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Commissioner of Income-tax, Tamil Nadu-i Vs. Domint Works Gmbh - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 931 and 1546 of 1977 (Reference Nos. 654 and 1091 of 1977)
Judge
Reported in[1984]148ITR625(Mad)
ActsIncome Tax Act, 1961 - Sections 9
AppellantCommissioner of Income-tax, Tamil Nadu-i
RespondentDomint Works Gmbh
Appellant AdvocateJ. Jayanaraman, Adv.
Respondent AdvocateNone
Excerpt:
- - having perused the orders of the ito as well as the aac as also the tribunal, we find that each of them has evaluated the services rendered by the foreign company in india after referring to the relevant clauses in know-how agreement......revenue. the assessee is a foreign company who had entered into a collaboration agreement with an indian company. messrs. transformer and switchgear limited. the indian company, as the agent of the foreign company who has entered into an agreement with it, has submitted a return on behalf of the foreign company for the year ended march 31, 1968. in the said return, the assessee has admitted receipt of technical fees of rs. 20,000 but claimed that the sum is not taxable for the reason that it was earned in indian for technical services rendered outside indian. however, the ito, after considering the various services rendered by the foreign company in india, held that having regard to the nature of the services rendered by the foreign company, its claim that the entire income accrued.....
Judgment:

Ramanujam, J.

1. These two references have been made at the instance of the Revenue in relation the same assessment year, but against two separate orders of the Tribunal, one passed in the assessee's appeal and the other passed in the appeal filed by the Revenue. The assessee is a foreign company who had entered into a collaboration agreement with an Indian company. Messrs. Transformer and Switchgear Limited. The Indian company, as the agent of the foreign company who has entered into an agreement with it, has submitted a return on behalf of the foreign company for the year ended March 31, 1968. In the said return, the assessee has admitted receipt of technical fees of Rs. 20,000 but claimed that the sum is not taxable for the reason that it was earned in Indian for technical services rendered outside Indian. However, the ITO, after considering the various services rendered by the foreign company in India, held that having regard to the nature of the services rendered by the foreign company, its claim that the entire income accrued outside India cannot be accepted. He then proceeded to determine and evaluate the services which, according to him, could be taken to have been rendered in foreign company and fixed 50 per cent. of the total fees as the fees payable in respect of services rendered by the company in India and thus a sum of Rs. 10,000 being the 50 per cent. of the total sum received by the foreign company as the income accruing in India. The matter was taken up in appeal to the AAC by the assessee. Before the AAC, the assessee contended that no service was rendered by the foreign company in India and that, therefore, the ITO was wrong in coming to the conclusion that 50 per cent. of the technical fee represented the income of the foreign company accruing in India. The AAC, after referring to the various technical services to be rendered by the foreign company as per the know-how agreement, felt that only 35 per cent. of the grow technical fees could be taken as fees for the services rendered by the company in India. Both the assessee and the Revenue took the matter in appeal to the Tribunal, the assessee questioning the evaluation of the services rendered by the foreign company in India as 35 per cent. of the total receipt and the Revenue questioning the reduction of the estimate of 50 per cent. made by the ITO to 35 per cent by the AAC.

2. The Tribunal, in the first instance, has taken the appeal filed by the Revenue, without reference to the appeal filed by the assessee questioning the estimate of 35 per cent. made by the AAC. The Tribunal, in the appeal by the Revenue, held that no interference is called for with the estimate of 35 per cent. made by the AAC. In that view, the appeal by the Revenue was dismissed. Later, the appeal filed by the assessee came up for hearing before the Tribunal. In that appeal, the Tribunal, taking note of its earlier decision in the assessee's own case, evaluated the services made by the foreign company in India at 20 per cent and allowed the assessee's appeal and modified the estimate of 35 per cent. made by the AAC to 20 per cent. Thus, as a result of the order of the Tribunal in the assessee's appeal, the evaluation of 35 per cent. of the fee as representing the services rendered by the foreign company in India has been reduced to 20 per cent. In T.C. No. 931 of 1977, the following question has been referred :

'Whether, on the facts and in the circumstances of the case, and having regard to the services rendered by the assessee-foreign company under the terms of the technical collaboration agreement, the adoption of 20 per cent. of the technical fees as accruing in India is valid and proper in law ?'

3. In T.C. No. 1546 of 1977, the following question has been referred again at the instance of the Revenue :

'Whether, on the facts and in the circumstance of the case, and having regard to the services rendered by the foreign non-resident assessee company under the terms of the technical collaboration agreement with the Indian company, the adoption of 35 per cent. of the technical fees alone as accruing in India is valid and proper in law ?'

4. However, it is seen from the order of the Tribunal rendered in respect of the assessee's own case in the earlier year, that the assessee took up the stand that the agreement entered into by the foreign company and the local company contemplated certain services to be rendered by the foreign company in India and such services were in fact rendered, but they were only insignificant having regard to all the services to be rendered by the foreign company. Therefore, the liability of the foreign company in respect of services rendered in pursuance of the know-how agreement was conceded by the assessee, but he only stated that such services were only insignificant. As a matter of fact, before the AAC, a letter dated December 23, 1960, was filed by the assessee showing that the assessee-company itself had conceded the certain portions of the services were rendered in India and a portion of the technical fee was taxable in India. However, it had been stated, in that letter, that the services so rendered in India were insignificant. But in respect of those years, the Tribunal has evaluated the services done by the foreign company in India representing 20 per cent. Against the order of the Tribunal, in respect of the earlier years, the assessee has not sought any reference and the decision of the Tribunal so far as it is against the assessee had become final. The Tribunal has chosen to evaluate the services admitted to have been rendered by the foreign company in India as 20 per cent., in this case, following its decision in respect of the earlier years. Thus the only question before the Tribunal was a pure question of evaluation of the services rendered by the foreign company in India and for the purpose of apportionment of of the technical fee received by the assessee as accruing in India. According to the Revenue, the services rendered by the foreign company in India in pursuance of the know-how agreement should have been evaluated as 50 per cent. as was done by the ITO. Having perused the orders of the ITO as well as the AAC as also the Tribunal, we find that each of them has evaluated the services rendered by the foreign company in India after referring to the relevant clauses in know-how agreement. The Tribunal has come to the conclusion that those (nature of) of the services which had been taken to have been rendered by the foreign company in India can only be evaluated at 20 per cent. We do not see how the evaluation made by the Tribunal could be questioned by the Revenue in this reference. If the Tribunal has referred to the relevant clauses in the agreement and evaluated the services taking note of the clauses, the decision of the Tribunal cannot be said to involve a question of law. Since the decision of the Tribunal is based on a factual position having regard to the nature of the services rendered by the foreign company in India, we cannot interfere with the evaluation of those service made by the Tribunal. In this view, we have to answer the question raised in T.C. No. 931 of 1977, in the affirmative and against the Revenue. In view of the said answer, the question referred in T.C. No. 1546 of 1977 does not arise and the reference has to be returned unanswered. There will be no order as to costs.


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