Income-tax----

‑‑‑‑Reference‑‑‑Income deemed to accrue or arise in India‑‑‑Non‑resident engaged as consultant‑‑‑Amount paid for field study in India and preparation of report in a foreign country‑‑‑Amount whether taxable under S.9‑‑ Question of law‑‑‑Indian Income Tax Act, 1961, Ss.9 & 256(2).

The assessee was M a non‑resident based in Finland. It was approached by Nepa Mills, a resident, for consultancy services to solve its production and operation problems. An agreement was executed between the two and pursuant thereto, the non‑resident assessee sent its consultants for field study who were paid on daily basis, a total amount of $ 35,198. The results of their study were later finalised and prepared in Finland for which $ 24,000 were paid to the assessee under the agreement. The amount was taxed as income by the Income‑tax Officer but the Tribunal held that it was not taxable. On an application to direct reference:

Held, that the question whether, on the facts and circumstances of the case, the Tribunal was justified in holding that payment of $ 59,198 had not accrued or arisen in India as fees for technical consultancy in terms of section 9 of the Income Tax Act, 1961, was a question of law.

S. K. Pawnekar for the Commissioner.

G.M. Chaphekar for the Assessee.

JUDGMENT

B.A. KHAN, J.‑‑‑The Revenue has filed this application under section 256(2) of the Income Tax Act, 1961, praying for calling for the statement of the case from the Income‑tax Appellate Tribunal on the following two questions:

"(i)Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that no service has been rendered by the ass6ssee who is a non‑resident to a resident in terms of section 9 of the Income‑tax Act?

(ii)Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that payment of $ 69,198 has not accrued or arisen in India as fees for technical consultancy in terms of section 9 of the Income‑tax?"

It transpires that the assessee is a non‑resident based in Finland. It was approached by Nepa Mills, a resident, for consultancy services to solve its production and operation problems. An agreement was executed between the two and pursuant thereto, the non‑resident assessee sent it consultants for field study who were paid on daily basis a total amount of $ 35,198. The results of their study were later finalised and prepared in Finland for which $ 24,000 were paid to the assessee under the agreement The assessee was taxed for $ 35,198 which was treated its income by the Assessing Officer. It took appeal before the Commissioner of Income‑tax (Appeals) but failed. It then carried the matter to the Tribunal and succeeded. The Tribunal interpreting the provisions of section 9 of the Income Tax Act, 1961, along with its Explanation 2 took the view that rendering of service was a prerequisite for tax liability arid since no such services were rendered by the non‑resident assessee in India, therefore, any fee paid for technical services rendered could not be taxed as income at the hands of the non‑resident assessee.

The Revenue felt dissatisfied and filed R.A. No.130. of 1992 requiring the Tribunal to refer the abovestated two questions to this Court for opinion. The application was rejected on the ground that no question of law arose in the matter, because the Tribunal had found it as a fact that no technical service was rendered by the assessee in India. Hence, this application for calling for a statement of case from the Tribunal on the above stated questions.

The case of the Revenue is that the Tribunal had ignored the provisions of section 9(1)(vii)(b) of the Income‑tax Act, which provided that any income shall be deemed to accrue or arise in India, if it was an income by way of fees for technical services payable by a person who is a resident. The relevant provision is extracted herein below:

"9 (1). The following incomes shall be deemed to accrue or arise in India‑‑...

(viii) income by way of fees for technical services payable by

(b)a person who is a resident, except where the fees are payable in respect of services utilised ill a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India;"

We have examined the Tribunal's order rejecting R. A. No. 130 of 1992 and there is no clue that the Tribunal had regard to the provisions referred to hereinabove. Therefore, it remained to be seen whether the fee paid to the assessee‑company by the resident Nepa Mills could be held to be an income accruing or arising in India and thus taxable. The matter, in our view, gives rise to a question of law warranting calling for a statement of the case from the Tribunal, Indoor Bench. We order accordingly and require the Tribunal to send the statement of the case on the aforesaid two questions.

M.B.A./625/FC Order accordingly.