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TMI Blog1987 (4) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... entered into with the abovesaid three foreign countries were provided to us in paper compilation filed before us. It is an admitted case that the agreements entered into with the abovesaid three foreign collaborators were approved by the Government of India prior to 1-4-1976. It is also an admitted case that our country entered into Double Taxation Avoidance Agreements with West Germany, Czechoslovakia and Italy and no such agreement was as yet entered into with Czechoslovakia. 3. At Article 4.1 of the agreement entered with M/s. Siemens of West Germany (for short W.G. company) it had undertaken to train BHEL---personnel at BHEL's plants and to provide general technical assistance by active participation in designing in the initial stages and establishing production, quality control and testing at BHEL's plant and erection and commissioning of Industrial Turbines at erection sites. At 4.2 of the agreement with W.G. company the delegation of the personnel to India shall be on terms and conditions to be mutually agreed upon. 4. The salient features of the agreement entered into with M/s. Nuevo Pignone of Italy (for short Italian Co.) as far as they are relevant for our purpose a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entered into collaboration agreement with Czechoslovakian company M/s. Techno Exports, Prague (for short Czech company). For our purposes the following clause of the agreement dated 22-4-1965 is relevant and is extracted as under : " For the carrying out of the consulting activities according to para I above, the Supplier shall depute to India a group of designing engineers, whose professions and functions, numbers, their time of deputation to India and the duration of their stay are indicated in the Enclosure No. 3 of the agreement and item Nos. 201 up to 216 under the conditions and terms according to Article 10 and in compliance with Enclosure No. 8. " In Article 10 para 3(e) it is agreed that for the deputation of the Supplier's experts to India the conditions and rates indicated in Enclosure No. 8 of this Agreement shall be applicable, modified by any amendments to be agreed upon mutually. In Enclosure No. 8 it is stated that BHEL shall pay salary for the period of service in India including the periods spent in Czechoslovakia on business trips and for the times spent in transit from Czechoslovakia to India and vice versa to the experts of Czechoslovakia at the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ards salaries and allowances for the services of the experts will become payable on the first working day of the following month; to ensure payments on the due date, the Supplier shall submit separately for salary and allowances monthly invoices recording particulars of the name of the experts, and the period and amount of their claim at least 14 days before the due date. " 6. The agreement which BHEL entered into with Italian company was ratified by the Government of India by its letter dated 21-12-1970 and 23-11-1972. The agreement entered into with Czech company was ratified by the Government if India by its letter dated 22-4-1965. 7. Originally, in the cases of all these foreign experts belonging to either of the three companies mentioned above, income-tax returns were submitted by BHEL thereby they have returned positive income in the case of each and every expert for assessment years 1979-80 and 1980-81. However, while returning their income they have deducted the expenses and also deduction available under s. 10(6)(vi) of the IT Act. Subsequently, BHEL filed revised returns disclosing nil income on behalf of each and every expert in these appeals along with an enclosed l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essees' contention that they are not liable to pay income-tax on any part of the salary, daily allowance and perquisites is erroneous and prejudicial to the interests of the revenue. Further, the amount paid to each of the foreign technicians per diem by BHEL while they were in India should not have been exempt under s. 10(14) of the IT Act as each of these assessees was deputed to work with BHEL at Ramachandrapuram which should be considered as their ordinary place of work while they were in India. Similarly, he felt that perquisites provided by BHEL to these assessees during their deputation period should have been assessed to tax. The list of the assessees, the amount paid as technical fee, the amount paid as salary, the amount paid as daily allowance, the type of facilities provided to each of these assessees were all shown in the table given at p. 513 : The learned Commissioner intended to exercise his powers of revision under s. 263 of Income-tax Act called upon the assessees' agent BHEL by his letter dated 15-3-1985 as to why he should not set aside the assessment order as being erroneous and prejudicial to the revenue. 