1983 (1) TMI 142 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of technical services rendered by a foreign company to an Indian company for the assessment year 1976-77.
2. Appointment of the Indian company as an agent of the foreign company for the assessment year 1978-79.
3. Computation of income attributable to services rendered in India.

Issue-wise Detailed Analysis:

1. Taxability of Technical Services for Assessment Year 1976-77:
The primary issue is whether the technical services rendered by the foreign company to the Indian company are taxable for the assessment year 1976-77. The assessee argued that the services were mostly rendered abroad and were not taxable in India during the assessment year 1976-77. They contended that the specific clause making such services taxable was introduced only with effect from 1-6-1976 by the Finance Act, 1976, and that the income, if taxable, should be exempt under the proviso to clause (vii) of sub-section (1) of section 9 of the Income-tax Act, 1961, as the agreement was made before 1-4-1976 and approved thereafter.

The Income Tax Officer (ITO) proposed a protective assessment for the assessment year 1976-77, taxing the entire receipt subject to nominal deductions for expenses. The first appellate authority held that the protective assessment should be taken as the real assessment, as the income had accrued to the assessee during the year. The Tribunal found that although there was no formal agreement, the draft agreement had been acted upon by both parties, and there was a clear approval by the relevant Ministry. The Tribunal concluded that the relationship between the assessee and the foreign company constituted a business connection, and some income had arisen in India. However, it disagreed with the ITO's basis for taxing the entire amount receivable by the foreign company, noting the need to consider the certificate from professional public accountants for computation.

2. Appointment of the Indian Company as an Agent for Assessment Year 1978-79:
The revenue appealed against the first appellate authority's decision to cancel the order under section 163 for the assessment year 1978-79, arguing that the Indian company should be treated as an agent of the foreign company. The Tribunal upheld the first appellate authority's decision, noting that there was no taxable event during the year. The services were rendered in the period relevant to the assessment year 1976-77 and largely in the assessment year 1977-78. Since no income had accrued during the assessment year 1978-79, the question of appointing an agent was deemed academic. Moreover, the time limit for making an assessment on an agent under section 148 of the Act had already lapsed.

3. Computation of Income Attributable to Services Rendered in India:
The Tribunal addressed the computation of income attributable to services rendered in India. It noted that the ITO's method of taxing the entire amount receivable by the foreign company was untenable. The Tribunal emphasized the need to consider the certificate from professional public accountants, which provided a basis for allocation. The ITO was directed to consider the issue afresh in accordance with law, taking into account the certificate and other relevant materials.

The Tribunal also considered the assessee's claim that the fees were not taxable in law for the assessment year 1976-77. The Tribunal concluded that the proviso to clause (vii) of sub-section (1) of section 9, which exempts fees for technical services payable under an agreement made before 1-4-1976 and approved by the Central Government, would apply from the assessment year 1977-78 and not for the assessment year 1976-77. The Tribunal highlighted the need for the ITO to consider all facts and law relating to the assessment afresh.

Conclusion:
The Tribunal confirmed the first appellate authority's order for the assessment year 1976-77, setting aside the assessment and allowing both parties to go into all the facts and law relating to the assessment afresh. For the assessment year 1978-79, the Tribunal upheld the first appellate authority's decision, dismissing the departmental appeal and confirming that no taxable event had occurred during the year, making the appointment of an agent academic. Both appeals were dismissed in the manner indicated.