TMI Blog1997 (11) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer and also without allowing the Assessing Officer to examine the relevant materials in the case." 2. Briefly stated the facts of the case are that Voest - Alpine Industrieanlagenbau GmbH, Turmstrasse 44, 4020 Linz, Austria, a nonresident foreign company, filed its return of income for the assessment year 1995-96 on 6-5-1996 showing the total income at NIL. On scrutiny of the return and other relevant papers filed along with the return, the Assessing Officer found that the non-resident company received Rs. 26,25,74,694 from M/s. Larsen Tourbo Limited (hereinafter referred to as L T) during the previous year relevant to the assessment year 1995-96 on account of "Technical Services Fees". According to the Assessing Officer the assessee-company was under obligation to file a Tax Audit Repot as per the provisions of section 44AB of the Income-tax Act, 1961 within the due date as the total receipt exceeded the prescribed limit. He further pointed out that as the return did not accompany the Tax Audit Report (TAR), it was defective one in terms of Explanation (bb) of Subsection 9 of Section 139 of the Act. The Assessing Officer, therefore, issued a letter dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany entirely at its office in Linz, Austria. It was also clarified that the assessee-company had no office branch or any permanent establishment in India. The assessee further submitted that eventually, SAIL granted contract to the assessee-company L T combined in June 1994 and as per the agreement L T was to pay Rs. 30,89,11,400 to the assessee-company out of which it actually paid Rs. 26,25,74,690 in foreign exchange with the approval of RBI and the Income-tax Department NOC which was issued on the basis of payment of advance-tax of Rs. 7,87,72,407 was under pretext. It was further contended that the provisions of section 44AB and 9 of the Income-tax Act were not applicable as the total income declared in the return was m7and the assessee had claimed the amount deposited by L T as refund. It was further submitted that the assessee had no income taxable in India because provisions of DTAA between India and Austria exempt the payment in question from taxation in India and, therefore, the assessee was not under any obligation to file any return under section 139(1). It was also submitted that the refund of Rs. 7,87,72,407 was claimed under section 237 through the prescribed F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law on the basis of the materials. 5. Being aggrieved by the aforesaid order of the CIT(Appeals), the Revenue has preferred this appeal to the Tribunal. 6. The first ground of appeal is that whether the CIT(Appeals) was justified in admitting the appeal against the intimation under section 139(9) in view of express provision of section 246(2) in which intimation under section 139(9) is not included as an appealable order. The learned D.R. argued that the intimation under section 139(9) was not an appealable matter as it does not cover by the provisions of sub-section (2) of section 246 or even by sub-section (1) of section 246 of the Act. According to the learned D.R., the CIT(Appeals) did not give any reason about the appealability of the order/intimation under section 139(9). He also pointed out that M/s. Voest Alpine (the assessee) is not the technical collaborator but is principal contractor. He further argued that the CIT(Appeals) declared the return to be valid return filed for getting refund under rule 41 (2) of the Income-tax Rules, 1962; but he did not give proper justification. He also contended that the CIT(Appeals) was wrong to declare the return as valid as it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer (copy is placed at pages 38-39 of the paper-book) claimed that the remittance of technical service fees by L T was exempt from income-tax in India in view of Article VII of DTAA between India and Austria and hence withholding tax was not applicable in India. The assessee had also reproduced Article VII of DTAA in the forwarding letter and requested the Assessing Officer in the last para of the letter as under: "We are enclosing a duly filled in tax return indicating 'nil liability and request you to issue a refund voucher in favour of Larsen Toubro Limited for an amount of Rs. 7,87,72,407." The above letter also proves that the return was filed showing nil liability just for the purpose of obtaining refund vouchers in the computation of total income, a copy of which is placed at page 41 of the paper-book, which was enclosed with the return, the following note is given by the assessee: "Note: Technical Services fees received by an Austria Enterprise from an Indian Enterprises is not taxable in India in view of Article VII of convention for avoidance of Double taxation hence Rs. 26,25,74,690 paid by Larsen Toubro Limited as a Technical Services fee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g with Form No. 30 under rule 41(2) read with section 237, it is also covered by section 246(1)(k) as refusal of refund can be treated as an order under section 237. As the provision of section 246(2)(b) covers the provision of sections 246(1)(a) and 246(1)(k) the appeal before the CIT(Appeals) was fully governed by the provisions of section 246(2)(b) also. In view of this legal and factual position, in our view, the CIT(Appeals) is well-within his power and jurisdiction in entertaining the appeal filed before him by the assessee-company. 