COMMISSIONER OF INCOME TAX Vs. KREBS AND COMPANY

JUDGEMENT

(1.) BOTH the references involve common questions and, therefore, they are disposed of by a common order. For convenient disposal of both these references, the facts given in Miscellaneous Civil Case No. 440 of 1990 are taken into consideration.

(2.) BOTH the parties aggrieved by the order of the Income-tax Appellate Tribunal dated September 29, 1989, moved the Tribunal for making a reference to this court. Accordingly, the Tribunal has made a reference to this court framing two questions--one at the instance of the assessee and the other at the instance of the Revenue.

(3.) THE brief facts giving rise to the present reference are that the assessees, Krebs and Company, Claridenistrasse, Zurich (for short "Krebs") is a foreign company and National Newsprint and Paper Mills Limited (for short "Nepa Mills") is its agent within the meaning of Section 163 of the Income-tax Act, 1961 (for short the "Act"). An agreement dated May 5, 1975, was entered into between the assessee, Krebs, on the one hand, and Nepa Mills, on the other, for supplying know-how, complete engineering and services for the extension of the existing chlorine and caustic soda plants. THE agreement was approved by the Government of India for the purpose of expansion of the existing chlorine and caustic soda plants and the assessee undertook supply of plant, equipment and engineering services. A major part of the plant equipment was agreed to be supplied from India by the Nepa Mills and the remainder of the equipment was to be supplied by the assessee from Western Europe under a separate agreement. THE assessee undertook to perform all engineering services necessary for the supply of imported items and for procurement of the indigenous items by the Nepa Mills and to integrate all such equipment into the existing plant in order to raise the production capacity of the chlorine and caustic soda plants to a certain limit. THE fee for supply of engineering and rendering of services was agreed at Swiss francs 4,59,795. THE assessee also undertook to provide technical information, drawings, specifications and operating instructions to enable the Nepa Mills to erect, repair and maintain the plant and on its part the Nepa Mills undertook to use such drawings solely for the purpose of erection, repair and maintenance of the plant and equipment to be supplied by the assessee, and not to use them or pass them on to other parties for use in the construction or operation of any other plant. It was also agreed that Nepa Mills will not extend the plant by using the assessee's design and processes without having reached a written agreement with the assessee. THE assessee also undertook to place at the disposal of the Nepa Mills one erection supervisor for nine months and one chemical engineer for two months to supervise erection and starting of the plant. THE fee for supervision of erection and commissioning of the plant was agreed to be paid by Nepa Mills to the assessee in the sum of Swiss francs 2,04,032. Thus, the total amount of consideration for the agreement was 6,68,827 Swiss francs. THE personnel posted at the site by the assessee for the purpose of erection and commissioning of the plant Were agreed to be paid daily allowance, boarding and lodging facilities and travelling expenses by the Nepa Mills.