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TMI Blog1984 (1) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... e by KIOCL in respect of the services rendered by the supervisors provided by the assessee-company. The payments to be made were tax-free and KIOCL was to bear the taxes on these amounts. Accordingly, for purposes of assessments, the payments had to be grossed up. There is no dispute with regard to the principle of grossing up. The disputes before the IAC, however, centred round two points, viz., the rate of grossing up and the applicability of provisions under section 44D of Income-tax Act, 1961 ('the Act'). The contention of the assessee before the IAC was that the income was not for technical services but for construction and assembly of the plant or a like project, thus, taking the income out of the purview of Explanation 2 to section 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erofall Mills Ltd. was on daily basis. (iii) Labour and materials for the assembly and erection were supplied by KIOCL, and (iv) Separate contract had been entered into with Aerofall Mills Ltd. for supply of machinery and it was not obligatory on the part of KIOCL to employ the assessee-company for the assembly and erection of equipments supplied by them. He rejected the contention that making available the services of supervisors for assembly and erection of the plant was an integral part of the contract for purchase of materials from the assessee-company and it was incumbent on KIOCL to make use of the services of the assessee-company in erecting the plant. He referred to various letters written by the assessee-company and KIOCL and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, unnecessary to resort to section 9 as observed by the learned authors, Kanga and Palkhiwala's in Law and Practice on Income-tax, Vol. 1, 16th edition, p. 198 of their commentary. This was based on the decisions of the Supreme Court in CIT v. R.D. Aggarwal Co. [1965] 56 ITR 20 and CIT v. Little's Oriental Balm Pharmaceuticals Ltd. [1950] 18 ITR 849 (Mad.). He then referred to section 44D and submitted that as fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9, section 44D could be invoked only when section 9 was applied. Section 9 cannot be applied in the case of a direct accrual of arisal of income in India, that section being restricted to income not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -1977 to KIOCL clarifies the position. Paragraph C of that letter is reproduced below : "C. Field Supervision : The cost of field supervision is completely under the control of the owner as it is directly related to the construction schedule which in turn is 100 per cent controlled by the owner. The supplier has no control over the priorities during the construction. It is, therefore, impossible for us to predict the exact number of days our field supervision will be required at the site. Further, we wish to point out that you have excepted our offer for field supervision in the autogenous mill contract. We will not require any additional field supervision for the ball mills. Therefore, if Aerofall/UBE supply both the autogenous mills a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved out in Explanation 2 to section 9 with regard to fees for construction or assembling of plants will also not apply. 5. Having come to the above conclusion, it remains for us to see whether section 44D applies only to cases where section 9 is invoked. We are reproducing section 44D along with its Explanation below : "44D. Special provisions for computing income by way of royalties ; etc., in the case of foreign companies.--Notwithstanding anything to the contrary contained in sections 28 to 44C, in the case of an assessee, being a foreign company,-- (a) the deductions admissible under the said sections in computing the income by way of royalty or fees for technical services received from an Indian concern in pursuance of an agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1976, if such agreement is deemed, for the purposes of the proviso to clause (vi) of sub-section (1) of section 9, to have been made before the 1st day of April, 1976." The wordings in the Explanation 'fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9' do not ipso facto mean that fees for technical services referred to in section 44D are those fees considered as fees for technical services by invoking section 9. The section does not contain any such restriction. It merely states that the deduction admissible under technical services is subject to the restrictions imposed by that section. The words are 'fees for technical services shall have the same meaning as in E ..... X X X X Extracts X X X X X X X X Extracts X X X X
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