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TMI Blog1982 (9) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... D(a) of the Income-tax Act, 1961 ('the Act'), restricted the expenses claimed to 20 per cent on the quantum of fee earned for services rendered in India by the assessee. While so holding, the IAC rejected the stand taken by the assessee based on Articles XVI and XIX of the Avoidance of Double Taxation Agreement between the Government of the French Republic and the Indian Government which, according to the assessee, entitled it to the deduction of the entire expenses incurred by the assessee-non-resident company in India in connection with the activities performed in India in the shape of providing technical know-how to the above Indian companies. The IAC further held that the amount received by the assessee-non-resident company from each of the aforesaid Indian companies by way of reimbursement of the payments made on behalf of each of those companies, in all Rs. 30,98,000, was to be treated as part of the total income of the assessee-non-resident company. There was, however, no discussion in the assessment order regarding the set off of the brought forward losses and unabsorbed depreciation in the assessment order by the IAC. 4. Aggrieved by the aforesaid assessment, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... States will continue to govern taxation of income in the respective Contracting States except where express provision to the contrary is made in the Agreement. By restricting the permissible expenses within the ceiling laid down by section 44D, the IAC is only giving effect to the provisions of the Tax Laws in force in this country and there is no provision either in the Agreement or in the contracts coming in her way. " 5. Coming to the contention that in applying 20 per cent expense-ceiling, the amounts received in reimbursement of the expenses incurred for and on behalf of the Indian concerns, on which the assessee-non-resident company had not derived any profit or loss, should be deleted from the gross receipt/receipts is concerned, the Commissioner (Appeals) agreed with the assessee by observing as under : " The IAC will, accordingly, work out the assessee's own business receipts by way of technical fees after excluding the same, after due scrutiny. In this connection, the appellant has filed copy of a letter dated 9-5-1980 addressed by the Indian Oil Corporation Ltd. to the appellant, wherein, with reference to the appellant's letter dated 24-4-1980, it has been stated, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Circular No. 333 [F. No. 506/42/81---FTD], dated2-4-1982. 8. The representative for the assessee next on the strength of Article XVI of the aforesaid Agreement urged that the assessee was entitled to the entire and not 20 per cent of the expenditure incurred by the assessee-non-resident in India in connection with the activities performed relating to the technical know-how being provided by it to the aforesaid two Indian companies. The said circular, according to the representative for the assessee, in view of the ratio of the decision of the Supreme Court in the case of Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 was binding on the ITO. In reply, these arguments are controverted by the departmental representative, who basing himself on section 44D(a) urged that the said provision was attracted in the present case and the orders of the tax authorities limiting the expenses to be allowed to the assessee at 20 per cent of the gross amount received from the aforesaid two Indian companies was correct. The departmental representative further urged that Article XVI of the Agreement between the Governments of India and the French Republic did not in any way militate against the meani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjected to tax in India except insofar as such amounts are attributable to the activities actually performed in India. At the hearing it was an admitted position that the amounts paid by way of technical fees by the aforesaid Indian companies to the assessee-non-resident company are attributable to the activities actually performed by the assessee-non-resident company inIndia. As such, the said amounts are subjected to tax in the hands of the assessee-non-resident inIndia. 