9911796707
TMI Blog1989 (2) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... chnimont was a subsidiary company of the assessee-company M/S. Montedison. This subsidiary company merged with the assessee-company on 4-10-1978. The accounting year of the assessee-company for the years under appeal is the year ended 31st March. M/s. Technimont had entered into agreements with certain public sector undertakings and M/s. J.K. Synthetics Ltd. for supply of technical know how and for rendering technical services. All the liabilities and rights of M/s. Technimont were taken over by the assessee-company. During the accounting year ended 31-3-1979 the assessee-company received in terms of the various agreements a total amount of Rs. 1,08,68,427 from the various public sector undertakings and from J.K. Synthetics Ltd. as per the following details--- --------------------------------------------------------------------------------------------------------------------------------------------------- Name of the Payers Amount in Lit. Amount in Rs. -------------------------------------------------------------------------------------------------------------------------------------------------- 1 2 ----------------------------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenses limited to 20% under section 44D. 4. The assessee took the matter in appeal to the Commissioner of Income-tax (Appeals). The CIT (Appeals) held that in the assessment years under appeal the appellant had only received technical assistance fees as provided in the service agreements for the persons deputed to India and accepted the claim of the assessee that all payments related to contracts entered into prior to 1-4-76 and therefore were not taxable under the proviso to section 9(1)(vii). It was argued before the CIT (Appeals) that no amount was liable to tax in the hands of the appellant-company either under section 9(1)(vi) or under section 9(1)(vii) because the amounts were received by the appellant outside India in respect of technical services rendered by its technicians. The payment was clearly for the provision of services of technical personnel and came within the definition of "technical assistance fees": under Explanation 2 to section 9(1)(vii). It was also argued that under proviso to section 9(1)(vii) fees for technical services payable in pursuance of any agreement made before 1-4-76 was not taxable at all. These payments could not be considered as royalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the department has come in appeal for both the years. 6. Shri Keshav Prasad, the learned departmental representative, relied mainly on the order of the Income-tax Officer. The main force of his argument was that even if these agreements were entered into before 1-4-76, these agreements had to be considered as a whole and the amount received by the assessee during the year of account was a composite amount. Fees for the grant of licence were embedded in the year in which the erection had started and therefore in the payments received by the assessee-company, there was an element of payment which should be attributed as being towards the grant of licence. If a portion of such payment was to be treated as payment for grant of licence or for royalty, the provisions of Explanation 2 to section 9(1)(vi) of the Act were attracted. All the activities concerning erection as well as rendering of technical services were going on simultaneously and not alternatively and therefore Shri Keshav Prasad argued that the Tribunal should do the allocation between licence fees and technical services fees and hold that the portion of such fees were taxable as royalty within Explanation 2 to section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in respect of these agreements have been accepted by the Income-tax Officer as technical service fees and have not been brought to tax. It also entered into another agreement with J.K. Synthetics Ltd. on 29-4-74. We find that the CIT (Appeals) has examined in great detail all the relevant clauses of the Sindri Modernisation Project Agreement with the Fertilizer Corporation dated 9-7-74. For the purposes of the present appeals, we find that clauses 4.4, 4.4.1 and 4.4.4 are relevant to decide one aspect of the issue. These clauses read as under :--- " 4.4 Supervision during erection, start-up and performance test runs of the PLANT. 4.4.1 If requested by FCI, TCM shall make available competent personnel to assist FCI during erection of PLANT. 4.4.4 For the work referred to under this clause 4.4, the rates and other conditions of Exhibit-2 shall apply. " Thus the services that were rendered were for supervising during erection, start-up and performance test runs of the plant. Secondly, it was clear that the Indian collaborator had the option to request the assessee to make available competent personnel to assist them during the erection of the plant and clause 4.4.4. clearly stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the consideration payable for the grant of licence and for supply of services but these payments were not received in this year. What was received in this year was under clause 8.1.2. These fees were optional, i.e. they could have been requested by the Indian company and these fees were paid for services rendered for supervision during plant construction and erection, supervision during start-up and guarantee test runs and technical assistance after the plant test runs. In any or all of these cases, they were essentially in the nature of technical service fees covered by Explanation to proviso to section 9(1)(vii) and were exempt since the agreements were entered into prior to 1-4-76. 10. The CIT (Appeals) has also examined the agreement dated 14-6-72 entered into with Indian Petrochemicals Corporation. Here again he found that a separate consideration was provided in the agreement based on the daily rates for the technicians deputed to India for the technical assistance for supervision during erection, commissioning of the plant and performance of test runs. It was specifically provided that the responsibility for the engineering design shall be that of the IPCL and that the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this project. Such examination revealed that the payments received by the assessee during the fiscal year ended 31-3-79 in respect of the Nangal Expansion Project were as under :------ -------------------------------------------------------------------------------------------------------------------------------------------------- Date of 1-4-78-- 31-3-79 1-4-78 -- 31-3-80 Remarks payment ------------------------------------------------------------------------------------------------------------------------------------------------ 10-10-78 (Lit. 38,951,500 Lit. = Licence + Know--- 20,800,000 How Engineering Lit. 59,751.500 Lit. = L+KH+E TOTAL 30-3-79 Lit. 64,231,649 Techn. Assistance 4-12-79 Lit. 79,151,274 Techn. Assistance 4-12-79 ,, 67,718,865 Techn. Assistance 4-12-79 ,, 7,00,060 Techn. Assistance Lit. 64,231,649 Lit.153,970,199 Techn. Assist. TOTALS ------------------------------- ----------------------------- Lit. 123,938,149 Lit.153,970,199 GRAND TOTALS ------------------------------------------------------------------------------------------------------------------------------------------------ Shri Dastur pointed out that the rupee equivalent of 20.800 L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar are not exigible to tax although a portion of such payments is in the nature of royalty but in respect of which exemption under proviso to section 9(1)(vi) is available to the assessee. It is not necessary to go into the authorities, which were cited at the time of the hearing, since we have based our finding on the examination of various documents and agreements filed before us in the course of the hearing. We would therefore confirm the order of the CIT (Appeals) for both the years, though in respect of the finding of the CIT (Appeals) in so far as they relate to the Nangal Expansion Project, we will confirm the conclusions reached by him for the reasons other than those mentioned by him in the body of the order. In the result, both the appeals of the department are dismissed. 12. We will now turn to the cross objections of the assessee. In the cross objections the assessee has stated that the CIT (Appeals) has not dealt with other issues like levy of interest under section 217 and the assessee submits that in case the Tribunal comes to the conclusion different from the one arrived at by the learned CIT (Appeals), then the other grounds not adjudicated upon by the learned CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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