TaxTMI 
TaxTMI 
2010 (5) TMI 602
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....stance. By an agreement dated October 22, 1989 (for short "the BEAT agreement"), petitioner No. 2 agreed to render to petitioner No. 1 outside India certain engineering and other related services in relation to the sponge iron plant. By another agreement (the supervisory agreement), petitioner No. 2 agreed to provide certain supervisory services to petitioner No. 1 in India. By the BEAT agreement petitioner No. 2 was to prepare basic engineering drawings specifications, calculations and other documents and design and also prepare monthly schedule of non-Indian activities outside India. "Petitioner No. 2 was to deliver to the authorized representative of petitioner No. 1 the designs, drawings and data outside India. Petitioner No. 2 also agreed to train outside India certain number of employees of petitioner No. 1 in order to make available to such employees scientific knowledge, technical information, expertise and technology necessary for commissioning, operation and maintenance of the sponge iron plant. As a consideration, petitioner No. 1 agreed to pay to petitioner No. 2 a sum of US$ 16,231,000, net of Indian income-tax, if any, leviable. Other terms and conditions of the agree....
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....ar 1990-91, petitioner No. 2 submitted its return of income on March 31, 1992, under the Act declaring the total income at "nil" contending that income earned by it under the BEAT agreement was not deemed to have accrued or arisen in India as it had no territorial, nexus with India. Petitioner No. 2 took credit for TDS of Rs. 2,73,73,084 and claimed its refund. By an order dated November 31, 1992, respondent No. 3 negatived the contention of petitioner No. 2 and charged it to tax holding that the amount received by it under the BEAT agreement was an income deemed to have arisen in India. Similarly, for the assessment year 1991-92 the petitioner filed its return of income on October 27, 1992, declaring income of Rs. 83,54,810 for supervisory services in terms of the supervisory agreement and declaring "nil" income in respect of the amount received by it under the BEAT agreement as it did not arise in India. Petitioner No. 2 claimed credit of the TDS of Rs. 2,81,83,272 and claimed its refund. By an order dated March 16, 1993, respondent No. 3 rejected the claim of petitioner No. 2 for refund in respect of the TDS deducted by petitioner No. 1 under the BEAT agreement and completed the....
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....ikawajima [2007] 288 ITR 408, the hon'ble Supreme Court has only interpreted section 9(1)(vii)( c) of the Income-tax Act and that decision was not applicable to the present case as the income earned by way of a fee by petitioner No. 2 from petitioner No. 1 was taxable under section 9(1)(vii)(b) of the Act. The respondents were therefore right in treating the amount paid by petitioner No. 1 to petitioner No. 2 under the BEAT agreement as an income deemed to be received by petitioner No. 2 as taxable under section 9(1)(vii)(b) of the Act. He further submitted that all the income received by a non-resident by way of a fee for technical services payable by a resident would be deemed to be earned by the non-resident in India unless it fell within the exception provided in sub-clause (b) of section 9(1)(vii) itself. 8. Before we proceed to consider the rival submissions of the parties, it is necessary to clarify that the petitioners are not challenging the assessment to tax the income received by way of fee by petitioner No. 2 from petitioner No. 1 under the supervisory services agreement. They do not dispute that the services under supervisory services were rendered by petitioner No.....
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....in reading of section 5(2) of the Act. The legal fiction created although in a given case may be held to be of wide import, but it is trite that the terms of a contract are required to be construed having regard to the international covenants and conventions. In a case of this nature, interpretation with reference to the nexus to tax territories will also assume significance. Territorial nexus for the purpose of determining the tax liability is an internationally accepted principle." 10. Section 9(1) of the Income-tax Act lists the incomes which shall be deemed to accrue or arise in India. For the purpose of ascertaining which incomes accrue or arise or are deemed to have accrued or arisen to a non-resident in India, aid would have to be taken of section 9 of the Act. The relevant clause, for our purpose is clause (vii) of sub-section (1) of section 9 of the Act which reads thus : "9. (1) The following incomes shall be deemed to accrue or arise in India : . . . (vii) income by way of fees for technical services payable by- (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilised i....
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....accrued or arisen to the recipient in India. The three classes of payees are described in three sub-clauses, viz. (a), (b) and (c) of clause (vii). Sub-clause (a) is in respect of an income received by way of fees payable by the Government. Sub-clause (b) is regarding the income by way of fees payable by a person who is a resident in India and sub-clause (c) is in respect of an income by way of fees payable by a person who is a non-resident. So far as sub-clause (a) is concerned, it admits of no exception and every rupee received as an income by way of fees for technical services paid by the Government to him is deemed to have accrued or arisen to the recipient in India. So far as sub-clause (b) is concerned, income by way of fees for technical services payable by a person who is a non-resident is deemed to have accrued or arisen to the recipient in India "except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purpose of making or earning any income from any source outside India. The expression "by such person" appearing in section 9(1)(vii)(b), in our opinion refer to the recipient of the inc....
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....-resident and non-citizen) outside Indian territory. However, if the expression "such person" appearing in sub-clause (b) of section 9(1) (vii) is construed to refer to the recipient of the fees, then he would be covered by the exception and not liable to pay Indian income-tax. 13. If we apply sub-clause (b) of section 9(1) (vii) of the Act so construed to the facts of the case at hand, the fees received by petitioner No. 2 for technical services from petitioner No. 1 would fall within the exception carried out by sub-clause (b) of section 9(1)(vii) of the Act and not taxable in India. 14. Mr. Suresh Kumar, learned counsel for the respondents submitted that in Ishikawajima [2007] 288 ITR 408 the Supreme Court had only considered sub-clause (c) of section 9(1)(vii) of the Act. Inviting our attention to the observations made in paragraphs 91 and 95 (at pages 444 and 445 of ITR) as also the observations made in sub-para 7 (at pages 447 of the ITR) he submitted that the decision in Ishikazvajima [2007] 288 ITR 408 is no authority for interpretation of sub-clause (b) of section 9(1) (vii) of the Act and we cannot apply the ratio of the decision of Ishikawajima [2007] 288 ITR 408 t....
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....r 19, 2008 (Coram : Dr. S. Radhakrishnan and V.C. Daga JJ.). In paragraph 44 of the decision, after referring to the Ishikawajima [2007] 288 ITR 408 this court observed (page 250) : "Reading the provision in its plain sense, as per the Apex Court it requires two conditions to be met-the services which are the source of the income that is sought to be taxed, has to be rendered in India, as well as utilized in India, to be taxable in India. Both the above conditions have to be satisfied simultaneously. Thus, for a non-resident to be taxed on income for services, such a service needs to be rendered within India, and has to be part of a business or profession carried on by such person in India." 17. In that case also this court was considering the taxability of income of a non-resident falling under sub-clause (b) of section 9(1)(vii) of the Act. 18. In Jindal Thermal Power Company Ltd. v. Deputy CIT (TDS) [2009] TLOC 302 ; [2010] 321 ITR 31 (Karn), a Division Bench of the Karnataka High Court has also taken the same view and has held that for the purpose of taxing in India the income earned by a non-resident, the twin criteria of rendering services in India and the utilizatio....