AZIENDE COLORI NAZIONALI AFFINI ITALY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee company, which will be hereinafter referred to as A.C.N.A., is a corporation registered under the laws of Italy. The reference arises out of the assessments made on the assessee for the years 1959 60, 1960 61 and 1961 62, the respective accounting years being the years ending on 31st March, 1959, 31st March, 1960, and 31st March, 1961, respectively. The assessee was treated as a company for the purposes of such assessments. During the previous years it was also assessed as a non resident.

(2.) WE are concerned in this reference with certain payments received by the assessee company under an agreement dated 30th June, 1958, entered into between the assessee and an Indian company called Amar Dye Chem Ltd. Under the said agreement the assessee was, inter alia, entitled to receive a fee called "technical service fee"; this was under cl. (3) of the agreement. The fee provided under the agreement, to which we shall make a detailed reference subsequently, was Rs. 25,000 annually. In the asst. year 1959 60, the assessee received the proportionate amount of Rs. 18,750. However, in the two succeeding years of assessment the full amount of Rs. 25,000 was received. A question arose about the taxability of these amounts as income accruing or arising in India. The assessee's contention was that since the technical services were rendered in Italy, and wholly outside the taxable territories, no income had arisen within the taxable territories so as to be liable to tax in India. It was further contended that under the agreement certain other services were to be rendered which were distinct and for which a separate payment was provided. The ITO took the view that a part of the above amounts must be deemed to be income accrued in India and hence liable to tax in India. The assessee then filed appeals to the AAC, who by an order upheld the view of the ITO. The assessee thereafter went in second appeals to the Tribunal. The contention before the Tribunal was that the technical services as required to be rendered in terms of cl. (3) of the agreement between the assessee company and Amar Dye Chem Ltd. were wholly rendered in Italy and outside the taxable territories, and, hence, according to the assessee, no income with reference to the technical fees received under the said clause could be said to have arisen within the taxable territories. The Tribunal considered the rival arguments of the parties and upon such consideration came to the conclusion that the view of the Department was right and that a part of the technical fees received by the assessee could, in the circumstances, be deemed to be income accrued or received within the taxable territories. It may be mentioned here that before the Tribunal there was no dispute about the receipt being of an income nature or about the apportionment made by the Departmental authorities in regard to the amounts held to be assessable in the taxable territories. This was 40per cent of the amounts paid to the assessee under cl. (3), i.e., Rs. 7,500, Rs. 10,000 and Rs. 10,000, for the three assessment years respectively. Thereafter, at the instance of the assessee a reference has been made to this Court under S. 66(1) of Indian IT Act, 1922.

(3.) IT is clear that the answer to the question referred to us will principally depend upon the terms and conditions of the agreement as also the findings of fact as to its actual implementation by the parties. The agreement between A.C.N.A. and Amar Dye Chem Ltd. has been annexed as annexure "A" to the statement of the case. It is a short agreement and the main provisions thereof as are relevant for our purposes may be set out: