ORISSA SYNTHETICS LIMITED Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THE order of the Income-tax Officer dated May 2, 1990, under Section 115A of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), annexed as annexure-14 to the writ application, is under challenge in this writ application. THE payment made by the Indian company to the foreign company in consideration of the assistance rendered by the seller or its Sub-contractors as provided under Article V.1(a) and 2 of the agreement at the rate of 350 U. S. dollars per man-day of time spent by the experts of the seller is the subject-matter of dispute. THE Income-tax Officer has held the remittance to be "fees for technical services" and has required the petitioner to deduct tax at the prescribed percentage before remittance. THE petitioner's contention, however, is that the remittance thus made would be chargeable under the head "Salaries" or, alternatively, it would come within the exclusion part of Section 9(1)(vii) of the Act and, therefore, no tax is liable to be paid on the same. By the impugned order, the Income-tax Officer having rejected the stand of the petitioner and having come to the conclusion that the payment is in the nature of income by way of fees for technical services under Section 9(1)(vii), the petitioner has moved this court. THE Income-tax Officer, by the impugned order, has recorded the following conclusions :

(2.) THE brief facts are that the petitioner is a public limited company within the meaning of the Companies Act, 1956. It is engaged in the manufacture of polyester staple fibre at its plant at Laxminagar, Boulpur, in the district of Dhenkanal. THE petitioner-company entered into an agreement with Messrs. Chemtex Fibre Inc., U. S. A., in August, 1983 and, under the agreement, the said foreign company permitted the petitioner the right to use the Dupont technical information for the setting up of a plant for production of polyester staple fibre. Under the agreement, the foreign company agreed to provide in U. S. A. to the Indian company (for short, "the petitioner"), complete and accurate Dupont technical instruction for design and construction of the plant. Under Article V.1(a) of the agreement, the foreign company undertook the obligation of assisting the Indian company in obtaining a satisfactory plant by providing technical assistance for sixty man-months in transit or in India by representatives of the foreign company on mutual consultation with the Indian company. No fees would be charged for work done by the technical personnel in India concerning design and up to placing of orders for plant and machinery, but the Indian company would, however, pay for air travel and provide boarding and lodging for the technical personnel in India. THE said agreement also provided that the foreign company shall train the employees of the Indian company in U. S. A. Payments to be made by the Indian company, the buyer, are enumerated in Article VI of the agreement and under Clause 1 of Article VI, the total consideration was fixed at 29,50,000 U.S. dollars payable in three instalments as contained in the said clause and this consideration amount was for transfer of Dupont technical information, know-how and technology for the building of the plant according to the licence ; for the use by the buyer of the Dupont technical information and any patent rights according to the licence ; for the training of buyer's employees as provided in Article V.1 ; and for technical information and licence related to Dupont's TPA and waste recovery process and all other services/assistance provided in the agreement for which fee is not specified. In addition to the aforesaid lump sum consideration amount, it was also provided that, in consideration for the assistance et cetera, prescribed in Articles V.1(a) and V.2, the buyer will pay to the seller or its sub-contractor 350 U. S. dollars per man-day of time spent by the experts of the seller including days off while away from home base except for personnel sent for inspection of locally fabricated proprietary items. It is this payment sought to be made by the buyer-petitioner to the seller, Messrs. Chemtex Fibres Inc., which is the subject-matter of the present dispute. THE Income-tax Officer has found the said payment to be one in the nature of fees for technical services, whereas the petitioner contends that it is either a salary or it comes within the exclusion part of Section 9(1)(vii) of the Income-tax Act and thereby is not liable to be taxed. THE question that arises for consideration, therefore, is as to what is the nature of payment thus made.