PACE EDUCATION (P.) LTD. Vs. INSPECTING ASSISTANT COMMISSIONER.

JUDGEMENT

(1.) THE assessed is aggrieved of the order dated 24 -2 -1987 of the learned Commissioner of Income Tax, Delhi -III, New Delhi for the assessment year 1985 -86, passed under Sec. 263 of the Income Tax Act, 1961.

(2.) THE assessed is a company. It moved an application dated 10 -11 -1985 before the Inspecting Asstt. Commissioner (Asst.) under Sec. 197 for grant of "No Objection Certificate" for remitting an amount of 13,000 US dollars to one Mr. Stephen Blash (an US Expert on Computer Education and an employee of M/s. Yourdon Inc. USA) without deduction of Income Tax at source. The details of the amount of 13,000 US dollars were as follow :

(3.) THE learned Commissioner being prima facie of the view that the aforesaid order of the Inspecting Asstt. Commissioner (Asst.) was erroneous in so far as it was prejudicial to the interests of revenue, issued a notice dated 4 -8 -1986 to the assessed under Sec. 263. He took the view that the agreement dated 1 -4 -1985 had not been approved by the Central Government and Therefore, the provisions of Sec. 115A (1) (b) (iii) were not applicable. He was of the view that the procedure for approval involved the taking on record of the agreement by the Secretariat of Industrial Approvals under the Ministry of Industry and the grant of approval by the concerned Administrative Ministry (Department of Electronics). He held that the approval granted by the Department of Electronics on 5 -7 -1985 was for engaging the services of Mr. Stephen Blash of M/s Yourdon Inc. USA and not for the agreement as such. He was also influenced by the fact that it had been clarified in the approval accorded by the Department of Electronics that it was from the technical angle only. The assessed gave a detailed reply dated 8 -9 -1986 to the said notice. In the said reply it was said that the order of the learned IAC (Asst.) far from being prejudicial to the interests of revenue, was in fact highly prejudicial to the interests of the assessed company, for which reason it had filed a revision petition before the Commissioner under Sec. 264. It was said that no deduction of tax at source was required to be made in relation to the abovementioned remittance. It was said that the said agreement was not acted upon between M/s. Yourdon Inc. USA and the assessed company and instead, the services in question were rendered by an employee of M/s. Yourdon Inc. USA namely by Mr. Stephen Blash. It was reiterated that Sec. 10(6) (vi) was attracted. It was said that services were rendered to the assessed company by Mr. Stephen Blash and M/s. Yourdon Inc. USA was not to receive any payment in respect thereof. Reference was also made in this connection to the Telex massage dated 28 -4 -1986 from M/s. Yourdon Inc. USA and the certificate therewith to the effect that Mr. Stephen Blash had rendered the services contemplated under the agreement and that the entire remuneration of 13,000 US dollars was to be received by Mr. Stephen Blash in his individual capacity as employee of M/s. Yourdon Inc. USA for services rendered by him. Reliance was also placed on the decision of Appellate Tribunal in the cases of ITO v/s. and Bhadrachalam Paper Boards Ltd. v/s. . In the alternative it was said that in terms of Sec. 115A (1) (b) the agreement dated 1 -4 -1985 could be said to have been duly approved by the Central Government. It was said that the Secretariat for industrial approvals comes into the picture only where there is a collaboration agreement with the foreign enterprise and not in a case of the present nature. In this connection, reference was also made to an office memorandum dated 23 -12 -1982 circulated by the Department of Economic Affairs, ministry of finance wherein it has been clarified that administrative ministries will deal with all cases of engagement of foreign technicians/experts for visits of less than 12 months. however, the learned Commissioner took the same view as he had taken in the notice that was issued by him under Sec. 263. He was of the view that M/s. Yourdon Inc. USA was liable to tax in India on the sum of 13,000 US dollars @ 65% + surcharge of 3.25% and not @ 40% as directed by the IAC (Asst.). He, Therefore, directed the IAC (Asst.) to amend the order under Sec. 195(2) accordingly.