ASIAN DEVELOPMENT SERVICE Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following two questions are referred to us at the instance of the assessee under Section 256(1) of the Income-tax Act, 1961, for opinion by this court :

(2.) THE assessment years concerned are 1980-81 and 1981-82. THE applicant-assessee is a non-resident company. It is incorporated in Indonesia and is a wholly owned subsidiary of Rope River Ltd. incorporated in Hongkong which is engaged in the business of undertaking rectification of different fertiliser plants throughout the world. It received certain amounts from FACT Ltd., Cochin Division, under a contract. THE questions involved herein relate to the assessment of the said amount to tax under the Act. According to the assessee, the said amount is liable to be assessed under the Act treating it as business income whereas according to the assessing authority, it is liable to be assessed treating it as income falling under Section 9(1)(vii) read with Section 44D(b) of the Act. THE assessing authority by annexures A-1 and A-2 orders treated the receipts accordingly and completed the assessment without allowing any deductions. THE Appellate Assistant Commissioner of Income-tax as well as the Income-tax Appellate Tribunal dismissed the appeals filed by the assessee and confirmed the assessments. It is against the order of the Income-tax Appellate Tribunal that the assessee sought reference of the two questions set out in the first paragraph of this judgment.

(3.) LEARNED senior Central Government standing counsel, Sri. P. K. R. Menon, appearing for the respondent, submitted that the agreement in the case (annexure-D) was only for the purpose of rendering technical service and the assessee has not undertaken any construction or assembly of the plant, for, according to him, the plant was already in existence and what was required was only rectification of the defects and to bring it to the expected capacity. Counsel accordingly submitted that the amounts received by the assessee will squarely fall under the definition of fees for technical services in Explanation 2 and, therefore, the provisions of Section 9(1)(vii) of the Act are attracted. In support of his submission, counsel referred to the agreement (annexure-D) and relied on the preamble and Clauses 1.1, 1.2 and 1.5 under article 1 regarding employment Clauses 2(1)(a) and (b) particularly and also Clause (c), 2(2)(a) of article 2 regarding performance of time and further relied on article 6 in that regard. He further submitted that Clause 2(1)(b) of article 2 clearly shows that the responsibility of purchase of the material and the installation of the same is that of the FACT and, therefore, it is evident that the construction or assembly, if any, is that of FACT only. With reference to Clauses 1(1) and 1(3) of article 1 and Clauses 2(1)(a) and 2(2)(a) counsel submitted that the responsibility of the assessee is only to render technical services in the form of advice and assistance in rectifying the defects in the existing plant. It is accordingly submitted that the services rendered by the assessee are purely technical services of the nature specified in Explanation 2 of Section 9(1)(vii) and are not of the nature excluded in the said Explanation. He alternatively submitted that, in the instant case, the Tribunal has entered a categoric finding in paragraph 3 of its order that there was neither any construction nor any assembly and that the work undertaken by the assessee is not even remotely connected with construction and that there is no remote relation with the assembly. He submitted that this finding of the Tribunal has not been challenged by the assessee by raising a specific question in that regard. He also submitted that this finding not being challenged, the conclusion is irresistible that the amounts received by the assessee are in the nature of fees for technical services falling within the main provision of Explanation 2 and, therefore, the question of law raised by the assessee is only academic as the answer is self-evident. LEARNED standing counsel relied on two decisions of the Supreme Court in Karam Ghana Thapar and Bros. P. Ltd. v. CIT, 1971 80 ITR 167 and Kar-nani Properties Ltd. v. CIT, 1971 82 ITR 547 in that regard.