K.A. Thanikkachalam, Judicial Member - (1.) THESE appeals filed by the assessee relate to the assessment years 1979-80 and 1980-81. Since the questions involved in these appeals are common, they are taken up together and disposed of this common order for the sake of convenience.
(2.) According to the facts appearing in this case, the assessee is a nonresident foreign company. At the instance of M/s. BHEL the non-resident foreign company, M/s Sulzer Brothers Ltd., sent one of its engineers to assist it in checking at its manufacturing and direction sites, the collections, design, drawings and part lists of equipment prepared by it. For such services rendered by its employees it had been in receipt of fees of Rs. 1,11,212 from M/s BHEL. This is apart from M/s. BHEL meeting the to and fro and other expenses of the engineer during his stay in India. The question for determination before the IAC (Asst.) was whether such fees is assessable to tax at the hands of the assessee in terms of proviso to Section 9(1)(vii) of the Income-tax Act, 1961. Before the IAC (Asst.) the assessee claimed that 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 29-1-1976 which is prior to 1-4-1976 and the proviso to Section 9(1)(vii) confers the exemption on it. According to the IAC (Asst.) article 1.6 of the agreement dated 29-1-1976 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 IAC (Asst.) the fees 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 18-4-1979. The IAC (Asst.) pointed out that the payment owes its origin entirely to this agreement which has been entered into later than 1-4-1976. Therefore, according to the IAC (Asst.), the fees is neither one payable in pursuance of an agreement made before 1-4-1976 nor one which has been approved by the Central Government before 1-4-1976, though the agreement as such is posterior to that date. Therefore, according to the IAC (Asst.) it fails to qualify for the exemption provided by the proviso to Clause (vii) to Section 9(1). He also held that no deduction of any kind from the fees is permissible in view of the blanket prohibition against such deduction in terms of Section 44D. He further held that it shall suffer tax at a flat rate of 40% in terms of (iii) of Sub-section (b) of Section 115A(1). This was the case in the assessment year 1979-80. In 1980-81 the assessee-company was in receipt of Rs. 32,553 from BHEL. A similar view was taken by the IAC (Asst.) in this assessment year as in last year.
(3.) AGGRIEVED the assessee filed appeals before the CIT(A) in both the assessment years under consideration. Before the CIT(A) the assessee's representative reiterated the submissions that the payment was made only in pursuance of the agreement dated 29-1-1976. According to him, the approval of the Government of India for payment was taken on 8-9-1977 and this was only for the purpose of release of foreign exchange and also the rates for the special engineering services. According to the learned representative the approval had already been granted earlier on 11-11-1975 by the Government. Reliance was placed on a decision of the Appellate Tribunal, Delhi Bench in the case of BHEL v. ITO relating to Siemen's case in [IT Appeal No. 2581 (Delhi) of 1979 dated 2-6-1980). This was followed by the Appellate Tribunal Madras Bench in the case of IAC v. Copes Vulcan Inc. USA by agent BHEL for the assessment year 1978-79 in order dated 21-4-1982.;