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TMI Blog1989 (12) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is a non-resident company. Its accounting year for the assessment year 1966-67 was the calendar year 1965. Proceedings under section 147 were initiated in the above case by the Income-tax Officer by recording, inter alia, the following reasons: "This is a case of a non-resident which entered into three agreements dated March 12, 1964, viz., (i) Engineering and Construction Agreement, (ii) Operation Agreement and (iii) Export Sales Agreement with Messrs. Graphite India Ltd. for erecting a plant for the production of graphite and rendering services in connection therewith. According to paragraph 4 of the Engineering and Construction Agreement, in consideration of services rendered up to the date of setting up the plant, the Indian company was to pay to Messrs. Great Lakes Carbon Corporation Rs. 10,00,000 upon receipt of the appropriate authorities as set out in clause 9 of the agreement dated May 7, 1962. The agreement dated June 7, 1962, was not produced. Though the plant got set up only in 1967, yet the payment was made in 1965 (May 28, 1965), when the consideration was utilised for issuing equity capital of the Indian company. Twenty-five per cent. of the equity capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal observed : ". . . a perusal of all the documents would lead one to the ultimate conclusion that these employees had not severed their connection with the assessee-company altogether and, therefore, it cannot be said that all the jobs done by the assessee-company in consideration of this amount were outside India. After all, at least a factory had to be constructed in India and the engineering part thereof had to be supervised in India. It is true that for the salaries paid to the supervising officers the Indian company had paid extra consideration for their work done in India over and above the said sum of Rs. 10 lakhs, but part of the said sum was also the consideration for the assessee's having made available the services of the highly qualified and experienced personnel to the Indian company. In this view of the matter, we feel that some part of Rs. 10 lakhs, however slight it may be, would have to be said to have accrued and arisen in India. For determining this part, the matter has to go back to the Income-tax Officer as already pointed out by us. " It has been strongly contended by Mr. Pal, appearing for the assessee, that the Tribunal has taken a wrong view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d also to provide technical know-how and various other things in the United States. Great Lakes, under the agreement, had to provide the following operating staff : " III. Operating staff: A. A resident manager from the personnel of Great Lakes, B. A technical manager from the personnel of Great Lakes, C. A production manager from the personnel of Great Lakes. IV. Technical knowledge and information (sometimes referred to as 'know-how' and 'show-how')." The relevant clauses for payment were as under: " In consideration of the engineering services special technical, accounting and financial information and other items to be provided by Great Lakes as set out in paragraphs I, II, III and IV of clause 3 hereof up to the date the said plant of Graphite India Ltd. commences operation, Graphite India Ltd. shall pay to Great Lakes one million rupees upon receipt of the appropriate authorities as set out in clause 9 of the agreement dated June 7, 1962, and described as the 'Main Agreement' between Bangur Brothers Ltd., of the one part and Great Lakes Carbon Corporation of the other part. All payments due or payable to Great Lakes under this agreement shall be made in cash in U. S. d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest. Great Lakes Carbon Corporation was one of the major shareholders and was represented on the board of directors of Graphite India Ltd. It has been recorded in their letter addressed to Mr. Mackey that " The Graphic Products Division of Great Lakes Carbon Corporation " also has the responsibility of providing " know-how " and seeing to it that Graphite India's plant produces commercial carbon and graphite and products of proper quality. Great Lakes Carbon Corporation is the exclusive sales representative for the sale of all products produced by Graphite India destined for export by India. Mr. Mackey was further informed in that letter that he was going to India " in the capacity of technical engineering manager. In this capacity, you will be an employee of Great Lakes Technical Services Incorporated, a wholly owned subsidiary of Great Lakes Carbon Corporation, and you will be accumulating continuous service credit. Your salary will be paid by Great Lakes Technical Services Incorporated, who in turn will be reimbursed by Graphite India Ltd. As long as you are performing the functions aforesaid for Graphite India, you will comply with the instruction and directions of the Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be for you to pay the bill and submit your claim for reimbursement through the parent company's personnel Department. Reimbursement to you will be in United States currency. Arrangements for deductions on that part of the premium paid by you must be made, prior to your embarkation, through the Graphite Products Division of the parent company. Premiums and benefits will be based on your basic compensation only and not on the expatriation premium or any other extra compensation". "As a regular employee of the Great Lakes Technical Services Incorporated, you will continue to be covered by the Federal Insurance Contribution Act ( Social Security). Deductions will be made from you compensation in accordance with the provisions of the Act." "If you sustain injury including death therefrom while employed, you will be paid an amount equal to the compensation and other benefits under the New York Compensation Laws." The employees were also informed that, prior to departure from the United States and, periodically thereafter as required by the company, the employees and each member of the employee's family had to undergo physical examination, " the results of which shall be made availab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een reimbursed by the Indian company. That, however, does not make any difference. The cost, charges and expenses of Great Lakes in designing, engineering and supervising the construction of the plant including the salary of the employees of Great Lakes, while working in India, may have been ultimately reimbursed by the Indian company. But that will not make any difference to the principle. Merely because the Indian company ultimately paid for the designing, engineering and supervising charges will not transform the activities of Great Lakes into activities of the Indian company. The employees of Great Lakes came to India to discharge the obligation of Great Lakes under the contract. The employees continued to be in the employment of Great Lakes while in India. Their salaries were paid by Great Lakes. They were to be paid monthly compensation for being employed in India. A portion of the monthly compensation was to be deposited in the United States. The employees would continue to participate in the employees' retirement plan of the parent company. The employees would continue to be covered by the Federal Insurance Contribution Act ( Social Security of the United States ) as regul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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