1998 (3) TMI 72 - HC - Income Tax

Summary

Issues:
Interpretation of section 9(1)(vii) of the Income-tax Act, 1961 regarding the taxability of technical service fees paid by BHEL to Sulzer Brother Ltd.'s engineering personnel.

Analysis:
The judgment pertains to a case where the Commissioner of Income-tax, Tamil Nadu-V, Madras, sought a direction from the Tribunal to state a case and refer a common question of law regarding the taxability of technical service fees paid by BHEL to Sulzer Brother Ltd.'s engineering personnel. The Tribunal rejected the reference application, stating that the question challenged the finding of fact that the agreement was concluded before April 1, 1976, and thus cannot be referred as a question of law. The key provision in question is section 9(1)(vii) of the Income-tax Act, which deals with income by way of fees for technical services. The provision includes an exception stating that it does not apply to fees for technical services payable in pursuance of an agreement made before April 1, 1976, and approved by the Central Government.

In this case, the collaboration agreement between BHEL and Sulzer Brother Ltd. was dated January 29, 1976, and approved by the Central Government on March 4, 1976. The agreement specified that technical services would be paid for by BHEL as per mutually agreed terms. The court emphasized that the fees for technical services were payable only pursuant to the agreement dated January 29, 1976, which was approved before April 1, 1976, as required by the provision in section 9(1)(vii) of the Income-tax Act.

The court further highlighted that even though the actual payment of fees could occur beyond April 1, 1976, it was still related to the agreement that came into existence before the specified date. Therefore, the Tribunal's decision to reject the reference application was deemed justified as the question at hand involved a finding of fact rather than a question of law. The court concluded by dismissing the tax case petitions, stating that there would be no order as to costs in the circumstances of the cases.