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TMI Blog1995 (2) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 1977-78 and of Rs. 12,766 for the assessment year 1978-79 were not taxable in the hands of the assessee as revenue receipt and also in further holding that the tax paid by the Indian company on behalf of the assessee amounting to Rs. 12,466 for the assessment year 1977-78 and of Rs. 14,109 for the assessment year 1978-79 could not be grossed up and included in the income of the assessee ? " The brief facts of the case are that the assessee is a company (non-resident) and entered into an agreement with Instrumentation Limited on March 23, 1976, for supplying technical know-how to the latter. As per the terms of the agreement, the assessee was to depute its employees at the installation works in India for a period of 15 months ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered that the amount paid on behalf of the employee should be deemed to be the income of the employee under the provisions of section 9(1)(ii) of the Act. Since the company has not rendered any service in this country by sending its employees to India, business connection cannot be said to have been established. The additions so made were deleted. The appeal preferred before the Income-tax Appellate Tribunal was also dismissed. The matter was considered by this court in the case of CIT v. Yamatake Honeywell Co. Ltd. [1994] 210 ITR 470--D. B. Income-tax Reference No. 13 of 1984 decided on November 10, 1993, and this court came to the conclusion that the absence fee is in the nature of reimbursement or compensation of the amount which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side India. The use of such service which was put in India was not considered relevant and the foreign personnel who were deputed by the company, it was found that it did not amount to a business activity carried on by the assessee. The services of the foreign personnel available to the Indian company were outside India and they were considered as its employees and they work under the direct control of the Indian company and the services rendered were wholly outside India. It was in these circumstances that the apex court came to the conclusion that the fee received by the appellant shall be deemed to have accrued or arisen to it in India and, therefore, taxable in India. In the case of Grindlays Bank Ltd. v. CIT [1992] 193 ITR 457, the Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be observed that a sum of Rs. 12,466 was added to the amount paid to the assessee which was to the extent of Rs. 11,280 for the year 1977-78. In respect of the assessment year 1978-79, an amount of Rs. 14,109 of tax deducted and paid to the Department was added to the amount of Rs. 12,766 paid to the assessee. It was in this manner that the total income for the two years 1977-78 and 1978-79 was computed at a figure of Rs. 23,746 and Rs. 26,875. The contention that the amount of tax deducted should not be added or grossed up cannot be considered in accordance with law inasmuch as the assessee was to get the payment tax free, i.e., the tax was to be borne by the Indian company. In the decision of the Delhi High Court in the case of Fran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Indian company was not assessable as profits and gains in the absence of the requisite statutory provisions. Section 5 of the Act determines the scope of total income and the amount of tax which has been deducted by the Indian company from the total amount to be paid to the assessee-company has to be added and grossed up to determine the total income. As such, the contention that the tax amount cannot be added to the actual payment has no substance. The amount which has been deducted as tax was the liability of the assessee-company and the Indian company being the agent was under an obligation to deduct the tax amount of such payment. Out of the total payment, i.e., gross amount, the tax which has been deducted and paid was added in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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