- (1.)1. This is an application under Section 245Q(1) of the Income-tax Act, 1961 ("the Act"). The applicant was incorporated as a company at Kuala Lumpur in Malaysia on November 28, 1978. A certificate of residency in Malaysia from the Inland Revenue Department at Kuala Lumpur has also been produced. The memorandum of association of the company authorised it, inter alia, to carry on the following objects ;
(2.)"(1) To engage and hire or otherwise procure mechanical, electrical, civil, professional, clerical, manual and other staff and workers and to allocate their services to any person, firm or company requiring the same and to establish and maintain an employment agency, (a) To provide or procure the provision by others of every and any service need want or requirement of any business nature required by any person, firm or company in or in connection with any business carried on by them."
On September 8, 1993, the applicant, Tekniskil (Sendirian) Bernard (hereinafter referred to as "TSB") entered into a contract with Hyundai Heavy Industries Co. Ltd, (hereinafter referred to as "HHI"), having its registered office in Korea. The agreement recites that HHI had been awarded certain contracts in the Neelam Process Complex and NQP Process Complex in the territory of Bombay High by the Oil and Natural Gas Commission of India. It had to execute these projects involving offshore installation works from the end of September, 1993. For carrying out the above work, HHI needed the services of skilled labour and requested TSB to supply the skilled labour necessary to carry out the above works. Under the agreement, TSB had to supply in time necessary labour force duly qualified to carry out the projects in question. Under the schedule to the contract TSB had to provide 56 welders, 24 riggers, 4 winch operators, 6 barge others, 6 mechanics and 4 electricians (in all 100) and HHI was to pay for these workmen, wages at the rates mentioned in the Schedule. The work of the labourers had to be executed on two barges belonging to HHI and the work done had to be supervised by one experienced supervisor on the main barge and a working supervisor on the second barge. It was the responsibility of TSB to have the workmen (particularly, welders) duly certified by an appropriate agency by providing all materials, equipment, consumables, NDT testing films, radiography reports, inspection--third party fee and all associated test cost which was reimbursed by HHI at a particular rate per workman. The workmen were to function under the directions and supervision of HHI which could disqualify and demobilize any of the workers in the event of their services not being satisfactory on certain grounds stated in the contract. TSB was to pay salary, insurance premium, charges for mobilization to Bombay and demobilization from Bombay, all taxes, medical treatment at onshore sites including transportation by helicopter, application for visa and passport to enter India and work permit and security pass issued by HHI. The charges paid by HHI apparently included a margin to cover all the expenses incurred by the applicant in the procurement of the necessary labour. It is stated that work under the contract which commenced on October 8, 1993, came to a conclusion in April, 1994. It is not quite certain whether the duration of the contract exceeded six months.

(3.)HHI applied to the Deputy Commissioner of Income-tax, Special Range-46, Bombay, on December 11, 1993, requesting the latter to determine the appropriate portion of the gross consideration payable to TSB in terms of this contract which is chargeable to income-tax in India and the percentage of tax required to be deducted from the payments made to TSB. On December 23, 1993, the Deputy Commissioner of Income-tax passed an order under Section 195(2) of the Act directing HHI to deduct income-tax at the rate of 6.5 per cent, on payments relatable to work done in India and 0.65 per cent, of the payments relatable to work done outside India. Not satisfied with this, TSB applied to the Deputy Commissioner of Income-tax, Dehradun, on April 4, 1995, praying for a certificate under section 197 of the Act permitting HHI to make payment to TSB without deducting any tax at source under Section 195 of the Act since, in its opinion, no portion of the amounts paid by HHI to TSB under the contract would be chargeable to income-tax. The Deputy Commissioner of Income-tax, however, by a letter dated April 10, 1995, dismissed the application as misconceived.