Income-tax---

----Income deemed to accrue or arise in India---Fees for technical services-- Technical services rendered in foreign country---Fees for such services and reimbursement of amounts paid by foreign company to its personnel-- Assessable---Indian Income Tax, 1961, S.9(1)(vii).

Cochin Refineries requested a foreign company, F, to evaluate whether the coke produced from a blend of vacuum bottoms and clarified oil from Bombay High Court crude was suitable for making anodes for the aluminium industry. The tests were carried out in the U.S.A. in regard to which the assessee made payment of Rs.7,69,614. The assessee also paid Rs.1,19,303 and Rs.38.271 which were payments in the nature of reimbursement of the payments made to the personnel of the said consultant F. All these payments were assessed under section 9(1)(vii) of the Income Tax Act, 1961. This was upheld by the Tribunal: On a reference:

Held, that the services rendered by the foreign company, F, would be in the nature of technical services and would, therefore, consequently, be covered fully by the Explanation to section 9(1)(vii) of the Income Tax Act, 1961. Even with. regard to the two payments of Rs.1,19,303 and Rs.38,271 in the nature of reimbursement of payments made to the personnel, no different situation would be available because these payments would be part and parcel in the prices of advice of a technical character and would fall for coverage only within the meaning of the abode Explanation. The amounts were assessable to tax in India.

C.N. Ramachandran Nair and Antony Dominic for the Assessee.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

JUDGMENT

V.V. KAMAT, J.---Cochin Refineries Ltd., the assessee, prays for a reference and consequent direction of the following two questions:

"(1)Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the amount of Rs.7,69,614 paid by Cochin Refineries Limited to Foster Wheeler Energy Corporation of U.S.A. constituted 'fees for technical services' and, therefore, constituted income assessable to tax in India in the hands of Foster Wheeler Energy Corporation of U.S.A.?

(2)If the amount paid to Foster Wheeler Energy Corporation, U.S.A. constituted fee towards technical services, whether the amounts of Rs.1,19,303 and Rs.38,271 should not be excluded from the amount assessable as representing reimbursement of expenses incurred by them which was not its income?"

The facts are very narrow. Cochin Refeneries Ltd. requested Foster Wheeler Energy Corporation to evaluate whether coke produced from a blend of vacuum bottoms and clarified oil from Bombay High crude is suitable for making anode for aluminium industry. This was because there was no provision for carrying out such attest in India and as such the job had to be entrusted to the foreign company.

The required tests were carried out and the conclusions were reported to the assessee, Cochin Refineries Ltd. Obviously, the tests were carried out in the U.S.A in regard to which the assessee made payment of Rs.7,69,614. The question is whether this payment would have to be understood by way of fees for technical services. Under section 9 of the Income Tax Act, 1961, incomes have been statutorily deemed to accrue or arise in India.

The Tribunal placed reliance on the Explanation to clause (vii) of subsection (1) of section 9 of the Act to hold that the amount paid would have to be deemed as "fees for technical services" and ruled that such tax would have to be deducted at source.

In regard to this amount of Rs.7,69,614 there is a dispute with regard to the two payments of Rs.1,19,303 and Rs.38,271 which were payments in the nature of reimbursement of the payments made to the personnel of the said consultant, Foster Wheeler Energy Corporation, U.S.A., and these two payments were also deemed to be forming part of fees for technical services.

Reading the above provisions, especially the Explanation to clause (vii) of subsection (1) of section 9 of the Act, such deeming situation floats on the surface, With advantage the Tribunal has quoted the said Explanation which is as follows:

"For the purposes of this clause, 'fees for technical services' means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the receipt chargeable under the head 'Salaries'."

The Tribunal would have to be endorsed with regard to the conclusions drawn in regard thereto that the payment in question (Rs.7,69,614) would have to be deemed as amounting to "fees for technical services" because any consideration paid for the rendering of any technical service would have to be understood that way only. There appears to be no dispute that the services rendered by the foreign company, Foster Wheeler Energy Corporation, would be in the nature of technical services and would, therefore, consequently be covered fully by the above Explanation.

Even with regard to the two payments of Rs.1,19,303 and Rs.38,271 in the nature of reimbursement of payment made to the personnel, no different situation would be available because these payments would be part and parcel in the process of advice of a technical character and would fall for coverage only within the meaning of the above Explanation.

For the above reasons question No. l will have to be answered in the affirmative, in favour of the Revenue and against the assessee, whereas question No.2 will have to be answered in the negative, in favour of the Revenue and against the assessee. We answer accordingly.

A copy of this judgment shall be caused to be sent to the Income-tax Appellate Tribunal, Cochin Bench, under the seal of the Court and the signature of the Registrar. Order accordingly.

M.B.A./1550/FCOrder accordingly.