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TMI Blog1983 (1) TMI 142X X X X Extracts X X X X X X X X Extracts X X X X ..... ad already been rendered and the amount had become due. Hence, there was no occasion for signing a formal agreement. The assessee applied for foreign exchange for remitting the moneys. It was at this stage it was discovered that an approval from the Government of India from the relevant Ministry was necessary. After some correspondence, even this approval was obtained from the Ministry of Chemicals and Fertilisers, vide its order dated 14-4-1977 while warning that prior approval should have been obtained. It is the assessee's case that such technical services were by and large rendered from abroad and were not at all taxable during the assessment year 1976-77 because the specific clause making it taxable was introduced only with effect from 1-6-1976 by the Finance Act, 1976, and that even if it is taxable, it is exempt under proviso to clause (vii) of sub-section (1) of section 9 of the Income-tax Act, 1961 ('the Act') as there is an agreement before 1-4-1976 and approval thereafter. The approval of the Government, as noticed earlier, was obtained only on 14-4-1977. The ITO, therefore, considered that the income had accrued to the assessee only in the assessment year 1978-79. He, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccrue under section 9 and that the specific provision relating to payment for consultancy services was only with effect from the assessment year 1977-78 and that it is clearly inferable that such income was not taxable in earlier years. At any rate, it was contended that there was no income arising in India. It was further argued that the inference of the ITO that there was no agreement and that the approval was in a subsequent year was incorrect as a subsequent approval would relate back to the date of agreement. Agreement, he argued, was finalised and it had been acted upon. Absence of a signed formal agreement did not rule out existence of an agreed contract of services. In fact, such a contract was approved subsequently by the Government of India itself. It was also suggested that the proviso exempting such fees once the agreement is prior to 1-4-1976 and approved by the Central Government should apply to the assessee whatever be the year of assessment. Once the provision is on the statute and does not specify the year of assessment ; the exemption is available to the assessee. This provision was on the statute book on the date of assessment. It was also suggested that the fore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, unnecessary, according to the learned departmental representative, to agitate this question before us. He stressed the fact that the subsequent enactment, relating to technical fees and exemption introduced by the Finance Act, 1976, and the Finance (No. 2) Act, 1977, could not affect the liability for the assessment year 1976-77. According to him, there was no fresh impost on technical fees as the controversy relating to the extent of liability of technical fees had been very much there for earlier years also even prior to the introduction of the new clauses under section 9. He, therefore, claimed that it was incorrect to assume that such fee was made taxable only from the assessment year 1977-78. He also reiterated the claim that there was neither agreement nor approval in the manner contemplated by law. As for the assessment year 1978-79, he repeated the argument that it is not necessary to go into the question of ultimate liability on the taxpayer on merits and that the order of the ITO is concerned merely with appointment of an agent. If there is any receipt of income, such appointment is valid. It was claimed that the first appellate authority need not have prejudge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny did not constitute business connection. The work was to be started both in the United Kingdom and India. Two experts had been here for quite sometime and it will be futile to deny that no services were rendered in the taxable territories. The bills for their services apart from indicating their services abroad and their foreign trips also show that they have been frequently visiting India and two of them, viz., Mr. J. N. Spottiswood and Dr. Ferling were visiting Hyderabad frequently for fairly long durations, at times for a month or more. There were also number of other engineers who were also visiting for a few days and some of them went to the site for designing construction at Kakinada fertiliser plant. It is, therefore, not possible to say that no services were rendered in India. The agreement was more or less a continuous one showing a stable relationship for a number of composite services during the duration of the agreement in connection with the establishment of the fertiliser project. It is, therefore, not possible to say that there is no business connection and that no income at all arose in India. At the same time there is absolutely no basis for the presumption of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vii) by the Finance Act, 1976, with effect from 1-6-1976. These provisions, no doubt, will not be available for the assessment year 1976-77. All the same, we will not be justified in holding that these fees were not hitherto liable to tax merely because they have been listed out separately and distinctly in the law as from 1-6-1976. It cannot be stated that such receipts were not taxable before. In fact, there has been considerable controversy as to the extent of liability and the place of accrual in respect of such fees depending upon the terms of each contract even for assessments for the assessment year 1976-77 and earlier. If there is income arising to an assessee in India by virtue of business connection or otherwise, such income was always taxable. When this was pointed out, the assessee had two more objections. One was the question of computation about which we have already decided in the preceding paragraph by leaving it to the Assessing Officer to consider the auditors' certificate and other materials in accordance with law. The other relates to the reference to the proviso to clause (vii) of sub-section (1) of section 9 which while making such income taxable, provided as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment for mere utilisation of information in India will not be taxable by virtue of clause (vii), but will be taxable only to the extent of services rendered in India. No doubt, some services had been rendered prior to 30-6-1975 as seen from the invoices. It appears that the services had been rendered in March 1975 and a small part of the total payment may well relate to the services rendered till 30-6-1975. Income to the extent of services rendered in India during this period alone, may be taxable for the assessment year 1976-77. All these aspects can also be gone into in the fresh assessment directed by the first appellate authority in accordance with law. Though we have made certain observations, it is not our intention that these also should bind the ITO. We have discussed the same at some length because we feel that the issues which are to be considered have to be highlighted while setting aside the assessment. Since the first appellate authority had not set out the issues clearly and had also given certain directions which do not appear, prima facie to be correct, we have to make the position clear and we have dealt with the issues without binding the ITO in any manner as to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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