1998 (10) TMI 51 - HC - Income Tax

Summary

Issues Involved:
The judgment addresses questions related to the taxation of fees for technical services under section 9(1)(vii) of the Income-tax Act, the treatment of incidental expenses, and the grossing up of income for tax calculation purposes.

R.C. No. 71 of 1990:
The Tribunal referred questions regarding the taxation of fees for technical services and the treatment of incidental expenses. The non-resident company provided technical services for erecting conveyor belts, and the Income-tax Officer deemed the fees taxable under section 9(1)(vii) of the Act. The Tribunal upheld the taxability of the fees and excluded air fare from taxation. The issue of grossing up income for tax calculation was also raised.

The court analyzed that fees for technical services are taxable under section 9(1)(vii) of the Act unless they involve construction activities. The argument that the supervisors were engaged in construction was dismissed, affirming the taxability of the fees. Additionally, the air fare provided by NMDC was considered a taxable perquisite under section 17(2)(iii)(c) of the Act.

Regarding the grossing up of income, the court noted conflicting views among different High Courts. While previous judgments were cited, the court emphasized the relevance of section 2(24)(iva) of the Act, requiring the addition of tax paid by the representative assessee to the income for tax calculation. The court disagreed with the previous stance on grossing up income and ruled in favor of including the tax element paid by NMDC in the income calculation.

R.C. No. 149 of 1990:
Similar issues were raised in this case concerning the taxation of fees for technical services and the treatment of incidental expenses. The court's analysis and conclusions mirrored those of R.C. No. 71 of 1990, affirming the taxability of the fees and the inclusion of the tax element in income calculation for grossing up purposes.

In conclusion, the court answered the questions in R.C. No. 71 of 1990 in favor of taxability of fees for technical services and inclusion of air fare as a taxable perquisite. The court also ruled in favor of grossing up income by adding the tax element paid by NMDC. The judgment provided clarity on the interpretation of relevant tax provisions and their application in determining taxable income.