TaxTMI 
TaxTMI 
2003 (2) TMI 35
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....thy packing, sale, delivery f.o.b., and furnishing performance guarantee, etc." Part I of the contract furnishes the technical specifications of the combined drawings, etc., machines to be supplied by Schumag GmbH. Part II of the contract deals with the mode of payment, the security deposit, shipping instructions, nature of shipping documents to be furnished, insurance and all the equipments shall be guaranteed by the contractor for workmanship and material and satisfactory performance in accordance with the relevant clauses of the invitation to tender and general conditions of contract. Further a separate contract was also entered into between the parties for providing technical services covering supervision of erection, start-up, putting into commission, etc. For the purpose of providing the technical services, the non-resident had to send on deputation their employees, who are specialists to India. The relevant clause is as under: "For the deputation of the specialists according to clause 2.0 above, the purchaser will reimburse the contractor at the rate of DM 475 (Deutsche Marks four hundred seventy five only) per specialist per working day of stay at purchaser's plant....
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....passed by the Assessing Officer, in the case of non-resident companies represented by Midhani, appeals have been filed before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) held that the contracts were only for purchase of two machines along with various accessories and spares, and for setting up of the machinery in India, the non-residents had to depute their employees and the amount remitted by Midhani was towards reimbursement of expenses. The reimbursement was made as per the terms of "supplemental contract" which required the non-resident to provide necessary services for supervision of the erection, start-up etc., of the machinery supplied. The Commissioner of Income-tax (Appeals) after referring to Explanation 2 to section 9(1)(vii) observed that such payments would not be considered as technical fees. He also held that there was no business connection between the non-residents and Midhani that the services rendered by technical personnel were connected with the effective fulfilment of the contract of sale and were merely incidental to such contract for sale. He also relied on the decision of this court in CIT v. Visakhapatnam Port Trust [....
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....e, the Income-tax Appellate Tribunal was correct in law in holding that the contract/agreement between the non-resident and Midhani stipulating payment for the purpose of deputing technicians to India for erection, start-up, putting into commission, conducting performance tests and demonstration of performance of the machinery supplied f.o.b. by the non-resident under another contract did not bring about a business connection for the non-resident in India within the meaning of section 9(1)(i) of the Income-tax Act? 2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that the words in parenthesis, viz., 'including the provision of services of technical or other personnel' occurring in Explanation 2 to section 9(1)(vii) though coming under the term 'fees for technical services' do not cover the fees/payments received by the non-residents for erection, start up and commissioning the machinery supplied by it f.o.b. and also that description of the services rendered in the agreement as 'technical services' is not significant? 3. Whether, on the facts and in the circumstances of the case, the Income-tax Appe....
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....d August 23, 1977, including subsequent modifications as incorporated in the contract documents." Part I of the contract furnishes the technical specifications of the combined drawings, etc., machines to be supplied by Schumag GmbH as per clause 2.1.1 of Part II page 2, of the contract. Part II of the contract also deals with the mode of payment, the security deposit, shipping instructions, nature of shipping documents to be furnished, insurance, etc. As per clause 2.12.1 of Part II of the contract, all the equipments shall be guaranteed by the contractor for workmanship and material and satisfactory performance in accordance with the relevant clauses of the invitation to tender and general conditions of contract. As per clause 2.13 of Part 11. "A separate contract is entered into among the purchaser, the contractor and their Indian agent's, namely, Orient Engg. and Commercial Co. Ltd., Calcutta-1, for complete erection and supervision of erection, start-up putting into commission including performance tests of the equipment supplied under this contract. Notwithstanding the conclusion of the aforesaid separate contract, the contractor is solely responsible under this contr....
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.... question No. 5 does not arise, since it was not put in issue at any point of time during the proceedings before the authorities. Apart from this, he submits, that the very same question had come up for consideration before the Income-tax Appellate Tribunal in I.T.A. Nos. 130 to 167/Hyd. of 1988, dated December 29, 1995, and it was held that Midhani has a right to file an appeal, and therefore, the earlier finding that Midhani was not the agent of the non-resident company and it was under a mistaken impression that it could substitute itself for the non-resident company and that the return which Mishra Dhatu Nigam Limited have filed for the non-resident company was non est was reversed. Thus, question No. 5 can be ignored. In so far as questions Nos. 1 to 4 are concerned, they are interconnected and overlapping, hence they may be simplified as under: "1. Whether the assessee has income accruing and arising in India which is chargeable under section 5(2) of the Income-tax Act? 2. If section 5(2) is not applicable then is there any business connection and the income accrued could be deemed to be under section 9(1)(i) of the Income-tax Act? 3. Even if section 9(1)(i) of th....
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.... technical cooperation in the erection of the Plate and Vessels Plant at Visakhapatnam. As stated earlier, the price payable for the documentation was Rs. 30,00,000 and for consulting activity, Rs. 11,91,735. It is no doubt true that, so far as the machinery, equipment and instruments, etc., are concerned, the sales took place outside the territory of India. It is clearly mentioned in the agreement that the delivery of machinery, equipment and instruments, etc., shall be completed f.o.b. European Port, and the time of fulfilment of delivery is the date of the bills of lading. These make it clear that the goods were sold on 'f.o.b., European Port' basis. Hence, so far as machinery is concerned the sale took place outside the territory of India. But on a combined reading of both the agreements there is a business connection between the non-resident and the assessee. There is a real and intimate connection between the trading activity within the taxable territories and this relation amounts to a business connection through or from which income accrued or arose to the non-resident." After elaborate discussion, it was held that: "whether a non-resident has a business connection in In....
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....dance with proposals approved by the Central Government before that date. Explanation 2.--For the purposes of this clause, 'fees for technical services' means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction assembly, mining or like project undertaken by the recipient or consideration, which would be income of the recipient chargeable under the head 'Salaries'." Counsel for the respondents further argued that the judgments cited by the Revenue are related to the assessment years prior to the introduction of section 9(1)(vii) of the Income-tax Act, and as such, they cannot be looked into, as that was not the law governing the field after amendment of section 9. Counsel for the respondents emphatically placed reliance on Explanation 2 of the said section 9(1)(vii) of the Income-tax Act. He submitted that in fact there was no business connection between the non-resident company and Midhani. The non-resident companies have only extended the technical services, which are part ....
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..... Since section 9(1)(vii) will comprehend income by way of fees for technical services rendered as a result of business connection or otherwise, it is not possible to apply the provision in section 9(1)(i) merely because section 9(1)(vii) stands excluded as a result of the proviso. If such a contention as is put forward by the Revenue is accepted, then in respect of cases arising after April 1, 1976, when the proviso will have no application, there will be two provisions operating in the same field in respect of fees for technical services. Such a construction should normally be avoided. We are, therefore, of the view that the income by way of fees for technical services either arising out of business connection or not will have to be treated as coming only under section 9(1)(vii) and not under section 9(1)(i)." He further relied upon the judgment rendered in Meteor Satellite Ltd. v. ITO [1980] 121 ITR 311 (Guj), wherein it was held that: "The novation or tripartite agreement was binding between the foreign collaborator and the petitioner and that agreement was made before April 1, 1976. The Government had accepted that the agreement of September 26, 1974, should be deemed to....