COMMISSIONER OF INCOME TAX Vs. ENERGOMACH EXPORTS

JUDGEMENT

(1.) THE following two questions are referred under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act), for our opinion ;

(2.) THE facts of the case are : THE assessee is a foreign company and assessment is made through its agent, Karnataka Power Corporation Ltd., for the assessment year 1980-81. THE agent of the assessee company, i.e., Karnataka Power Corporation Limited (Indian company), entered into an agreement on January 30, 1974, with Energomach Exports of Russia (hereinafter called the foreign company), for supply of equipment for being installed at Linganamakki Hydroelectric Project and on the same day a supplementary agreement was also entered into with the foreign company to depute its. experienced engineers to supervise the installation of the equipment at the dam site. As per the supplementary agreement, the foreign company has agreed to provide technical advice and assistance to the purchaser in the erection, adjustment and commissioning of the equipment as well as for training the engineers of the Karnataka Power Corporation. Relevant clauses were provided in the agreement. THE cost of the equipment supplied by the foreign company came to Rs. 3,11,28,029. THE technical personnel supervised the actual erection of the equipment supplied by the foreign company at the dam site and did other jobs laid down under the contract. For the work done by the technical personnel, the Karnataka Power Corporation paid a sum of Rs. 2,40,095 to the foreign company during the accounting period. THE question that arises for our consideration is whether in respect of this payment there is any liability to tax on the foreign company under Section 9 of the Act. Before the assessing authority it is contended that Section 9 of the Act is not attracted and the assessee/company is not taxable, as there was no business connection. THE said contention was negatived by the assessing authority and it was held that the assessee is liable to pay tax. Assailing the order of the assessing authority an appeal was filed. Before the appellate authority it was pleaded that the tax liability at the most would arise under Section 9(l)(vii) of the Act. But, by virtue of the proviso thereto, the assessee is not liable to pay tax, as the proviso provides that all transactions which are covered by an agreement prior to April 1, 1976, are not governed by Section 9(l)(vii) of the Act. THE appellate authority accepted the contention and held that there is no tax liability. THE Revenue preferred an appeal before the Income-tax Appellate Tribunal. THE Tribunal also agreed with the view of the appellate authority and as the Revenue sought the reference, the reference is made to this court regarding the two questions referred supra.

(3.) IN the case of CIT v. Copes Vulcan INc. , the question referred was whether the assessee is liable for payment of tax under Section 9(l)(i) or 9(l)(vii) of the Act, when there are technical services rendered and the Madras High Court held therein that, when technical services are specially covered under Section 9(l)(vii) of the Act, they will not fall under Section 9(l)(i) of the Act. It is further stated that, when there is a special provision dealing with a special type of income, the general provision will not apply and held that the tax liability conies under Section 9(l)(vii) of the Act. As the proviso to Section 9(l)(vii) of the Act excludes transactions which were held under the agreement earlier to April, 1976, there is no tax liability to the assessee. When there is any technical service rendered arising out of business connection, it will not fall under Section 9(l)(i) of the Act even if it does not come under Section 9(l)(vii), because of the agreement providing technical services or technical know-how, as the agreement entered into is prior to April, 1976, and the proviso to Section 9(l)(vii) of the Act excludes the tax liability of the assessee.