9911796707
TMI Blog1985 (12) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... For the asst. yr. 1971-72, the assessee-company had filed the return, in which it showed the income form service agreement only. The assessment was completed on 1st Jan., 1975. The quantum of income form service was disputed by the assessee, which was settled by the Tribunal in ITA. No. 2662/bom/1979, vide order dt. 18th Dec., 1980. 4. The copy of the request made by the ITO to the CIT for issuing of the notice under s. 148 vide his letter dt. 10th Jan., 1977 and the endorsement of the CIT according sanction has been filed by the ld. Departmental Representative. 5. Shri S. E. Dastur, the ld. authorised representative of the assessee, submitted by referring to the copy of the service agreement filed at pp. 23-32; that at p. 24 cl. (ii) specific reference to the technical know-how agreement was very much contained therein. He also referred to the letter to the IAC dt. 4th March 1975 wherein detailed particulars about the agreement, approval of the Government for entering into the know-how agreement, the amount already remitted to U. K. under permission of Reserve Bank of India, and by drawing reference of Circular No. 21 dt. 9th July 1969, according, to which any sum paid ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and No. 202 of 5th July 1976, on the basis of these undisputed facts, no part of the income could said to accrue in India. He further added that cls. 10 11 only specify and provide for a guarantee that any one who has acted in accordance with its directions will positively achieve the target. It also proved for a safety clause to the assessee form being liable for any failure on its part as per cl. 12, by which it had agreed to provided for such modifications as are required on the plant and its operations so that the target as specified in the know-how agreement is achieved According to Shri Dastur, such tests are merely for ensuring itself that the Indian company has acted in accordance with its directions and, this act cannot be said to bring in any business connections at all or lead to the conclusion that a part of the fee for know-how attracts tax in India. He relied on the decision. in the cases of Carborandum Co. vs. CIT 1977 CTR (SC) 209 : (1977) 108 ITR 335 (SC), CIT vs. Toshoku Ltd.(1980) 122 ITR 525 (SC), with specific reference to p. 531, Anglo-French Textile company Ltd. vs. CIT (1953) 23 ITR 101 (SC)., CIT vs. Hindustan Shipyard Ltd. 1975 CTR (AP) 97 : (1977) 109 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the ITO the at time of passing of the original assessment. Clauses 1 (i) to (iv) 3,4,5,6,7,8,9, and 10 have been reproduced below: '1.i. IDI has entered into an agreement hereafter called purchase Agreement dated the twentieth day of February 1970 with Mafatlal Limited Spiral Houses, Oxford Cirecus, London WIR 5 DA England. hereinafter called "MAFATALAL", a copy of which has been seen by AW. 1.ii. The Plant shall mean the Plant defined in the Engineering Agreement (hereinafter called "the Engineering Agreement") of even date made between the same parties hereto the manufacture Sodium Hydrosupphite of the quantities and qualities therein set out. 1.iii. The Plant included the equipment be supplied by MAFATLAL as detailed in the First Schedule to the Engineering Agreement and other equipment to be purchased and fabricated locally in India as detailed in the Second Schedule of the Engineering Agreement. All the equipment's shall conform to the Engineering date and specifications furnished to IDI by AW in UK. 1.iv. AW is in a position to render technical assistance and advice in the supervision of erection and establishments and operation of the plant to IDI in India in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the operation of the Plant. AW shall certify the accuracy of installation to its satisfaction. (c) AW shall advise on proper maintenance of each equipment to be observed until the test operation of the Plant. 4. Technical assistance after plant start up: AW will give free of charge in U. K. for a period of two years form the start up of the Plant and all technical assistance require for the better operation of the Plant provided IDI sends to AW the operating logs and any other information concerning the performance of the equipment. It is hereby agreed by the parties herein that such technical assistance does not include the sending of the AW's personnel to India. But in the event IDOI requires the services of such technicians. AW will recommend and depute them on such terms and conditions as mutually agreed upon, subject to the approval of the Government. 5. Office for AW IDI shall provide at its own expense an Office for use of AW and by the Vistial Engineers hereinafter mentioned with reasonable space, equipment and utilities including potable water electricity, air-conditioning, sanitary apparatus and other office requisites. The expenses connected with othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurance and paying such claim. 