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Commissioner of Income-tax Vs. Copes Vulcan Inc. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 312 of 1984
Judge
Reported in(1986)57CTR(Mad)244; [1987]167ITR884(Mad)
ActsIncome Tax Act 1961 - Sections 9(1) and 256(2)
AppellantCommissioner of Income-tax
RespondentCopes Vulcan Inc.
Appellant AdvocateNalini Chidambaram, Adv.
Respondent AdvocateP.P.S. Janardhan Raja, Adv.
Excerpt:
- .....of the technical services fees treating it as income arising in india and in taxing the assessee foreign company ?' 2. however, we find on the facts and circumstances of this case, that the question sought to be referred does not arise out of the order of the tribunal. 3. the assessee is a non-domestic foreign company and the bharat heavy electrical limited, tiruchirapali, has been treated as its agent. in pursuance of the terms of an agreement, the non-domestic foreign company deputed a few of their personnel to india to provide expert technical assistance to the indian company in connection with the manufacture of certain articles which as per the terms of agreement, the indian company had been licensed to manufacture. in consideration of such services, the non-resident foreign.....
Judgment:

Ramanujam, J.

1. In reference petition, the Revenue seeks a reference to this court on the following question :

'Whether, on the facts and in the circumstances of the case, that and having regard to the provision of section 9(1)(vii) of the Income-tax Act, 1961, the Appellate Tribunal was right in deleting 30% of the technical services fees treating it as income arising in India and in taxing the assessee foreign company ?'

2. However, we find on the facts and circumstances of this case, that the question sought to be referred does not arise out of the order of the Tribunal.

3. The assessee is a non-domestic foreign company and the Bharat Heavy Electrical Limited, Tiruchirapali, has been treated as its agent. In pursuance of the terms of an agreement, the non-domestic foreign company deputed a few of their personnel to India to provide expert technical assistance to the Indian company in connection with the manufacture of certain articles which as per the terms of agreement, the Indian company had been licensed to manufacture. In consideration of such services, the non-resident foreign company was entitled to receive U.S. $ 8,835.09 in the previous year relevant to the assessment year 1978-79. The assessee claimed before the Income-tax Officer that the payment was for the services rendered by the technical personnel and, therefore, it was exempt by virtue of the proviso to section 9(1)(vii) of the Income-tax Act inasmuch as the licensing and technical assistance agreement between the two companies was approved by the Central Government as early as on May 3, 1974. The Income-tax Officer did not accept this claim but proceeded to treat 30% of the amount paid to the non-domestic foreign company as taxable.

4. On appeal, the Commissioner of Income-tax (Appeals) held that the agreement between the two parties was approved by the Central Government on May 3, 1974, that is before April 1, 1976, and, therefore, as per the proviso to section 9(1)(vii), the technical fee paid was not liable to tax in India for the assessment year 1978-79. As against the said decision of the Commissioner of Income-tax (Appeals), the Revenue filed an appeal before the Income-tax Appellate Tribunal pointing out that as per section 9(1)(i) of the Act, the technical fees received was for services rendered by the foreign technicians in India during their visit and that the technical fee paid was as a result of the business connection and, therefore, 30% of the amount has rightly been taxed by the Income-tax Officer, even though as per section 9(1)(vii) which was inserted by the Finance Act of 1976 with effect from June 1, 1976, no portion of the technical fees paid could be brought to charge there-under. The Tribunal, however, proceeded on the basis that the technical fees received by the foreign company will come only under section 9(1)(vii) and not under section 9(1)(i), and as the applicability of section 9(1)(vii) depends upon the date of the technical collaboration agreement that was entered into, it posed the question as to whether the agreement providing for the payment of technical services was approved by the Central Government before April 1, 1976, or not. After considering the materials on record, the Tribunal held that the collaboration agreement has got the approval of the Central Government as early as on May 3, 1974 and, therefore, as per the proviso to section 9(1)(vii), the income received by way of technical fees under the collaboration agreement cannot be brought to charge. According to learned counsel for the Revenue, since the technical fees received by the foreign company as per the terms of the collaboration agreement does not come within section 9(1)(i) as it an income derived as a result of the business connection which stands established by the employees of the foreign company coming over to India and assisting the Indian company in the manufacture of the articles referred to in the agreement and that the Tribunal is in error in holding that the technical fees received will fall only under section 9(1)(vii).

5. We are not in a position to agree with the contention of learned counsel for the Revenue that merely because the application of section 9(1)(vii) stands excluded by operation of the proviso thereunder, in view of the fact that that collaboration agreement in this case has been entered into before April 1, 1976, the said payment cannot automatically fall within section 9(1)(i) of the Act. Section 9(1)(i) refers to all income accruing or arising whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India. Section 9(1)(vii) refers to income by way of fees for technical services payable by the Government or a resident company or non-resident company in certain circumstances. For the purpose of appreciating the relevant scope of section 9(1)(i) and section 9(1)(vii), the proviso to section 9(1)(vii) cannot be looked into. As already stated, section 9(1)(i) is general in nature and section 9(1)(vii) refers to a particular type of income and is a special provision dealing with fees for technical services rendered by the foreign company. The technical services may be rendered as a result of a business connection or otherwise. Having regard to the language used in section 9(1)(vii), it is not possible to construe that provision as referring to income by way of fees for technical services 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 accruing or arising out of any business connection. Since section 9(1)(vii) will comprehend income by way of fees for technical services rendered by 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 connection as it 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 not 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, we do not consider it necessary to direct a reference in this case. The petition is, therefore dismissed. No costs.


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