10. On behalf of the assessees the following object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atislav 1980-81 36 8,751.78 ---- ----- ---do-- 13. E. W. Widersphann 1979-80 42 69,366.76 ---- 7,175.00 ---do-- 14. Ridel Werner 1979-80 91 1,13,574.31 ---- 10,875.00 ---do-- 15. Miroslav Vodak 1980-81 138 46,630.00 ---- ---- ---do-- 16. Antonio Santaro 1979-80 118 1,77,557.00 40,966.00 19,470.00 ---do-- 17. Elio Brugioni 1979-80 92 1,19,281.00 27,889.00 15,180.00 ---do-- 18. Antorio Spano 1979-80 92 1,07,804.00 28,281.00 15,180.00 ---do-- 19. Guiseppee Pierro 1980-81 24 32,280.00 7,098.00 3,960.00 ---do-- --------------------------------------------------------------------------------------------------------------------------------------------------- should not be assessed to tax in view of the decision of the Calcutta High Court in the case of N. Sciandra v. CIT [1979] 118 ITR 675. 4. Alternatively the Explanation under s. 9(1)(ii) was added with effect from 1-4-1979 and therefore it would be effective only from assessment year 1980-81 onwards but it does not apply to assessment year 1979-80. 5. The Income-tax Officer passed these assessments on 21-3-1983 and the time limit of two years from that date for taking action under s. 263 expired on 20-3-1985. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down in that section had not expired before 1-10-1984. However, with a view to avoiding controversy and litigation in the matter it is desirable that orders under s. 263 of the Income-tax Act are passed as far as possible, within two years of the date of the order sought to be revised in cases where the order sought to be revised was passed before October, 1984. " It is argued that a Circular issued by CBDT is binding against the department, according to the binding decisions of the Supreme Court in Navnit Lal C. Javeri v. K.K. Sen, AAC [1965] 56 ITR 198 and Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 and a host of other cases. Two months did not elapse, from the date of the order dated 21-3-1983 to 1-10-1984, the date when the amendment took effect. But CBDT directed all its subordinate officers to complete the revisional orders within two years from the dates of assessment orders sought to be revised. In this case the direction was violated and hence the impugned orders of the learned Commissioner were all vitiated as they went against the directions contained in the CBDT Circular. 14. The learned Departmental representative countered this argument stating that the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extended period of limitation will apply to the proceedings and therefore we hold that the impugned orders are not time-barred. Further, we also agree with the contention of the learned departmental representative that the circular of CBDT merely mentioned that for the purposes of avoiding controversy it is better to complete the revisional powers within two years from the date of the assessment orders. Therefore, there is no clear-cut direction that every order of revision should be made only within two years of the assessment order. 15. Nextly it is contended on behalf of the assessees that the amount paid to foreign collaborators was covered by s. 9(1)(vii). The foreign technicians were deputed by the three foreign collaborators belonging to West Germany, Italy and Czechoslovakia and it is not denied that all the agreements were made before 1-4-1976 and the income by way of fee for technical services was payable in pursuance of the agreements adverted to with the above three foreign collaborators and all those agreements were approved by the Central Government. It is argued that if under collaboration agreements like those before us foreign technical service was offered by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " Section 9(1)(ii) along with the Explanation thereunder reads as follows : " 9(1) The following incomes shall be deemed to accrue or arise in India--- (ii) income which falls under the head 'Salaries' if it is earned in India. Explanation : For the removal of doubts, it is hereby declared that income of the nature referred to in this clause payable for service rendered in India shall be regarded as income earned in India. " It may at once be stated that the Explanation was inserted under s. 9(1)(ii) by Finance Act, 1983, with retrospective effect from 1-4-1979. Except in four cases, i.e., ITA Nos. 834, 863, 866 and 870 the rest of the appeals before us pertain to assessment year 1979-80 for which the previous year ended by 31-3-1979. That means 15 out of 19 appeals before us are not governed by the Explanation to s. 9(1)(ii) which came into effect from 1-4-1979. Therefore, the Gujarat High Court decision in S.G. Pgnatale's case especially the interpretation put by the Gujarat High Court on the words 'earned in India' holds good. The Gujarat High Court held that the word 'earned' used in a wide sense meant as income earned only if the assessee has contributed to its accru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws : " In addition to the reimbursements and payments elsewhere provided for herein, BHEL shall pay to Pignone for the transfer of 'know-how' under the terms of this Agreement, the sum of Lit. 9,00,000,000. The said sum will be paid by BHEL to PIGNONE in several instalments as follows :" A comprehensive reading of the terms of the agreement which BHEL entered into with Italian company more particularly para 12.1 of the agreement would clearly show that apart from payment of fees for transfer of technical know-how the payment which BHEL is obliged to pay under Annexure 6 are all payable to Italian company and the whole payment is towards technical know-how fee. 17. Now let us see the terms of the agreement dated 21-6-1974 which BHEL entered into with the West German company. Article 4 of the agreement deals with delegation of their personnel to India. 