnished by the assessee, it is apparent that the decision about hiri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /160(75), dated November 11, 1975. The submission made by the learned Departmental Representative that, on a combined reading of article 1.6 of the agreement dated January 29, 1976, the letter dated November 11, 1975, of the Government of India does show that the decision about hiring of foreign technicians was taken at a later date culminating in the approval of the Central Government in their letter dated September 8, 1977, and, therefore, the agreement that existed before April 1, 1976, does not cover the payment that was subsequently made to the foreign technicians and, consequently, the exemption provided under the proviso to clause (vii) of section 9(1) does not apply is not acceptable, in view of the decision of the Appellate Tribunal Delhi-Bench in I.T.A. No. 2581 (Del.) of 1979, in the case of Bharat Heavy Electricals Ltd. v. ITO dated June 2, 1980. In that case also, a similar argument was advanced before the Tribunal as under : "The learned Departmental Representative on the other hand supported the order of the Commissioner of Income-tax (Appeals). He submitted that it could not be said that the agreement dated October 28, 1975, was approved by the Government earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement is made in accordance with the proposals approved by the Central Government before that date. We have already referred to the Government's letter dated May 13, 1975, which, in substance, had approved the agreement. This letter happens to be before April 1, 1976. It can, therefore, be safely concluded that the agreement was made before April 1, 1976. It was in pursuance of this letter of May 13, 1975, that the assessee had sought for and was granted a separate approval for the payment, vide Government's letter dated November 18, 1976. It cannot, therefore, be treated as an approval independent of the approval granted, vide letter dated May 13, 1975. It may be pertinent to mention here that even Explanation 1 refers only to the date when the agreement is made and does not refer to any particular date before April 1, 1976, on which it might have been approved by the Central Government. In other words, the approval of the Central Government need not necessarily come before April 1, 1976. Even in practice, if an agreement is made on March 31, 1976, the approval of the Government cannot be expected on that very day. We, therefore, hold that the assessee is entitled to the exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a deemed income of the non-resident under the general provisions of section 9(1)(i) on the same footing that royalty payments made on the basis of old agreements are considered today. In the decision of the Andhra Pradesh High Court in Skoda Export v. Addl. CIT [1983] 143 ITR 452, exemption under the proviso to clause (vii) of section 9(1) was not the subject-matter in issue since it was not in the statute book at that time. Therefore, that decision will not be applicable to the facts of this case. It was not the case of the Department that there was any business connection between the assessee and BHEL. Section 5 has specifically been made subject to the provisions of this Act. Sections 3 and 4 of the 1922 Act corresponding to sections 4 and 5 of the 1961 Act impose a general liability to tax upon all incomes. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the Department to prove that it is within the taxing provision. Where, however, a receipt is of the nature of income, the burden of proving that it is not taxable because it falls ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should, therefore, be taken to have been covered by the provision in section 9(1)(vii). When there is a special provision dealing with a special type of income, such a provision could exclude a general provision dealing with income accruing or arising out of any business connection. Since section 9(1)(vii) will comprehend income by way of fees for technical services rendered as a result of business connection or otherwise, it is not possible to apply the provision in section 9(1)(i) merely because section 9(1)(vii) stands excluded as a result of the proviso. If such a contention as is put forward by the Revenue is accepted, then in respect of cases arising after April 1, 1976, when the proviso will have no application, there will be two provisions operating in the same field in respect of fees for technical services. Such a construction should normally be avoided. We are, therefore, of the view that the income by way of fees for technical services either arising out of business connection or otherwise will have to be treated as coming only under section 9(1)(vii) and not under section 9(1)(i). In this view, we are in agreement with the view taken by the Tribunal in this case. Hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in terms of numbers, period of