S.N.Bhattacharjee J. - (1.) In this reference under Section 256(1) of the Income-tax Act, 1961, the following questions have been referred to this court : "(1) Whether, on the facts and in the circumstances of the case and on a true interpretation of the relevant provisions of the Indo-German agreement for double taxation, prior to its amendment in 1984, the sums received by the assessee for design and technical services for the construction work, i.e., the second bridge over the river Hooghly is chargeable to income-tax under the Income-tax Act, 1961 ? (2) Whether, on the facts and in the circumstances of the case and on a true interpretation of the Indo-German agreement for double taxation, the transfer of the drawings, designs and technical services under the collaboration agreement constituted an out and out transfer of such rights and as such the sums received therefor could be treated as royalty for the purpose of the Indo-German Double Taxation Agreement and liable to Indian Income-tax ? (3) Whether, the sum received by the assessee for the supply of designs, drawings and technical services constituted 'industrial and commercial profits' for the purpose of the Indo-German agreement for double taxation and, as such, the same is assessable under the Indian Income-tax Act, having regard to the admitted position that the assessee has no permanent establishment in India within the meaning of the said agreement ? (4) Whether even assuming though not admitting that the sums received by the assessee constitutes royalty, the agreement dated April 18, 1980, can be treated as a continuation of the agreement dated July 19, 1974, which had been duly approved by the Central Government and as such the said sum is liable to be assessed under the Indian Income-tax Act, in view of the proviso to Section 9(1)(vi) of the Income-tax Act ? (5) Whether, in any event, the sum received by the assessee for the supply of designs, drawings and technical services constituted 'fees for technical services' for the purpose of the double taxation agreement and is chargeable to income-tax under the Income-tax Act, 1961 ?"
(2.) On July 19, 1974, the assessee-company, a foreign company registered in West Germany with its registered office at Stuttgart, entered into a design contract with the Hooghly River Bridge Commissioners (for short "HRBC"), in connection with the design of the second Hooghly Bridge to be built over the river Hooghly. The HRBC was a statutory authority created by the State of West Bengal for the purpose of construction of the said bridge. Bhagirathi Bridge Construction Co. Ltd. (for short "BRBC"), was a contractor engaged for designing and constructing the bridge. The said design contract came to an end on December 31, 1978, after extension. Another agreement was entered into between the assessee-company and the HRBC on April 18, 1980. For the accounting year ending on March 31, 1981, relevant to the assessment year 1981-82, the assessee filed a return of income showing "nil" income. It was stated that the assessee had no permanent establishment in India and the services were entirely rendered outside India. It was further claimed that the only income earned by the assessee-company was by way of fees for technical services within the meaning of Section 9(1)(vii) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). It was further claimed that the fees were payable in pursuance of the agreement made before April 1, 1976, and approved by the Central Government and as such the said fees were not chargeable under the proviso to Explanation 1 to Section 9(1)(vii) of the Act. The Income-tax Officer was, however, of the opinion that the design contract executed on April 18, 1980, was a new agreement made after April 1, 1976, and, therefore, "the amount payable to the assessee by the resident in respect of the services rendered under the contract are taxable under the provisions of Sections 9(1)(vi) and 9(1)(vii)". He also did not accept the assessee's contention that these amounts were not taxable in view of paragraph 5 of Article III of the Agreement for Avoidance of Double Taxation between India and the Federal German Republic (hereinafter referred as as "the Agreement.")
(3.) On appeal the Commissioner of Income-tax (Appeals) upheld the finding of the Income-tax Officer that the amounts remitted to the assessee-company are in the nature of royalty and not exempt from taxation. The assessee approached the Tribunal. The learned Tribunal also upheld the decision of the Commissioner of Income-tax (Appeals) by holding : "As such, we agree with the lower authorities that the agreement dated April 18, 1980, is a now agreement. Therefore, the proviso to Section 9(1)(vi) of the Act is not applicable to the instant case and the assessee cannot claim that the amounts receivable under this agreement are not to be treated as income of the assessee. On a careful consideration of the materials on record, facts and circumstances of the case, we hold that the assessee is not entitled to the benefit of the proviso to Section 9(1)(vi) of the Act.";