COMMISSIONER OF INCOME TAX Vs. DOMINT WORKS GMBH

JUDGEMENT

(1.) THESE two references have been made at the instance of the Revenue in relation the same assessment year, but against two separate orders of the Tribunal, one passed in the assessee's appeal and the other passed in the appeal filed by the Revenue. The assessee is a foreign company who had entered into a collaboration agreement with an Indian company. Messrs. Transformer and Switchgear Limited. The Indian company, as the agent of the foreign company who has entered into an agreement with it, has submitted a return on behalf of the foreign company for the year ended March 31, 1968. In the said return, the assessee has admitted receipt of technical fees of Rs. 20,000 but claimed that the sum is not taxable for the reason that it was earned in Indian for technical services rendered outside Indian. However, the ITO, after considering the various services rendered by the foreign company in India, held that having regard to the nature of the services rendered by the foreign company, its claim that the entire income accrued outside India cannot be accepted. He then proceeded to determine and evaluate the services which, according to him, could be taken to have been rendered in foreign company and fixed 50 per cent. of the total fees as the fees payable in respect of services rendered by the company in India and thus a sum of Rs. 10,000 being the 50 per cent. of the total sum received by the foreign company as the income accruing in India. The matter was taken up in appeal to the AAC by the assessee. Before the AAC, the assessee contended that no service was rendered by the foreign company in India and that, therefore, the ITO was wrong in coming to the conclusion that 50 per cent. of the technical fee represented the income of the foreign company accruing in India. The AAC, after referring to the various technical services to be rendered by the foreign company as per the know-how agreement, felt that only 35 per cent. of the grow technical fees could be taken as fees for the services rendered by the company in India. Both the assessee and the Revenue took the matter in appeal to the Tribunal, the assessee questioning the evaluation of the services rendered by the foreign company in India as 35 per cent. of the total receipt and the Revenue questioning the reduction of the estimate of 50 per cent. made by the ITO to 35 per cent by the AAC.

(2.) THE Tribunal, in the first instance, has taken the appeal filed by the Revenue, without reference to the appeal filed by the assessee questioning the estimate of 35 per cent. made by the AAC. THE Tribunal, in the appeal by the Revenue, held that no interference is called for with the estimate of 35 per cent. made by the AAC. In that view, the appeal by the Revenue was dismissed. Later, the appeal filed by the assessee came up for hearing before the Tribunal. In that appeal, the Tribunal, taking note of its earlier decision in the assessee's own case, evaluated the services made by the foreign company in India at 20 per cent and allowed the assessee's appeal and modified the estimate of 35 per cent. made by the AAC to 20 per cent. Thus, as a result of the order of the Tribunal in the assessee's appeal, the evaluation of 35 per cent. of the fee as representing the services rendered by the foreign company in India has been reduced to 20 per cent. In T.C. No. 931 of 1977, the following question has been referred :