INCOME TAX OFFICER Vs. MONTEDISON OF ITALY
LAWS(IT)-1989-2-22
INCOME TAX APPELLATE TRIBUNAL
Decided on February 10,1989

Appellant
VERSUS
Respondents

JUDGEMENT

M.A. Ajinkya, Accountant Member - (1.)THESE are appeals by the department for the assessment years 1979-80 and 1980-81 and cross objections by the assessee for the same years, all of which were heard together and are disposed of by a consolidated order.
(2.)The main ground in the departmental appeals, which is common for both the years, is that the learned Commissioner of Income-tax (Appeals) erred in holding that all the payments received by the assessee-company from Fertilizer Corporation of India, Indian Petrochemicals Corporation, National Fertilizers Ltd., J.K. Synthetics Ltd. and Hindustan Fertilizer Corporation under different contracts are in the nature of technical service fees covered under Section 9 (1)(VH) and are therefore to be excluded from taxation.
Certain facts in this regard require to be stated. The assessee is a non-resident company incorporated in India. One M/s. Technimont was a subsidiary company of the assessee-company M/S. Montedison. This subsidiary company merged with the assessee-company on 4-10-1978. The accounting year of the assessee-company for the years under appeal is the year ended 31st March. M/s. Technimont had entered into agreements with certain public sector undertakings and M/s. J.K. Synthetics Ltd. for supply of technical know how and for rendering technical services. All the liabilities and rights of M/s. Technimont were taken over by the assessee-company. During the accounting year ended 31-3-1979 the assessee-company received in terms of the various agreements a total amount of Rs. 1,08,68,427 from the various public sector under-, takings and from J.K. Synthetics Ltd. as per the following details-

JUDGEMENT_10913_TLIT0_19890.htm

Similarly, the company received during the year ended 31-3-1980 royalty of Rs. 1,96,53,025 and technical fees from J.K. Synthetics Ltd. of Rs. 36,48,599 amounting in all Rs. 1,33,01,624. The Income-tax Officer considered the payments received from the various collaborators of the assessee-company in terms of the agreements entered into and came to the conclusion that all the payments received by the assessee-company were in respect of assistance given by the assessee through its technical personnel working in plants located in India. The Income-tax Officer reached the conclusion that the services were rendered by the assessee in India although the payments were received by the assessee outside India. He held that only in respect of Nangal Expansion Project the amount of Rs. 20,80,030 lire representing the know-how engineering as per article 3 could be said to be consideration for the services rendered outside India. The Income-tax Officer therefore decided that this amount will not be deemed to have accrued or arisen in India and excluded it from the computation of total income. He, however, held on an interpretation of various preambles and terms & conditions of the agreements that the payments received by the assessee fell within the definition of the term 'royalty' given in Explanation 2 to Clause (vi) of Sub-section (1) of Section 9 of the Income-tax Act. He called out the definition of 'royalty' incorporated in that section in the body of the order and held that the total payments received by the company except the payment on account of knowhow engineering would be taxed under the head Royalty. He, however, allowed deductions of expenses limited to 20% under Section 44D.

(3.)THE assessee took the matter in appeal to the Commissioner of Income Tax (Appeals). THE CIT (Appeals) held that in the assessment years under appeal the appellant had only received technical assistance fees as provided in the service agreements for the persons deputed to India and accepted the claim of the assessee that all payments related to contracts entered into prior to 1-4-76 and therefore were not taxable under the proviso to Section 9(1)(vii). It was argued before the CIT (Appeals) that no amount was liable to tax in the hands of the appellant-company either under Section 9(1) (vi) or under Section 9(1)(vii) because the amounts were received by the appellant outside India in respect of technical services rendered by its technicians. THE payment was clearly for the provision of services of technical personnel and came within the definition of "technical assistance fees": under Explanation 2 to Section 9(1)(vii). It was also argued that under proviso to Section 9(1)(vii) fees for technical services payable in pursuance of any agreement made before 1-4-76 was not taxable at all. THEse payments could not be considered as royalty within Clauses (i) to (iv) in Explanation 2 to Section 9(1) (vi) as separate consideration had been provided under the agreements relating to the transfer of know-how, design, documentation and engineering services relating thereto and the payments so made were not the subject matter of taxation in the years under appeal. Alternatively, it was argued that even assuming that such payments were liable to tax in India, the tax would arise on the agent of the non-resident. THE salary and remuneration payable to the technicians of the assessee were not taxable as exemption certificates under Section 10 of the Act had been obtained.


Click here to view full judgement.
Copyright © Regent Computronics Pvt.Ltd.