COMMISSIONER OF INCOME TAX Vs. BHARAT HEAVY ELECTRICALS

JUDGEMENT

(1.) AT the instance of Revenue, the following question has been referred for opinion of this Court under S. 256(1) by the IT Act, 1961 (in short the Act) by the Appellate Tribunal (in short, Tribunal) : "Whether on the facts and in the circumstances of the case on the interpretation of cl. (vii) of sub S. (1) of S. 9 and cl. (vi) of Sub S. (6) of S. 10 of the IT Act, the Tribunal was justified in holding that 1897 paid by BEHL to NEL represented remuneration for services rendered by two of NEL's experts and was exempt under S. 10(6)(vi) of the IT Act and did not constitute technical fee taxable under S. 9(1)(vii) of the IT Act ?

(2.) FACTUAL position in a nutshell is as follows : Assessee, Bharat Heavy Electricals, is a Government of India undertaking manufacturing heavy electrical equipments. It needed two experts of National Engineering Lab U.K. (in short, NEL) for certain experimental and analytical projects at Energy System and New Product division at Delhi. The said division requested NEL UK to make available services of two consulting engineers in connection with development of heat transfer equipment. Accordingly two experts of NEL rendered services in India for 7 days from 6th Aug., 1977, to 13th Aug., 1977. Government of India, Ministry of Industry (Deptt. of Heavy Industry) conveyed their approval vide letter dt. 4th June, 1977, to the assessee for requisitioning the services of the two experts and for release of foreign exchange which included remuneration of two experts i.e. ï¿ 1/2 1897 and ï¿ 1/2 80 for meeting incidental expenses. Assessee approached the Income tax Officer, (in short, ITO) requesting for determination of appropriate portion of remittance of ï¿ 1/2 1,909 which was chargeable to tax. The assessee contended that no part of the remittance was chargeable to tax as it was remuneration paid to foreign experts for services rendered in India as per conditions set out in S. 10(6)(vi) of the Act. ITO rejected the claim and held that the amount remitted was not actually paid to the employees of the foreign concern as remuneration but was paid to the foreign concern itself directly for technical services rendered by the foreign experts and the amount was taxable. The determination was made under S. 195(2) of the Act. Against the decision of the ITO, assessee preferred an appeal before the Commissioner of Income tax (Appeals) [in short, CIT(A)]. The said authority was of the view that the amount remitted to the foreign company represented fee paid for technical services rendered. However, the appeal before the Tribunal was accepted and it was held that the amount was not taxable. For coming to the aforesaid conclusion, Tribunal recorded the following findings :

(3.) SEC . 9(i)(vii) and S. 10(6)(vi) at the relevant time read as under : Sec. 9 Income deemed to accrue or arise in India (1) The following incomes shall be deemed to accrue or arise in India :