THE COMMISSIONER OF INCOME TAX AP-I HYD V. M/S.BLEI KUMJ HELOMUT HYD

RC/123/1996

AI Insights

The case involves Bharat Heavy Electricals Limited (BHEL), which availed technical services from foreign companies and their technicians. The Income Tax Officer (ITO) initially treated the payments made to these foreign technicians as salary under Section 9(1)(vii) of the Income Tax Act, 1961. However, this was reversed by the Commissioner of Income Tax (Appeals) and upheld by the Tribunal, leading to the current reference. The core legal questions pertain to the classification of these payments under Indian tax law and the applicability of DTAAs. The court's decision not to answer the questions was based on precedents from similar cases and the existence of DTAAs with the technicians' home countries.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 681354 (HC-HYDERABAD)
• Appeal Type: Others
• Pronouncement Date: 02-01-2012
• Assessment Year: misc
• Other Referred Cases: Referred Case Nos.56 and 57 of 1990, R.C.No.105 of 1995
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Keywords: Double Taxation Avoidance Agreement; Foreign technicians; Income Tax; Remuneration; Technical Services
• Section: 9(1)(vii); 9(1)(ii); 256(1)

Judgement Text

"THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.123 OF 1996 ORDER: (Per Hon’ble Sri Justice V.V.S.Rao) This case referred by the Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench under Section 256(1) of the Income Tax Act, 1961 (the Act, for brevity), at the instance of the Revenue requires this Court to give opinion on the following five questions. 1. (a) Whether on the facts and in the circumstances of the case, the ITAT was justified in law in holding that the amounts/remuneration for services rendered in India received by the assessee-technician was covered by section 9(1)(vii) of the Income Tax Act, 1961? (b) Whether on the facts and in the circumstances of the case, the ITAT was justified in law in holding that income for services rendered in India did not arise in India because the amount is payable outside India and that therefore, it cannot be taxed by resort to S.9(1)(ii) and explanation thereunder? 2. Whether on the facts and in the circumstances of the case, the ITAT was justified in law in holding that direct contracts and employer-employee relationship should exist between the assessee technician on one hand and BHEL on the other for taxing the amount of remuneration/daily allowance and perquisite payable to the technicians under the agreement between the BHEL and the foreign collaborators at whose instance and on whose behalf the technicians rendered services and at whose instance payments were made and the amenities provided to them by BHEL in India? 3. Whether on the facts and in the circumstances of the case, the ITAT was justified in law in holding that since the terms of agreement between BHEL and foreign collaborators mentioned that the normal place of work of the assessee was outside India and that fees, allowance and perquisites are payable to him what was received by the assessee was only a part of technical services fee and expenses payable to the foreign collaborators and cannot be assessed as salary in the hands of the assessee technician? 4. Whether on the facts and in the circumstances of the case, the ITAT was justified in law in holding that the provisions of section 9(1)(ii) and explanation thereunder are not applicable to the assessee for the assessment year 1982-83? 5. (a) Whether on the facts and in the circumstances of the case, the ITAT was justified in law in holding that for the assessment year 1982-83, the provisions of section 10(6) (vi) clause(a) and (c)? (b) Whether on the facts and in the circumstances of the case, the ITAT ought to have held that since there was a business connection between the Indian Company and the foreign collaborators within the meaning of sec.9(1)(i), the provisions of sec.10(6)(vi) clause (a) and (c) are not applicable? M/s.Bharat Heavy Electricals Limited (BHEL) availed the technical services from M/s.Siemens West Germany and M/s.Nuovo Pignone, Italy as well as M/s.Techno Export, Pregue, Czechoslovakia. On behalf of the foreign technicians, who rendered service, nil returns of income were filed. The Income Tax Officer (ITO), however, treated the amounts as a salary under Section 9(1)(vii) of the Act. The Commissioner of Income Tax (Appeals) (CIT(A)), however, reversed the order of the ITO on the ground that the payments made by BHEL were to the employers of the assessees. Following their earlier orders, the Tribunal confirmed the Appellate Commissioner, whereupon the reference was sought. The questions referred to require consideration as to whether remuneration paid by BHEL to the foreign technicians is salary earned in India within the meaning of Section 9(1)(ii) of the Act or it is the fit case for technical service paid by BHEL under Section 9(1)(vii) of the Act. In Referred Case Nos.56 and 57 of 1990, this Court considered similar matter, wherein similar questions were referred for the opinion of the Court. Noticing that there existed Double Taxation Avoidable Agreement (DTAA) between the Government of India and the Governments of West Germany and Italy, this Court by a common order dated 10.04.1998 declined to answer the questions referred to. The same was followed by another bench in R.C.No.105 of 1995 dated 09.03.2006, wherein the answers were declined. As this case also arose in similar background facts, following the earlier order of the Bench, we decline to answer the questions referred to this Court. The Referred Case shall stand disposed of accordingly. _______________ (V.V.S.RAO, J) _____________________ (B.N.RAO NALLA, J) 02.01.2012 KH "