assistance and trading, rate of allowances to be paid, travelling charges and other items of expenses, etc. " Thus, the deputation of technicians required separate and specific approval to be granted by the Government. On January 29, 1976, an agreement was entered into between BHEL and Sulzer. In clauses 1.6 and 1.7, Sulzer agreed to depute its personnel and experts to assist BHEL for which services BHEL should pay as per terms and conditions to be mutually agreed upon in each case and from time to time. The Government of India (Ministry of Industry and Civil Supplies, Department of Heavy Industry) in letter dated March 4, 1976, have taken on record the final agreement dated January 29, 1976, only to the extent of the terms and conditions specifically approved by it in its letter No. 190(75)/160(75) dated November 11, 1975. On September 8, 1977, the Government of India (Ministry of Industry) approved the rates for special engineering services for 1977-78 and release of foreign exchange for Sw. Fr. 50,000. On April 18, 1979, approval was granted for release of foreign exchange for 1978-79. On February 6, 1980, the Government approved the contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by M/s. Bharat Heavy Electricals Limited to the engineering personnel of M/s. Sulzer Brothers Limited are taxable under section 9(1)(vii) of the Income-tax Act, 1961, or not ? " ORDER OF THIRD MEMBER T. N. C. Rangarajan (Vice-President). - These appeals have been referred under section 255(4) of the Income-tax Act, 1961, on a difference of opinion between the two Members who originally heard the case. The admitted facts are as follows. The assessee is a foreign company. On November 11, 1975, the Central Government approved in principle a collaboration agreement between the assessee-company and Bharat Heavy Electricals Ltd. The terms of the collaboration agreement were set down in a deed dated January 29, 1976, which was taken on record by the Central Government on March 4, 1976. Article 1.6 of the agreement was as follows :- " 1.6. Upon request by BHEL, SULZER shall subject to availability and capacity of SULZER personnel, assist BHEL in checking the calculations, design, drawings and part lists of EQUIPMENT prepared by BHEL and shall delegate SULZER personnel to BHEL's manufacturing and erection sites. These services shall be paid for by the BHEL as per terms to be mut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment itself indicated that these visits were in pursuance of the original agreement and, therefore, protected by the proviso to section 9(1)(vii). Reliance was placed on the decision of the Madras High Court in the case of CIT v. Copes Vulcan Inc. [1987] 167 ITR 884. On the other hand, it was contended on behalf of the Revenue that, since separate requests had to be made and further approval of the Government was required, these visits must be considered to be separate agreements approved by the Government and falling outside the scope of the proviso to section 9(1)(vii). Reliance was also placed on the Memorandum explaining the provisions of section 9(1)(vii) (see [1977] 107 ITR (St). 186), to contend that it was only payment for service outside India which was brought into the tax net by section 9(1)(vii) and, in a case like the present one, where services were rendered in India, even the provisions of section 9(1)(vii) were not necessary as the amount will be taxable under section 5(2). It was also argued that the proviso was intended to save agreements finalised on the understanding that it would be exempt from tax and in the present case since there was no stipulation about th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1987] 167 ITR 884, where technical services were rendered in India by visiting experts, the Madras High Court held in [1987] 167 ITR 884 that it was to be considered only under section 9(1)(vii) and it would be exempt under the proviso if the amount was paid in pursuance of an agreement made prior to April 1, 1976. In the circumstances, I agree with the learned Judicial Member that the amounts received by the assessee for technical services rendered by visiting experts in pursuance of the collaboration agreement entered into prior to April 1, 1976, are not liable to be taxed because of the proviso to section 9(1)(vii). The assessments have, therefore, to be annulled. The matter will now go before the regular Bench for the disposal of the appeals in accordance with the opinion of the majority. ORDER 8-12-1992. On a difference of opinion between the two Members, the following question was referred to the Third Member : " Whether on the facts and in the circumstances of the case, the technical service fees paid by M/s. Bharat Heavy Electricals Ltd. to the engineering personnel of M/s. Sulzer Brothers Limited, are taxable under section 9(1)(vii) of the Income-tax Act ?" The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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