12. Our above view is duly supported by the Hon'ble Calcutta High Court decision in the case of Sardar Bahadur Sardar Indra Singh Trust wherein at page 680 of the report it has been observed by their Lordships as under: "Once the reply of the Income-tax Officer said, as it did, that the income of the trust was not exempt as claimed, because there was no valid trust, it is difficult to see what remained to be said in order to refuse the claim of refund" and it was held as under: "Held, (i) that the requirements of Rules 36 and 37 of the Income-tax Rules were mandatory as they were to be read as part of the Act, and therefore an application for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 40 lakhs, it was the statutory duty of the assessee to get its accounts audited and submit the TAR along with the return as per the provisions of section 44AB. According to him since the return was not accompanied by TAR, it was declared defective by the Assessing Officer under section 139(9). According to the learned D.R., this was one of the conditions as per Explanation (bb) of sub-section (9) of section 139 that the return is accompanied by the report of the audit referred to in section 44AB but since it was not accompanied the return was declared defective and the assessee was given an opportunity of removing the defect. He also argued that the assessee did not comply with the defect memo issued by the Assessing Officer on the ground that the income of the assessee was not taxable and, therefore, the provisions of section 44AB were not applicable. According to the learned. D.R., the CIT(Appeals) was not justified, on the facts and circumstances of the case, in treating the return filed without TAR under section 44AB as a valid return. 15. The learned counsel for the assessee, on the other hand, contended that the assessee claimed the technical service fees to be not tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer that M/s. Voest Alpine (the assessee), a non-resident, did not carry on any business in India and they did not maintain any permanent establishment in India. The Assessing Officer has not controverted this contention of the assessee by adducing and producing any evidence or material and has rejected the same merely saying that being principal contractor the assessee carried on business directly or indirectly. Thus, the main contention that the assessee carried on business in India is not proved by the Department and, therefore, the provisions of section 44AB were not applicable. 17. It is also noticed that the assessee-company vide letter dated 5-12-1996 submitted that such income of the non-resident was not subject to tax in India as per DTAA and hence there was no scope of applicability of the provisions of section 44AB. This contention of the assessee has also not been rebutted and controverted by the Assessing Officer. He has rejected this contention merely on the ground that income in connection with such contract did accrue or arise in India. While doing so, the Assessing Officer has completely ignored the provisions of Articles III, VII, XVII of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and L T as Indian Contractor. According to him, vital information was given to L T to get the contract but that does not mean that the contract awarded and it may or may not materialise. He also invited our attention to the Bill and submitted that services were rendered by the assessee-company at Linz, Austria in regard to intimation or preparation of tenders, etc., and the price is paid for the work done outside India only. He also clarified that the price was not paid for any supervision or work done in India as wrongly contended by the learned D.R.; but it was for technical services rendered at Linz, Austria. The learned counsel for the assessee further submitted that the Bokaro Steel Plant needed new plant and technology and for that Austria qualified as it was capable of supplying technology and therefore the Steel Authority of India Ltd. (SAIL) issued the tender. He further clarified that no work had actually been done and the contract had not been worked out and according to the agreement, services were to be rendered outside India and the remittance of the technical fees was for the work done in Austria. The learned Counsel for the assessee further submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paragraph (1) of this article shall not be construed as pevenung the taxation in one of the territories in pursuance of the present convention and in conformity with the laws of that territory of income (e.g. dividends, interest, capital gains, fees for technical services, income from the operation of aircraft, rents or royalties or income from immovable property) derived from sources therein by a resident of the other territory even if such income is not attributable to a permanent establishment situated in that former territory" Article VII "Amounts paid by an enterprise of one of the territories for technical services furnished by an enterprise of the other territory shall not be subject to tax by the first-mentioned territory except insofar as such amounts are attributable to activities actually performed in the first-mentioned territory. In computing the income so subject to tax, there shall be allowed as deductions the expenses incurred in the first-mentioned territory in connection with the activities performed in that territory." Article XVII "The laws in force in either of the territories will continue to govern the assessment and taxation of income in the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y on the Agreement before the Appellate Tribunal, "(ii) that the agreement providing for supervision of the installation work did not amount to business connection nor did the agreement with the Poona company amount to business connection between the non-resident and resident within the meaning of section 9 of the Indian IT Act. Even assuming that all the profits of the German company were to be deemed to have accrued or arisen in India by virtue of section 9, the term of art. Ill of the Indo-German Agreement would prevail over section 9." 2. Davy Ashmore India Ltd.: In this case it was held as under: "In determining the liability of a non-resident company, if there is an Agreement for Avoidance of Double Taxation entered into under section 90 of the Income-tax Act, 1961 the said agreement must prevail over the provisions of the Income-tax Act. The Circular of the Central Board of Direct Taxes dated April 2, 1982, makes this clear." 3. In R.M. Muthaiah, on similar facts and circumstances of the case, it was held that the provisions of Double Taxation Avoidance Agreement will prevail over those of the Income-tax Act. 4. In Arabian Express Line Ltd. of United Kingdom, also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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