DEPUTY COMMISSIONER OF INCOME TAX Vs. ITC LTD.

JUDGEMENT

(1.) AS these three appeals relate to the same assessee and involve somewhat identical issues, we are taking up all these appeals together, as a matter of convenience, for disposal by way of this consolidated order. In all the appeals, common ground of the revenue is that on the facts and in the circumstances of the case, the Commissioner (Appeals) has erred in concluding that 'the assessing officer was not justified in refusing the NOC to the assessee' and in directing that 'the tax already deducted at source should be refunded to the assessee as it was not incumbent on the part of the assessee to deduct tax at source'. To put it in simple words, revenue is aggrieved that Commissioner (Appeals) erred in holding that no tax was required to be deducted from certain remittances made by the respondent.

(2.) WE will first take up ITA Nos. 970 and 971/Cal/1998 which relate to the respondent's liability of deducting tax at source from two payments, amounting to French Francs 5,14,790 and French Francs 3,14,950 covered by the respective appeals, made to one M/s Decoufle s.a.r.l., France, on account of installation and commissioning charges in respect of certain machineries purchased from this very French company.

(3.) BRIEFLY stated, material facts of the case are that respondent, i.e., ITC Ltd. (hereinafter referred to as "the assessee tax -deductor") imported two sets of machines from M/s Decoufle s.a.r.l., France, (hereinafter referred to as 'Decoufle'). Decoufle also deputed its technicians, for installation and commissioning of these machines, 6 -3 -1995 to 10 -7 -1995 (146 days), and 15 -3 -1995 to 29 -5 -1995 (75 days), respectively. It was in connection with this installation and commissioning of machines that the assessee was to pay sums of French Francs 5,14,790 and French Francs 3,14,950 (net of taxes) to Decoufle. The assessee moved application under section 195 of the Income Tax Act (hereinafter referred to as 'the Act') and prayed for issuance of a 'no objection certificate' for remitting these sums without any deduction of tax at source. It was contended that installation and commissioning of machines does not constitute 'technical services fee' within meaning of Explanation 2 to section 9(1)(vii) of the Act and that it is in the nature of business profits. The assessee further contended that in view of article 5(3) of India France Double Taxation Avoidance Agreement, Decoufle did not have 'permanent establishment' (hereinafter referred to as 'PE') in India as installation project did not exceed six months. It was also submitted that unless the French company has a permanent establishment in India and unless the income arises from the business carried through the permanent establishment in India (article 7(2)1, the same cannot be brought to tax in India. A declaration by Decoufle regarding non -maintenance of PE in India was also filed before the assessing officer. The assessing officer, however, was far from impressed. The assessing officer observed that the installation and commissioning services were requisitioned by the assessee after the import of machines in questions and, therefore, such services cannot be said to be integral part of transaction. It was also observed that Explanation 2 to section 9(1)(vii) was not applicable to the facts of this case as the same covered only an assembly project whereas installation and commissioning in question cannot be termed as an assembly project. The assessing officer thus held the fees paid for installation and commissioning of machines as income of the French company taxable in India under section 5(2)(b) read with section 9(1)(vii) of the Act. It was also held that in view of the provisions of section 115A(1)(b) of the Act, the aforesaid income was taxable at the rate of 30 per cent. The assessing officer also mentioned that on earlier occasions also, the assessee -company had made payments under similar circumstances, to Decoufle and the NOCs (i.e., orders under section 195(2)] were issued on the conditions of deducting the tax at the rate of 30 per cent, which were never agitated by the assessee. Accordingly, assessing officer directed the assessee to deduct the tax at source from the payments made to Decoufle at the rate of 30 per cent. Aggrieved, the assessee carried the matter in appeal before the Commissioner (Appeals).