TaxTMI 
TaxTMI 
1986 (1) TMI 159
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 195 of the Income-tax Act, 1961 ('the Act') passed by the assessing officer in respect of Mr. S.C. Czerniak and Mr. E.D. Porter. In these two appeals we are concerned only with that order of the assessing officer and the corresponding appellate order. 3. The assessee-company had entered into a technical collaboration agreement on 18-1-1979 with Ferro Corporation of USA. Under this agreement, the assessee had to make certain payments to the foreign company in respect of the visits of the aforesaid two persons during their visit to India. The payments made to these two persons amounted to US dollars 8,392. The assessee-company made a petition dated 27-3-1981 under section 195(2) to the assessing officer requesting to determine the appr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng officer held that the entire payment formed a part of the consideration for rendering the technical services under the aforesaid agreement. Consequently, he held that the aforesaid sum of US dollars 8,392 represented technical fees received by the foreign company through its nominees and directed the assessee to deduct tax at 40 per cent thereof in accordance with the provisions of section 115A of the Act. 4. The assessee appealed to the Commissioner (Appeals) and contended that the order of the assessing officer was erroneous. The Commissioner (Appeals), however, agreed with the assessing officer that the claim of the assessee to the effect that the entire payment is exempt from tax was not acceptable. However, he directed that the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eady incurred in order to earn the income and so they have rightly been held by the Commissioner (Appeals) as not taxable under the Act. 6. On the other hand, Mr. B. Mishra, the learned representative for the department, not only supported the order of the Commissioner (Appeals) but also urged that the Commissioner (Appeals) erred in directing to reduce the aforesaid payment by the amount of air fare and incidental charges. He stated that the decision in the case of J. Jenkin Thomas was concerned with the income under the head 'Salaries' whereas the case of the department in the present case is that the payment made by the assessee to the aforesaid two persons was not salary. The amount paid was under the agreement as directed by the for....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the aforesaid payments are liable to tax, either wholly or in part, under the Act. We have gone through the agreement dated 18-1-1979. The preamble of the agreement as well as clause 2 of the agreement clearly show that it is a technical collaboration agreement. The foreign company is to provide the technical know-how for the production of crude silicon carbide by use of electric furnaces. Clause 3 of the agreement says that the lump sum consideration payable by the assessee was US dollars 1.5 lakhs. Over and above the said payment, the assessee-company can request for certain services to be rendered at its factory site in India. This contingency is envisaged and provided for in clause 8 of the agreement. This clause says that if the requ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 9(1)(ii) does not come into play at all. The definition of 'technical fees' given in Explanation 2 to section 9(1)(vii) also supports this conclusion. Any amount paid for rendering managerial, technical or consultancy services has been defined to be technical fees. One of the exceptions is the amount paid which becomes chargeable under the head 'Salaries' in the hands of the recipient. We have already held that the amount is not chargeable as salary in the hands of the recipients because they acted as conduit pipes or mere agents and the amounts were constructively received by the principal, because of clause 8(b) read with the letter dated 9-3-1981 of the foreign company. Hence, we come to the conclusion that the entire sum of US dollar....