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Issues involved: Challenge to order u/s 264 of Income-tax Act, 1961 regarding accrual of income in India to foreign supplier and tax liability under section 195.
Summary: The High Court of Calcutta heard a case where the petitioner challenged an order by the Commissioner of Income-tax u/s 264 of the Income-tax Act, 1961. The Commissioner held that the contract for supply of a belt vulcanizing press resulted in income accrual in India to the foreign supplier with unpaid taxes. The petitioner contended that the issue was governed by the Agreement for Avoidance of Double Taxation between India and the Federal German Republic, and the Commissioner's approach was erroneous. The petitioner argued that the German firm had the responsibility for constructing the machine, and the services provided by German technicians in India were in connection with the contract for the press, not personal services as per the tax agreement. The Court agreed with the petitioner, stating that the services rendered in India cannot be considered personal services, even if they were part of a separate agreement. In the judgment, the Court ruled in favor of the petitioner, holding that the supplier's establishment in Germany where the press was manufactured, along with services in India, did not constitute personal services. The Court made the rule absolute, granting the requested order for refund within three months from the date of the order communication.
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