Commissioner of Income Tax vs Sulzer Brother Ltd.

Janarthanam, J.—These tax case petitions, at the instance of the Commissioner of Income Tax, Tamil Nadu-V, Madras, are for issuance of

a direction to the Tribunal to state a case and refer the common question of law, as below, for the opinion of this court :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the technical service fee paid by

the BHEL to the engineering personnel of Sulzer Brother Ltd., are not taxable u/s 9(1)(vii) of the Income Tax Act, 1961 ?"" The Tribunal, while

rejecting the reference application, stated as below : ""This question only challenges the finding of fact that the agreement was concluded prior to

April 1, 1976, and cannot be referred as a question of law. The applications are rejected.

Section 9 of the Income Tax Act, 1961 (Act No. 43 of 1961) for short (""the I. T. Act""), deals with a situation, when income is deemed to

accrue or arise in India. So far as the instant case is concerned, we are concerned with Section 9(1)(vii) of the Income Tax Act, which reads as

under :

(1) The following incomes shall be deemed to accrue or arise in India. .-

(vii) income by way of fees for technical services payable by--(a) the Government ; or

(b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such

person outside India or for the purposes of making or earning any income from any source outside India ; or

(c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person

in India or for the purposes of making or earning any income from any source in India :

Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an

agreement made before April 1, 1976, and approved by the Central Government.

In the instant case, the terms of the collaboration agreement were set out in a deed dated January 29,1976, which was taken on record by the

Central Government on March 4,1976. Article 1.6 of the agreement was as follows :

1.6. Upon request by BHEL, SULZER shall subject to availability and capacity of SULZER, personnel, assist BHEL in checking the calculations,

design drawings and part lists of equipment prepared by BHEL and shall delegate SULZER personnel to BHEL''s manufacturing and erection

sites. These services shall be paid for by BHEL as per terms to be mutually agreed upon from time to time.

It is thus crystal clear that the fees for technical services were payable only pursuant to an agreement dated January 29, 1976, and taken on

record by the Central Government on March 4, 1976, which is much earlier to the first day of April, 1976, as had been specifically provided in the

proviso appended to Section 9(1)(vii)(c) of the Income Tax Act.

Article 1.6 of the agreement, as extracted above, specifically provided that the services shall be paid for by BHEL, as per the terms to be

mutually agreed upon from time to time. Though the event of the fees to be paid for the services to be rendered to be mutually agreed from time to

time, may happen even beyond April 1, 1976, none the less, such payment of fees is relatable to the agreement, which came into existence on

January 29, 1976, much earlier to the targeted date, namely, April 1, 1976, as had been prescribed by the proviso to Section 9(1)(vii)(c) of the

Income Tax Act. On the face of existence of such material facts, the Tribunal was rather justified in coming to the conclusion that there was no

referable question of law and the question involves only finding of fact and consequently rejecting the applications. Such a view, as entertained by

the Tribunal cannot at all be stated to be not sustainable in law.

These tax case petitions, in this view of the matter, are dismissed. There shall, however, be no order as to costs, on the facts and in the

circumstances of these cases.