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Issues involved:
The judgment involves the interpretation of taxability of fees received for engineering and bid evaluation under section 9(1)(vii) of the Income-tax Act, 1961. Summary: The Appellate Tribunal ITAT DELHI considered a case where a non-resident company entered into a technical service agreement with a corporation for expertise and technical assistance in construction and assembly of factories. The company received fees for services rendered in India and the USA. The company claimed that the fee received for engineering and bid evaluation in the USA was exempt from income tax. However, the tax authorities treated the amount as taxable income. The key issue was whether the fee for engineering and bid evaluation is taxable under section 9(1)(vii) when read with Explanation 2. The company argued that 'construction' includes engineering and bid evaluation as a step-in-aid to construction. It contended that bid evaluation and engineering are part of the formulation process, which falls under the exclusion from taxable income as per Explanation 2 of section 9(1)(vii). The department disagreed and supported the tax authorities' decision. The Tribunal held in favor of the company, stating that under section 9(1)(vii) read with Explanation 2, any consideration for construction or assembling projects undertaken by an assessee is excluded from taxable income. Since the services provided were connected to the construction of factories and plants, the fee for engineering and bid evaluation was considered a step-in-aid for construction, making it non-taxable. Consequently, the amount in question was deleted from the computation, and the appeal was allowed.
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