Commissioner of Income Tax, Tamil Nadu-I vs Domint Works GMBH

Ramanujam, J.—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.

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 :

Whether, on the facts and in the circumstances of the case, and having regard to the services rendered by the assessee-foreign company under the

terms of the technical collaboration agreement, the adoption of 20 per cent. of the technical fees as accruing in India is valid and proper in law ?

In T.C. No. 1546 of 1977, the following question has been referred again at the instance of the Revenue :

Whether, on the facts and in the circumstance of the case, and having regard to the services rendered by the foreign non-resident assessee

company under the terms of the technical collaboration agreement with the Indian company, the adoption of 35 per cent. of the technical fees alone

as accruing in India is valid and proper in law ?

However, it is seen from the order of the Tribunal rendered in respect of the assessee''s own case in the earlier year, that the assessee took up

the stand that the agreement entered into by the foreign company and the local company contemplated certain services to be rendered by the

foreign company in India and such services were in fact rendered, but they were only insignificant having regard to all the services to be rendered

by the foreign company. Therefore, the liability of the foreign company in respect of services rendered in pursuance of the know-how agreement

was conceded by the assessee, but he only stated that such services were only insignificant. As a matter of fact, before the AAC, a letter dated

December 23, 1960, was filed by the assessee showing that the assessee-company itself had conceded the certain portions of the services were

rendered in India and a portion of the technical fee was taxable in India. However, it had been stated, in that letter, that the services so rendered in

India were insignificant. But in respect of those years, the Tribunal has evaluated the services done by the foreign company in India representing 20

per cent. Against the order of the Tribunal, in respect of the earlier years, the assessee has not sought any reference and the decision of the

Tribunal so far as it is against the assessee had become final. The Tribunal has chosen to evaluate the services admitted to have been rendered by

the foreign company in India as 20 per cent., in this case, following its decision in respect of the earlier years. Thus the only question before the

Tribunal was a pure question of evaluation of the services rendered by the foreign company in India and for the purpose of apportionment of of the

technical fee received by the assessee as accruing in India. According to the Revenue, the services rendered by the foreign company in India in

pursuance of the know-how agreement should have been evaluated as 50 per cent. as was done by the ITO. Having perused the orders of the

ITO as well as the AAC as also the Tribunal, we find that each of them has evaluated the services rendered by the foreign company in India after

referring to the relevant clauses in know-how agreement. The Tribunal has come to the conclusion that those (nature of) of the services which had

been taken to have been rendered by the foreign company in India can only be evaluated at 20 per cent. We do not see how the evaluation made

by the Tribunal could be questioned by the Revenue in this reference. If the Tribunal has referred to the relevant clauses in the agreement and

evaluated the services taking note of the clauses, the decision of the Tribunal cannot be said to involve a question of law. Since the decision of the

Tribunal is based on a factual position having regard to the nature of the services rendered by the foreign company in India, we cannot interfere

with the evaluation of those service made by the Tribunal. In this view, we have to answer the question raised in T.C. No. 931 of 1977, in the

affirmative and against the Revenue. In view of the said answer, the question referred in T.C. No. 1546 of 1977 does not arise and the reference

has to be returned unanswered. There will be no order as to costs.