9911796707
TMI Blog1996 (4) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... " The question referred at the instance of the assessee reads as under : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was an element of royalty included in the fee of 2,04,032 Swiss francs and if so the Tribunal was right in estimating 20 per cent. of the gross fee being the value of the royalty ?" The brief facts giving rise to the present reference are that the assessees, Krebs and Company, Claridenistrasse, Zurich (for short "Krebs") is a foreign' company and National Newsprint and Paper Mills Limited (for short "Nepa Mills") is its agent within the meaning of section 163 of the Income-tax Act, 1961 (for short the "Act"). An agreement dated May 5, 1975, was entered into between the assessee, Krebs, on the one hand, and Nepa Mills, on the other, for supplying know-how, complete engineering and services for the extension of the existing chlorine and caustic soda plants. The agreement was approved by the Government of India for the purpose of expansion of the existing chlorine and caustic soda plants and the assessee undertook supply of plant, equipment and engineering services. A major part of the plant equipment wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee that the assessee had no business connection in India. He also negatived the stand of the assessee that the whole process of erection took about three years and, therefore, only one-third of the erection and commissioning fee should be taxed in the instant assessment year. He recorded the finding that the two engineers were in India during the instant accounting period and the erection and commissioning of the plant was done during this period. He, thus, after deducting the remuneration paid to the two engineers from Swiss francs 2,04,032 taxed the balance which on conversion into Indian rupees worked out to Rs. 7,60,100. Aggrieved by the assessment order, the assessee approached the Commissioner of Income-tax (Appeals) who endorsed the finding of the Income-tax Officer. However, it was observed that the said fee should be taxed at 50 per cent. in view of clause II(i)(b) of Paragraph E of Part I of the First Schedule to the Finance Act, 1980 (No. 2 of 1980). Aggrieved by this order, the assessee as well as the Department both approached the Tribunal. The stand taken by the assessee was that the entire amount of Swiss francs 2,04,032 was towards fee received by the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome by way of royalty. The Tribunal, therefore, assessed the liability at 20 per cent. of the total consideration which worked out to 40,806 Swiss francs equivalent to Indian rupees 1,87,300 as the amount of value of the royalty. Both the parties approached the Tribunal for making reference and accordingly the Tribunal has referred the aforesaid questions for answer by this court. In short, the question is whether it was an agreement which was entered into between Krebs and Company and Nepa Mills for expansion of their plant by using the assessee's design and processes and for that they have paid a total sum of 6,63,827 Swiss francs and out of the said sum, 2,04,032 Swiss francs was given by the Nepa Mills to the assessee towards cost of supervision of erection and commissioning of the plant and whether the whole amount should be directed to be treated as paid towards technical services and there was an element of royalty. In order to appreciate the rival contentions, it would be relevant to refer to clause (4) of the agreement which is significant for our purpose. Clause (4) of the agreement reads as under: "4. The contract price payable by the purchaser to the contractor for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head 'Capital gains') for-- (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ; (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or (vi) the rendering of any services in connection with the activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (v). Clause (vii) of sub-section (1) of section 9 which talks about the income by way of service, lays down in Explanation 2 that any income which has been paid for technical services in any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel), but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". The proviso further provides that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government. Therefore, the fees which have been paid for technical services were not subject to tax by virtue of this proviso, which was inserted by the amendment by Finance (No. 2) Act of 1977 with effect from April 1, 1977. An analysis of the provisions of section 9(1)(vi) and (vii) clearly shows that what is not made taxable is only the fees paid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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