4.2 states that the delegation of these personnel to India shall be on the terms and conditions mutually agreed upon. Article 10.1.1 states that in consideration of the technical assistance rendered in Germany comprising the supply of information as per Articles 2.1, 2.1.10, 2.1.11, 2.2, 5, 6.2 and 7.2 of this agreement. BHEL sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act between the technocrats sent by each of the three foreign collaborators on the one hand and the BHEL on the other. For instance, the service contracts entered into by each of these assessees with their respective employers are not with us nor any certificates from three foreign collaborators were ever secured either by the Income-tax Officer or by the CIT. It is clearly mentioned in the agreements that the ordinary place of work of these assessees is either Czechoslovakia (Prague), Italy or West Germany. There is no material before the learned Commissioner to hold that the foreign technicians working in India, though employees of foreign collaborators, yet the remuneration received by them for services rendered in India is assessable to tax in the hands of the assessees under the head 'salaries'. In our considered opinion unless there is an employer-employee relationship between the technicians on the one hand and the BHEL on the other, the assessees cannot be stated to be receiving salaries. In N. Sciandra's case the Calcutta High Court is clear on that point. In that case the Fertilizer Corporation of India entered into an agreement with an Italian company for erecting an amm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e their salaries from their masters in India. On the other hand, the agreement with Italian company would clearly show that their place of work was Italy and the Lira payment was charged as compensation for the absence of each of its technicians deputed to India from their ordinary place of work, viz., Italy. In the face of such a categorical stipulation in the agreement itself we are not prepared to accede to the contention advanced by the learned departmental representative that each of the assessees should be considered as an employee earning salary income in India. We are also of the opinion that when once there is no employer-employee relationship between the BHEL on the one hand and the assessees on the other, there is no question of any perquisites to be considered in the hands of each of these assessees. In S.G. Pgnatale's case it is specifically held that living allowance received by a foreign technician cannot be considered to be a perquisite. The perquisite according to the Gujarat High Court in that case is something which arises by reason of a personal advantage. A mere reimbursement of a necessary disbursement would not amount to a perquisite. The Gujarat High Court a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r amount that is payable under the terms of those agreements cannot be considered as income which accrued or arose in India. 20. It is argued by the learned departmental representative that there is no scope for our above construction after the Explanation under s. 9(1)(ii) was inserted by the Finance Act, 1983 with retrospective effect from 1-4-1979. This argument is also not appealable to us. We have to construe all the provisions in s. 9 in a harmonious way, in a way in which all of them are workable and effective and a construction under which one provision comes into conflict with another should be avoided. In our opinion s. 9(1)(vi) and 9(1)(vii) cover only limited number of cases, for those provisions to apply the collaboration agreements should be executed prior to 1-4-1976 and they should be approved by the Government of India. It is only for other agreements s. 9(1)(ii) along with Explanation may apply. Firstly we hold that the amounts sought to be charged to income-tax in the hands of the assessees are not salaries earned in India under s. 9(1)(ii). In all the appeals relating to assessment year 1979-80 the interpretation put by the Gujarat High Court on the words 'ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a period or periods not exceeding in the aggregate 183 days in the fiscal year concerned, and (b) the remuneration is paid by or on behalf of, an employer who is not a resident of the other State, and (c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State. Even in case of technocrats deputed by the Italy company it is not denied that they were no doubt working under the Italian company in India. Out of 10 Italian experts before us only two stayed more than 183 days and the rest less than 183 days. As far as Czechoslovakia is concerned, it is agreed that no Double Taxation Agreement was entered into by our country with that country. There are 5 Czech experts who are assessees before us. Out of them one expert remained only for 36 days in our country and the rest of them stayed beyond 90 days. As far as remaining four Czech experts are concerned, their case should succeed or either fail on the basis of our finding that their case is governed by either s. 9(1)(vi) or s. 9(1)(vii) of the IT Act and also that they did not earn their salary income in India as clarified in the Gujarat High Court decision in S.G. Pgna ..... X X X X Extracts X X X X X X X X Extracts X X X X
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