SUTRON CORPORATION Vs. STATE

JUDGEMENT

(1.) THE applicant, M/s Sutron Corporation, Virginia, USA, is a non-resident company. In response to the tenders floated in three packages by the Government of Andhra Pradesh, India (for short GOAP) in respect of the project for installation of remote stations ("the project"), the applicant prepared and signed proposals in USA and submitted the same. THE GOAP awarded contract for package-2 and package-3 to the applicant. We are not concerned with package 1 which was awarded to some third party. Accordingly, the applicant through its authorized country manager (Mr. Naresh Goel) at Hyderabad, entered into two contracts with the "GOAP"-the first on 14th June, 2002, for supply, installation and commissioning of gauging equipment and associate systems and ancillary services termed as Package-3 and the second on 25th June, 2002, for supply of installation and commissioning of Satellite Telemetry and associated systems and ancillary services termed as package-2. THE contracts relate to supply of foreign equipments and providing local material and services including internal insurance, custom clearance, inland transportation, civil and mechanical works, installation, commissioning, acceptance and warranty for two years and annual maintenance for a period of four years for the consideration specified in the contracts. Each contract comprises of two parts (1) supply of goods and erection of three to six specimen remote stations and on-the-spot training of personnel, and (ii) providing local material and services, etc. In regard to the first part of the contract, the goods were delivered to the Air India in USA which was appointed as carriers on the instructions of the GOAP which bore the cost of insurance and freight. THE documents of title were sent by courier to SBH at Hyderabad. In regard to the second part of the contracts, it is stated that a Memorandum of Understanding was executed between the applicant and M/s Arraycom (India) Limited (for short "Arraycom") for supplying all local integration material, providing local and other services and also for giving warranty services for the said period of 2 years and AMC services for a total of 4 years for which Arraycom will recover the cost from the applicant. THE MOU was submitted along with bid documents to GOAP. THE consideration for the first part is payable to the applicant for both the packages in US dollars in USA and the consideration for the second part is payable in Indian rupees in India. THE payment is required to be made by GOAP as follows :

(2.) In his comments, the jurisdictional CIT, the Director of IT (International Taxation), Delhi, states that : the applicant appointed Mr. Naresh Goel as its country manager in India. He collects information about the invitation of tenders by various concerns in India including the Central and the State Governments for supplying data about the environmental monitoring and control systems such as weather, floods, cyclone, forecast system; in response to the tenders floated by GOAP, he submitted proposals which were approved and prepared by the applicant at Virginia, USA; he collects information as to whether the tender is awarded to the applicant and conveys the same to the applicant; he has authorization of the applicant to submit bids and sign contracts with the GOAP after obtaining due approval from them. The applicant has an office for its operations in India and Mr. Goel is the country manager for rendering various duties referred to above. Therefore, the applicant has business connection for the purpose of Section 9(1)(i) of the Income-tax Act (for short "Act") and he is also a dependent agent of the applicant within the meaning of Article 5 of the Double Taxation Avoidance Agreement (DTAA) concluded between India and USA. As the applicant has an agent in India, the income, under the contract aforementioned, is deemed to accrue or arise in India under Section 9(1)(i) of the Act. Further, the applicant has permanent establishment in India and a dependent agent--Mr. Naresh Goel. Thus, the requirements of Article 5 of DTAA, concluded between Republic of India and the Government of the USA are fulfilled. It is further stated that, on the facts stated in the application, it is not possible to find out as to what would be the portion of the net income in the total receipts of the applicant which would be taxable and it has to be ascertained on the basis of the facts. Mr. Goel, the country manager, entered into agreement with the applicant on 4th Dec., 2000, describing himself an independent consultant and not an employee. He receives a fixed remuneration of $ 3,000 per month for his professional services. He is also paid the following expenses :

(3.) BEFORE adverting to the rival contentions of the parties, it may be pointed out that the answer to the second question is germane to any ruling on the first question. The present discussion will cover both the questions. In this backdrop, the short question that needs to be addressed is: whether any income/profit accrues or arises, or deemed to accrue or arise to the applicant in India from the sale of machinery/equipment and providing of services under the contracts with GOAP.