11. Once we come to the conclusion stated towards the end of the preceding paragraph, the question which next crops up is as to how the income of the assessee-non-resident to be subjected to tax under the Act is to be computed. The answer to this question is provided by the second limb of Article XVI between the Government of India and the Government of theFrenchRepublic. According to that, the income in respect of the amount received by the assessee-non-resident company from the aforesaid two Indian companies by way of technical fees is to be computed for being subjected to tax by deducting from the gross amount so received 'the expenses incurred' in India 'in connection with the activities performed' in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respective Contracting States except where express provisions to the contrary is made in the said agreement. This is otherwise also quite apparent. We say so because the opening words of section 44D supersede a provision, if any, to the contrary contained in sections 28 to 44C of the Act to those contained in section 44D. The said clause in section 44D does not have within its sweep the provisions to the contrary contained in Avoidance of Double Taxation Agreement between the Government of India and the Government of theFrenchRepublicwhich has the force of law in view of section 90. Furthermore, the said circular in view of the ratio of the decision of the Supreme Court in the case of Ellerman Lines (P.) Ltd., is binding on the IAC. We, therefore, hold that a specific provision to the contrary in article XVI, as held by us being a provision to the contrary, will prevail over the provisions of section 44D(a). To say in other words, the provisions of section 44D(a), in view of our findings given above, have to be ignored and the assessee-non-resident company is entitled to the deduction of all the expenses incurred inIndiain connection with the activities by way of technical servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerns had agreed to with the aforesaid Indian company for making available by the former to the latter the services of specialists who were to be paid in accordance with the terms and conditions of the aforesaid agreements and which amounts were paid by the assessee-non-resident pursuant to the obligation undertaken by it in the aforesaid agreement dated 30-11-1972 were of no consequence. 15. These arguments are controverted by the representative for the assessee, Mr. Puri, who has urged that the assessee-non-resident company being not a party to the aforesaid agreements of February 1976 between the aforesaid Indian company, viz.,. Indian Petrochemicals Corporation Limited and CCM Sulzer/Nordon Co./Jeumont-Schneider was not bound by those agreements. The liability under this agreement to pay for the specialists made available to the Indian Petrochemicals Corporation Limited by each of those foreign companies, namely, CCM Sulzer/Nordon Co./Jeumont-Schneider in the manner agreed upon was of the said Indian company. As desired by the said Indian company, the assessee-non-resident company made the payments to those foreign companies due to them from the aforesaid Indian compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of cost by the buyer to these specialists living furnished accommodation with air condition, electricity, gas and water supply and transportation from their place of stay to site and back. " A perusal of these provisions in the said addendum makes it abundantly clear that the payment to the assessee-non-resident company by the Indian Oil Corporation Limited for making available the specialist of the type mentioned hereinbefore was nothing but a payment by way of reimbursement inasmuch as the assessee-non-resident company had paid those specialists for and on behalf of the Indian Oil Corporation. That being the position, the Commissioner (Appeals) on the facts and in the circumstances of the case rightly held that the amount so reimbursed to the assessee-non-resident company by the Indian Oil Corporation Ltd. was not revenue receipt taxable in its hands for the year under consideration. We entirely agree with the reasoning given by the Commissioner (Appeals) in this behalf. We uphold his order on this point. 17. Coming to the agreement between the assessee-non-resident company and Indian Petrochemicals Corporation Limited, it is correct that the scope of the said agreement cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r day. 6. The expatriate coming toIndiawill be considered as assigned to IPCL for the purpose of income-tax. 7. 'Indian' income-tax will be paid by IPCL on income earned or deemed to be earned for performing the service for which he is assigned. Item No. 5. Absence fees In addition to the facilities described in item No. 3 of this agreement and provided directly by IPCL, TECHNIP will pay to the company JEUMONT-SCHNEIDER an absence fee of 800FF per calendar day of absence from home office of the expatriate subject to the condition that travel time betweenEuropeandIndiaand return will not exceed 24 hours each. Item No. 6. Invoicing The payment of the absence fees will be made by TECHNIP after receipt of : 1. ---Monthly attendance sheets duly signed by IPCL's representative and the expatriate himself. These attendance sheets will be despatched as follows : --- IPCL 2 cc --- TECHNIP FRANCE 4 cc --- TECHNIP construction superintendent inBARODA1 cc 2. ---Monthly invoice on the basis of these attendance sheets to be addressed by JEUMONT-SCHNEIDER to TECHNIP RUELI, with same despatching as for the attendance sheets. " Since the assessee-non-resident company was not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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