1987 (4) TMI 125 - AT - Income Tax

Summary

Issues Involved:
1. Limitation period for revising assessment orders.
2. Taxability of payments made to foreign technicians.
3. Employer-employee relationship between BHEL and foreign technicians.
4. Applicability of Double Taxation Avoidance Agreements (DTAA).
5. Eligibility for exemption under section 10(6)(vi) of the Income-tax Act.

Detailed Analysis:

1. Limitation Period for Revising Assessment Orders:
The first contention raised by the assessees was regarding the limitation period for revising the assessment orders. The assessment orders were passed on 21-03-1983, and the period of limitation expired on 20-03-1985. However, the Commissioner passed the revisional orders on 26-03-1985. The Tribunal held that the amendment to Section 263(2) by the Taxation Laws (Amendment) Act, 1984, effective from 01-10-1984, extended the limitation period. The Tribunal concluded that the revised orders were not time-barred as the limitation period should be computed from the end of the financial year in which the order sought to be revised was passed, i.e., 31-03-1985.

2. Taxability of Payments Made to Foreign Technicians:
The assessees argued that the payments made by BHEL to foreign collaborators for the services of foreign technicians were not taxable as salaries. The Tribunal examined the agreements and found that the payments were made for technical services under Section 9(1)(vii) of the Income-tax Act, which were exempt from tax if the agreements were made before 01-04-1976 and approved by the Central Government. The Tribunal held that the payments made to foreign technicians were part of the technical know-how fee or royalty and not salaries.

3. Employer-Employee Relationship Between BHEL and Foreign Technicians:
The Tribunal found no employer-employee relationship between BHEL and the foreign technicians. The agreements indicated that the technicians were employees of the foreign collaborators and not BHEL. The Tribunal relied on the Calcutta High Court decision in N. Sciandra v. CIT, which held that the relationship of employer and employee had not been established between the Corporation and the foreign technicians. The Tribunal concluded that the foreign technicians were not receiving salaries from BHEL and, therefore, the payments could not be taxed as salaries.

4. Applicability of Double Taxation Avoidance Agreements (DTAA):
The Tribunal considered the provisions of the DTAA with Germany and Italy. Article XII(3)(b) and (c) of the DTAA with Germany and Article 16 of the DTAA with Italy were examined. The Tribunal found that the remuneration derived by the foreign technicians was subject to tax in their respective countries and not in India. The Tribunal concluded that the DTAA provisions applied to the foreign technicians, exempting their income from Indian tax.

5. Eligibility for Exemption Under Section 10(6)(vi) of the Income-tax Act:
The Tribunal also considered the exemption under Section 10(6)(vi) of the Income-tax Act, which applies to foreign technicians whose stay in India does not exceed 90 days in a previous year. The Tribunal found that five assessees whose stay in India was less than 90 days were entitled to this exemption. The Tribunal held that the foreign technicians were eligible for exemption under Section 10(6)(vi) as the foreign collaborators were not engaged in any trade or business in India.

Conclusion:
The Tribunal allowed the appeals, set aside the orders of the Commissioner, and held that the payments made to the foreign technicians were not taxable as salaries. The Tribunal concluded that the payments were part of the technical know-how fee or royalty, exempt under Section 9(1)(vii), and the foreign technicians were eligible for exemption under the DTAA and Section 10(6)(vi) of the Income-tax Act.