6.iii. Medical Assistance In case the Visitant Engineers suffer form illness or injury. IDI shall procure for them emergency rescuer and proper medical treatment including, in necessary, hospitalization in a fist close hospital. The expenses incurred thereof shall be born by IDI except when due to recklessness of the Visitant Engineers or the injury occurs in an environment absolutely unrelated in their duties. 6.iv. Duty Hours The following provisions shall also apply as the duty hours, holiday and vacation and suspension of service period: (a) The duty hours of the Visitant Engineers will be in accordance with IDI Senior Technical Staff at the Plant. (b) The Vistant Engineers shall be deemed to have worked the duty hours referred to in 6 iv (a) if they represented from working these hours die to a cause beyond their control. (c) The Vistant Engineers shall not be required to work on holidays or in offduty hours, unless required by the needs of the Project. 6.v. Suspension of service perid AW reserves right to replace the Visitant Engineers only a valid reason as may be mutually agreed upon with IDI and in such event ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of AW under this Agreement, IDI shall pay in U. K. to AW Pounds Sterling £5518 (five thousand five hundred and eighteen pounds) subject to Indian taxes. if any payable in three equal instalments at the following times: (a) On signature of this Agreement. (b) Within one year of the date of this Agreement. (c) After 60 (sixty) but not later than 61 (sixty-one) months of the date of this Agreement." Clause 1(ii) (iii) talk of an engineering agreement of even date but do not provide that such an agreement was with the assessee-company. Clause 1(iv) then mentioned about the technical assistance to be provided by the assessee in connection with supervision of erection. which included approval of equipment, etc. Clause 3 (ii) talk of drawings of machinery and equipment's provided by the assessee. Clause 10 talks of guarantee performance tests wherein it was provided that the Indian Company shall notify the assessee-company of its fulfilment of the guarantee contained in the engineering agreement and issue a certificate to that effect. 9. In the instant case, the assessee held felt that it need not inform the ITO about the engineering know how agreement as according t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and operating the Plant and provide such services as are hereafter mentioned. 2.iv. "AW's present processes" means the processes to which AW is at present entitle for the production of Predictors. 2.v. "AW's further processes" means any further processes for the production of the product which may be developed by AW's present processes prior to the expiration of the term of this Agreement. 2.vi. "AW's processes" means AW's Present Processes and AW's Further processes and each and every of them. 2.viii "AW's Technical Information" means all information in the form of Know-how, operating techniques and process design information bases on research development on operating experience relating to or primarily useful in the practice of AW's Processes at present pressessed by AW or hereafter acquired by AW prior to the expiration of the terms of this Agreement. 2. Scope of technical date to be furnished by AW. (a) Approximate capital cost of the Plant covering buildings, plant and equipment, piping, insulation, electrification's instrumentation's and auxiliary items for the plant under British conditions. (b) Preliminary general law out of the building including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... give free of charge training in AW's processes, maintenance and control techniques for a period not exceeding two calendar months of not more than five Indian technicians (present at the same time) Selected by IDI (and approved by AW) at AW's plant for the production of Sodium Hydoro sulphite at Bromtorough, Cheshire, England. IDI will bear and pay all the expenses of such technician's including their salary, travelling expenses and living expenses. 7. Technical information to be furnished by AW. AW shall (to the extent that it shall not have disclosed to IDI pursuant to Clause 4 of its processes and Technical Information) disclose to IDI in London AW's processes and Information within one month after completion of the mechanical testing of the plant. 10. Guarantee. Provided that the Plant has been constructed and operated in accordance with the advice and approval of AW and the raw materials used meet the specifications set out in the Third Schedule hereto. AW guarantees that the plant will produce the product of such capacity and of such quality as that specified in the Fourth Schedule hereof. 11. Guarantee performance tests. 