1997 (1) TMI 479 - AT - Income Tax

Procurement services did not involve imparting of any information concerning industrial commercial or scientific experience and hence were not FTS or royalty.

Issues Involved:
1. Nature of receipt by the assessee from the Indian concern.
2. Deduction under section 80VV of the Income-tax Act.
3. Charging of interest under section 217 of the Income-tax Act.
4. Assessability of the amount receivable under the Ammonia Service agreement.
5. Applicability of Double Taxation Agreement between India and West Germany.
6. Taxability of engineering fees under Methanol Agreement.
7. Classification of receipts as 'fees for technical services' or 'commercial profit'.

Detailed Analysis:

1. Nature of Receipt by the Assessee from the Indian Concern:
The primary dispute was whether the 4% procurement charges received by the assessee from the Indian concern should be classified as 'royalty' or 'fees for technical services'. The Assessing Officer categorized it as royalty, citing section 9(1)(vi) and Explanation 2 of the Income-tax Act, arguing that the procurement involved industrial and scientific experience. However, the CIT(A) split the charges into 50% 'fees for technical services' and 50% 'industrial and commercial profit'. The Tribunal held that the procurement fees were purely for commercial services and thus, classified the entire amount as 'commercial profit' under Article III of the Double Taxation Agreement between India and West Germany. The Tribunal rejected the Assessing Officer's classification of the fees as royalty and held that the CIT(A)'s bifurcation was incorrect since the procurement services did not constitute imparting technical know-how.

2. Deduction under Section 80VV of the Income-tax Act:
The assessee claimed a deduction of Rs. 5,000 under section 80VV. The Tribunal rejected this claim, stating that since the profits were assessed at a flat rate of 20% on the gross amount, there was no room for a separate deduction under section 80VV.

3. Charging of Interest under Section 217 of the Income-tax Act:
The Tribunal addressed the issue of charging interest under section 217 for the assessment years 1984-85 and 1986-87. It was held that since the entire income of the assessee was subject to tax deductible at source under section 195, no interest under section 217 could be charged. This conclusion was supported by a precedent set in the case of Siemens Aktiengesellschaft v. IAC.

4. Assessability of the Amount Receivable under the Ammonia Service Agreement:
The assessee contested the assessability of DM 99,773, claiming only DM 81,207 was receivable. The Tribunal dismissed this contention, stating that the entire billed amount of DM 99,773 accrued to the assessee as per the agreement, and any adjustments for non-recovery should be claimed in the year when recovery became impossible.

5. Applicability of Double Taxation Agreement between India and West Germany:
The Tribunal upheld that the definitions of 'royalty' and 'fees for technical services' as provided in the Double Taxation Agreement between India and West Germany would prevail over the definitions in the Income-tax Act. This was in line with the decisions of the Andhra Pradesh High Court in Visakhapatnam Port Trust's case and the Calcutta High Court, supported by a Board Circular.

6. Taxability of Engineering Fees under Methanol Agreement:
The Tribunal referenced its earlier order in the case of Sandvik A B Sweden, concluding that the engineering fees under the Methanol Agreement were chargeable at a 20% tax rate. The Tribunal rejected the distinction between lump-sum consideration and lump-sum payment made by the assessee.

7. Classification of Receipts as 'Fees for Technical Services' or 'Commercial Profit':
The Tribunal concluded that the procurement fees were purely commercial and did not constitute 'fees for technical services'. It was held that the procurement activities did not involve imparting technical know-how or managerial services but were simple commercial transactions. Thus, the entire amount was classified as 'commercial profit' and exempt from income tax in India under the Double Taxation Agreement.

Conclusion:
The Tribunal partly allowed the assessee's appeals and dismissed the revenue's appeals, providing a clear interpretation of the nature of receipts, deductions, and interest charges under the relevant sections of the Income-tax Act and the Double Taxation Agreement.

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