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TMI Blog2012 (9) TMI 624X X X X Extracts X X X X X X X X Extracts X X X X ..... rdiwalla, senior counsel with Mr. Rajiv Singh i/b M/s. Chitnis Co. for the Applicant. Mr. Suresh Kumar for the Respondent. JUDGMENT : [Per S.J. Vazifdar, J.] 1. This Income Tax Reference arises out of RA Nos.1052 and 1053/Bom/1991 which, in turn, arise out of ITA Nos.5033 and 5034/B/1986, which were disposed of by the order of the Income Tax Appellate Tribunal dated 9th January, 1991, and pertain to assessment years 1981-82 and 1982-83. 2.(A) The Tribunal has referred the following questions for the opinion of this Court, at the instance of the assessee under section 256(1) of the Income Tax Act, 1961 : Assessment year : 1981-82 1) Whether on the facts and in the circumstances of the case, the Tribunal erred in holding that the sum of Japanese Yen 2,973,750 paid to Toyo Engineering Corporation was chargeable to tax in India ? 2) Whether on the facts and in the circumstances of the case, the Tribunal ought to have held that the sum payable was Industrial or Commercial Profits within the meaning of the Article III of the DTAA between India and Japan and was, therefore, not liable to be taxed in India, the assessee having had no permanent establishment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcle-1, Bombay, which reads as under : NO OBJECTION CERTIFICATE. This is to certify that there is no objection to the remittance by M/s. Zuari Agro Chemicals Ltd. of a sum of J.Yen 3503750 to M/s. Toyo Engg. Corpn., Japan, for technical services of experts provided by them for undertaking repairs to the assessee's waste heat boiler at Goa provided tax at appropriate rate is deducted at source and paid to the Government. 5. The assessee filed a return in respect of assessment year 1981- 82 as agents to M/s. Toyo Engineering Corporation on 15th September, 1981, of Rs.1,48,160/- which was followed by a revised return on 12th September, 1983, declaring a 'Nil' income. The revised return was based on the Agreement For Avoidance Of Double Taxation Between India And Japan (hereinafter referred to as the DTAA ). Similarly, the assessee filed a return of income and a revised return in respect of assessment year 1982-83. 6. Mr. Pardiwalla conceded that the receipt of the amounts by Toyo would fall within section 9(1)(vii) of the Act. He, however, contended that the assessee / Toyo were entitled to the benefit of the DTAA. 7. The relevant provisions of the DTAA read as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the term technical services under the DTAA does not include fees paid for the deputation or provision of technical personnel. In other words, according to him, deputing or providing technical personnel does not amount to rendering technical services. He relied upon section 9(1)(vii) and in particular Explanation 2 thereto, which reads as under : Income deemed to accrue or arise in India. 9(1) The following incomes shall be deemed to accrue or arise in India :- ......... (vii) income by way of fees for technical services payable by - (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India; Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary first to analyze the nature of the services rendered by Toyo to the assessee. 13. We have referred to the invoice and the No Objection Certificate dated 28th February, 1980 issued by the ITO, Central Circle-1. This certificate was obviously issued pursuant to the assessee's application. It is reasonable to presume that what is stated therein reflects the assessees / Toyo's application. The certificate refers to the payment of the amounts by the assessee to Toyo for technical services of experts provided by them for undertaking repairs to the assessee's waste heat boiler . The words for undertaking repairs to the assessee's waste heat boiler may well, in a given case, be descriptive only of the work to be done by the technical experts. In this case, however, it is clear that they refer to the repairs carried out by Toyo through the technical experts. In other words, the technical work is carried out by Toyo and Toyo has not merely provided technicians to carry out the work. The fees were, therefore, paid not merely for deputing technical experts, but for the technical services rendered by Toyo. That the services were rendered through technical experts engaged by Toyo does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the mere provision of technical personnel does not fall within the ambit of the phrase technical services as normally understood necessitating the Legislature introducing the inclusive definition. 18.(A) We find support for our view that composite agreements providing for the carrying out of technical works through the technical personnel of the contracting party fall within the ambit of the term technical services as normally understood, in the judgment of the Supreme Court in M/s. Continental Construction Ltd. v. CIT 1999 Supp.(2) SCC 567. The Supreme Court considered section 80-O as it then stood. Section 80-O of the Act, prior to it's amendment, referred to gross total income of an assessee, including any income in consideration of technical services rendered or agreed to be rendered outside India in certain cases. Section 80-O read as under : 80-O. Deduction in respect of royalties, etc., from certain foreign enterprises. Where the gross total income of an assessee, being an Indian company, includes any income by way of royalty, commission, fees or any similar payment received by the assessee from the government of a foreign State or a foreign enterprise in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, interalia, that the assessee must have derived the receipts in one of two ways, including in consideration of technical services rendered or agreed to be rendered outside India to such Government or enterprise by the assessee. The Supreme Court held as follows : 26. ................There is equally no doubt that, in executing the contract, the assessee has rendered technical services. Any engineering contract involves technical services; more so, a contract of the nature and magnitude involved in the present case. Here again, Sri Ahuja says, no technical services were rendered by the assessee to the foreign government; the assessee only made use of the technical knowledge, experience and skill of its own employees to perform a task undertaken by it. ............ 28. But, even assuming that there could be some difference of opinion on the above issue, there can be no doubt at all that, under the contract, technical services were rendered by the assessee to the foreign government. In our opinion, the attempt of Sri Ahuja to differentiate technical services rendered to the assessee by its employees and technicians from technical services rendered by the assessee to a foreig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngineer is, in putting up the structure, rendering him technical services even though the actual construction and even the design thereof may be done by staff and labour employed by the engineer or architect. Where a person consults a lawyer and seeks an opinion from him on some issue, the advice provided by the lawyer will be a piece of technical service provided by him even though he may have got the opinion drafted by a junior of his or procured from another expert in the particular branch of the law. Sri Ahuja tried to negative this line of thinking by urging that professional services have been brought within the scope of Section 80-O only by an amendment by the Finance (No. 2) Act, 1991 and that, too, w.e.f. April 1, 1992 which is proposing to substitute the word technical or professional services in place of the word technical services now used in the section. It seems to us that this amendment may be only of a clarificatory nature. The expression technical services has a very broad connotation and it has been used elsewhere in the statute also so widely as to comprehend professional services: vide Section 9(1) (vii), referred to earlier. But we need not digress on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for making available technical personnel. 21. A view to the contrary would render the working of the DTAA difficult. It is not difficult to imagine that both the countries were obviously aware that several contracts between enterprises of two countries would involve the rendering of technical services in a composite manner as in this case. If Mr. Pardiwalla's submission is accepted, it would in most such cases be virtually impossible to bifurcate satisfactorily in any event, the lump sum payment stipulated in the contract for the same. It would lead to disputes which would affect, not merely the parties to the transaction, but the contracting States. An interpretation that avoids such a situation is preferable. 22. Mr. Pardiwalla relied upon the fact that Article 12(4) of the new Indo-Japan DTAA of 1990 defined the term fees for technical services to include the provision of services of technical or other personnel. Article 12(4) reads as under : ARTICLE 12 ........ (4) The term fees for technical services as used in this article means payment of any amount to any person other than payments to an employee of a person making payments and to any individual for indep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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