1989 (8) TMI 121 - AT - Income Tax

Assessment Year Collaboration Agreement Deemed Accrual Foreign Technician Indian Company

Issues Involved:
1. Whether the payments made by the Indian company to the foreign collaborators for the services rendered by the foreign technicians should be considered as salary income in the hands of the technicians.
2. Applicability of Section 10(6)(vi) of the Income-tax Act, 1961.
3. Applicability of the Double Taxation Avoidance Agreements between India and Italy, and India and West Germany.

Detailed Analysis:

1. Nature of Payments: Salary or Technical Fees

The primary issue was whether the payments made by M/s. Bharat Heavy Electricals Ltd. (BHEL) to the foreign collaborators (M/s. Nuovo Pignone of Italy and M/s. Siemens of West Germany) for the services rendered by their technicians should be considered as salary income in the hands of the technicians. The Tribunal examined the collaboration agreements and found that the payments made by BHEL to the foreign collaborators were stipulated as fees for technical services, not as salaries to the individual technicians. The Tribunal noted that there was no privity of contract between the foreign technicians and BHEL, and the payments were made to the foreign collaborators as per the terms of the agreements. Consequently, the Tribunal held that these payments should be considered as fees for technical services rather than salary income.

2. Applicability of Section 10(6)(vi) of the Income-tax Act, 1961

The appellants contended that the provisions of Section 10(6)(vi) of the Income-tax Act, 1961, which exempts remuneration received by a non-citizen employee of a foreign enterprise for services rendered in India if the stay does not exceed 90 days, should apply. The Tribunal agreed with this contention, stating that the foreign technicians' stay in India did not exceed 90 days in the relevant previous years. The Tribunal also noted that the foreign enterprises were not engaged in any trade or business in India, and the remuneration was not liable to be deducted from the income of the employer chargeable under the Act. Therefore, the Tribunal concluded that the exemption under Section 10(6)(vi) was applicable.

3. Double Taxation Avoidance Agreements

The Tribunal also considered the Double Taxation Avoidance Agreements (DTAA) between India and Italy, and India and West Germany. The agreements provided that the income of the foreign technicians would not be taxable in India if their stay did not exceed 183 days in the relevant previous year. The Tribunal found that the stay of the foreign technicians in India did not exceed 183 days. Consequently, the Tribunal held that the payments made to the foreign technicians were not taxable in India under the provisions of the DTAA.

Conclusion:

The Tribunal concluded that the payments made by BHEL to the foreign collaborators for the services rendered by the foreign technicians should be considered as fees for technical services and not as salary income. The Tribunal also held that the exemption under Section 10(6)(vi) of the Income-tax Act, 1961, was applicable, and the payments were not taxable in India under the provisions of the Double Taxation Avoidance Agreements. Accordingly, the Tribunal allowed the appeals and set aside the impugned orders passed by the Appellate Assistant Commissioner.

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