COMMISSIONER OF INCOME TAX Vs. FRIED KRUPP INDUSTRIES

JUDGEMENT

(1.) IN this reference under s. 256(1) of the I.T. Act, 1961, at the instance of the commissioner of INcome-tax, the following question has been referred :

(2.) THE Lakshmi Machine Works Ltd. is a company incorporated in India. It wanted to install a grey iron foundry for manufacturing spinning casting. It entered into an agreement on 1st February, 1966, with Fried Krupp Industries of West Germany for the supply of the necessary equipments and for furnishing technical data regarding the foundry and also for the purpose of getting technicians so as to supervise the construction of the plant. THE machinery was to be supplied from Europe on f.o.b. terms, North Sea Port, suitably and securely packed for ocean shipment and subsequent movement by rail and on road in India and for tropical conditions. THE foreign company was also to supply drawings and also to supervise the erection of the grey iron foundry. 100% of the contract price for the technical co-ordination in the supply of drawings was to be made in Germany and on receipt of the contract price, the foreign company undertook to deliver the drawings to the Indian company. THE entire work connected with the technical co-ordination and supplies of drawings with reference to the materials to be procured in India was to be carried out by the contractor in West Germany. THE obligation of the foreign company was to be discharged if the drawings were delivered to the Indian company's representative for onward dispatch to it. THE payments were to be arranged by letters of credit being opened. THE erection of the machinery and equipment was to be done by the Indian company under its responsibility. THE foreign company had only to depute the specialists to advise, guide and supervise the erection work. Any damage to the plants, equipments, etc., caused by gross errors in drawings and documents supplied was to be made good by the foreign company. THE liability of the foreign company for damages was restricted, however, to 50% of the amount actually paid to it for technical collaboration and supply of drawings. In accordance with the terms of the agreement, the foreign company deputed its engineers to supervise the erection of the machinery, which was manufactured in Germany and shipped therefrom. THE salary and other emoluments of the engineers were paid in India.

(3.) WHY we were obliged to bring out the above features in the assessment of a non-resident will be clear from the following extract from the Tribunal's order. In para. 13 of its order the Tribunal states thus :