11. i. In order to verify the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fee paid or payable by IDI to AW pursuant to cl. 13 hereof shall be refunded or reduced in accordance with the formula set out in the Fifth Schedule hereto the intent that the maximum liability of AW to IDI shall not exceed 25 per cent of the fee payable by IDI to AW pursuant to cl. 13 hereof after deduction of AW's expenses in connection with its performance of this Agreement such expenses to be determined in default for Agreement by AW's auditors. 12. ii. AW does not assume responsibility for any direct contingent or consequential damages (including in particular but without prejudice to the generality of the foregoing for loss of production costs of operating the plant or damages or loss of use of any equipment or installation including the plant) nor give or make any guarantee or warranty for the performance of services rendered by its personnel representation in connection with the plant or give any performance guarantee or warranty save as mentioned in cl. 10 hereof and then only in the event of breach subject to terms of cl. 12. i hereof which guarantee or warranty shall be in lieu of any other explicit or statutory responsibilities, guarantees warrantees and represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement and therefore no income accrued to it. On this issue, reliance was place in the case of CIT vs. Hindustan Shipoyard Ltd. 1975 CTR (AP) 975 : (1977) 109 ITR 158 (AP). In this case, the Indian company entered in tan agreement with a polish company for purchase of diesel engines with accessories. The property was to pass to the purchaser on delivery on board of the vessel. The agreement also provided for inspection, testing and acceptance of the engines. The engines were to be erected by the staff of the purchases for which purpose a supervising engineer was placed by the Polish company at the disposal of the Indian company. The Polish company also agreed to carry out the creation and also provided free of cost one guarantee engineer. The Polish company also provided various guarantees including organising of training course in Poland. The question which their Lordships of the A. P. High Court were considering was whether there was any business connection at all and whether the income could be assessee as having accrued in India. the observation of their Lordships was: "To conform with the requirements of the expression "business connection" which have been fairly settled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India and certain acts, if they are done with a view to ensure correct appreciation of the know-how by the Indian company then, under no cur stances they could be said to be attributable to any services rendered in India. We are therefore of the view that even to 10 per cent income of the technical know-how which has been brought to tax is bad in law and the same is accordingly quashed. 13. This disposes of the common issue involved in both the years of appeal. The second ground in the asst. yr. 1971-72 is in relation to levy of interest under s. 139 (8). which has not been pressed before us and therefore treated as dismissed. 14. In this year one of the issue involved is regarding 50 per cent of the service agreement income brought into tax. Shri P. L. Roongta, the ld. Departmental Representative submitted that the issue of the income on the service agreement was considered by the Tribunal for 1971-72. In that year, the claim of the assessee was allowing of certain expenses against 50 per cent of the service fees. The Tribunal in ITA. No. 2662 (Bom)/1979 for the asst. yr. 1971-72 vide order dt. 19th Dec. 1980 had considered certain expenses as allowable and out of £ 1840 rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F. Ferguson Co. Sd/- Fees for taxation services rendered upto 31st March 1975 in respect of: 1. (a) 1971-72, 1972-73, 1973-74, 1974-75 assessments. (b) Interview with the ITO regarding penalty sough to be imposed for failure to furnish an estimate for advance tax and failure to furnish the return of income for 1971-72. 2. For attending to appeal matters: Filing appeal to the AAC against the ITO's order for 1971-72. 3. Conferences and correspondence with Mr. N. Dandkar regarding capital gains tax liability on sale of share and the remittance of sale proceeds. Submitting an application to the tax authorities for tax clearance certificate: interviews with tax authorities form time to time in this connection, interview with the IAC of IT and obtaining the tax clearance certificate as desired. . Rs. 12.500.00 Add : Airmail Postages 30.00 . Rs. 12,530.00 RUPEES TWELVE THOUSNAD FIVE HUNDRED THIRTY ONLY." In view of the fact that a separate amount in respect of various services rendered not being available, it purely a question of estimate. We are of the view that the CIT (A) was reasonable in giving the relief to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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