1989 (12) TMI 1 - HC - Income Tax

High Court rules income taxable in India for deputed employees of American company.

The High Court ruled in favor of the Revenue, holding that the sum of Rs. 10 lakhs, or a portion thereof, was taxable in the hands of the assessee and had ... Income Deemed To Accrue Or Arise In India Issues Involved:1. Taxability of Rs. 10 lakhs in the hands of the assessee.2. Determination of whether the income accrued or arose in India.3. Relationship and employment status of personnel deputed by the American company to the Indian company.4. Interpretation of agreements between the American company and the Indian company.5. Remand for determination of the quantum of income accrued in India.Detailed Analysis:1. Taxability of Rs. 10 lakhs in the hands of the assessee:The primary issue was whether the sum of Rs. 10 lakhs paid to the non-resident company (Great Lakes Carbon Corporation) by the Indian company (Graphite India Ltd.) was taxable in India. The Tribunal and the High Court examined the agreements and the nature of services rendered by the American company to determine the taxability of this amount.2. Determination of whether the income accrued or arose in India:The Tribunal held that some part of the Rs. 10 lakhs had accrued or arisen in India due to the services rendered by the American company in India. The High Court upheld this view, noting that the American company had significant involvement in the design, engineering, and supervision of the plant's construction in India. The Court emphasized that 'some part of Rs. 10 lakhs, however slight it may be, would have to be said to have accrued and arisen in India.'3. Relationship and employment status of personnel deputed by the American company to the Indian company:The Tribunal found that the personnel deputed by the American company to the Indian company had not severed their relationship with the American company. The High Court agreed, stating that the employees 'continued to be the employees of Great Lakes even while in service in India.' The Court detailed various clauses from the agreements and correspondence, which showed that the employees were under the control and supervision of the American company, and their salaries and benefits were managed by the American company, even though they were working in India.4. Interpretation of agreements between the American company and the Indian company:The High Court analyzed the agreements dated March 12, 1964, and June 7, 1962, to understand the obligations and services provided by the American company. The Court noted that the American company was responsible for 'design, engineer and supervise' the construction of the plant and provide technical know-how and training. The Court concluded that the American company had rendered significant services in India as per the agreements, which justified the taxability of the income in India.5. Remand for determination of the quantum of income accrued in India:The Tribunal had remanded the case to the Income-tax Officer to determine the exact quantum of the income that had accrued in India. The High Court did not interfere with this decision and noted that the Tribunal had not given any opinion on the amount or quantum of the income. The Court upheld the Tribunal's decision to remand the case for this purpose.Conclusion:The High Court answered the referred question in the affirmative and in favor of the Revenue, concluding that the sum of Rs. 10 lakhs or a part thereof was taxable in the hands of the assessee and had arisen in India. The Court emphasized that the employees of the American company, while working in India, continued to be under the employment and supervision of the American company, thereby justifying the taxability of the income in India. The case was remanded to the Income-tax Officer to determine the precise quantum of income that had accrued in India. There was no order as to costs.