The American companypany went up in appeal to the Appellate Tribunal from the revisional order of the Commissioner.
A good slab of it was deducted at source by the Indian companypany on account of income tax and super tax payable .on the said sum.
The former employed such person nel in India on the basis of the various agreements of employment entered between the Indian companypany and such personnel.
The pamphlets and bulletins incorporating the results of research made by the American companypany were also furnished to the Indian companypany by post and thus.
That the services of the .foreign technical personnel were made available to the Indian companypany by the American companypany outside the companyntry.
But since the assessee companypany had number gone .in appeal because of the smallness of the amount of tax payable on the basis of 5, the Tribunal was obliged to maintain the order of the Income tax Officer.
From the Judgment and Order dated the 4th May 1973 of the Madras High Court in Tax Case No.
The use of the technical assistance and knowhow given by the American Company and made use of by the Indian Company in the taxable territory companyld number make the former liable to payment of income tax on the amount of technical fee received by it number was it any royalty.
89 of 1975.
These services were number proved to have been rendered in India.
The Income tax Officer took the view in his assessment order that 5 of the technical fee paid to the American companypany was earned by it in India and Only that small amount was assessable to income tax.
The Commissioner was also of the view that the technical person nel furnished by the assessee companypany to the Indian companypany although worked under the companytrol of and was paid for by the latter, the situs of the services so rendered was in India.
The Tribunal Set aside the said order and restored that of the Income tax Officer, even though it seems to be of the view that even 5 of the technical fee companyld number be taken as income of the assessee companypany taxable under the Act.
The findings of the Tribu nal are The American companypany rendered service to the Indian companypany for the starting of the factory in India in the shape of exami nation of the factory design and lay out prepared by the latter and sending its advice by post.
Treating the technical fee in the nature of royalty paid, it directed the Income tax Officer to revise the assessment on the basis that 75 of it should be taken as income accruing or arising in India to the assessee companypany.
R. Ramamani and 1.
The Commissioner of Income tax the respondent in this appeal, asked for a reference and the Tribunal referred the following question of law for the opinion of the High Court Whether on the facts and in the circumstances of the case, the technical fee in excess of 5 per cent received by the asses see companypany from the Indian companypany during the account year relevant to the assessment year 1957 58 has accrued or arisen in India?
A new stand taken before the Tribunal on behalf of the Revenue that the assessee companypany must be deemed to be working in companyjunction with the Indian companypany in the manufacture of the products in question was also rejected.
The American companypany filed a Return of income for the year in question with an application for refund of the entire tax deducted at source.
the said service was also rendered outside India.
Consequently, he directed the refund of a major portion of the tax deducted at source to the assessee companypany.
They were the employees of the Indian companypany under its Control for their day today working.
Ramamurthi, for the Intervener.
Hence this appeal.
The training of the Indian per sonnel directly by the employees of the asses see companypany was imparted outside India.
The Tribunal did number agree with the views of the Commissioner that the payment of the teChniCal fee of 3 was dependent upon the use of the information in India or on the volume and extent of such use.
CIVIL APPELLATE JURISDICTION Civil Appeal No.
M. Mehta, and R.N. Sachthey, for the respondent.
In the main, the basis of his order was that even though the technical infor mation was supplied by the assessee companypany from outside India, the information received by the Indian companypany was put to use only in the taxable territory and the technical fee paid by it was mainly on account of such use.
The Tribunal took some new materials into companysider ation at the appellate stage in order to ascertain the true nature of the service rendered by the American companypany to the Indian companypany as per the term of the agreement and the place of rendering such service.
The Commissioner of Income tax in exercise of his power under section 338 of the Act revised the order of the Income tax Officer and took the view that at least 75 of the techni cal fee earned by the assessee companypany during the year of account had accured or arisen in India.
A. Palkhivala, R. Balasubramanian, LB.
Dadachanji, C. Moneses, Mrs. A.K. Verma, C.R. Dun, Ravinder Narain and C. Mathur, for the appellant.
The Central Board of Revenue has declared it a Company under section 2 5A of the Act.
In lieu of all the services aforesaid, as per the agreement, the American companypany was to receive from the Indian companypany an annual service fee equal to 3 per centum on the net sale proceeds of the products manufactured by the latter each year.
M s Carborandum Coof the United States of America hereinafter called the American Company or the Assessee Company, is the appellant.
The Assessee Company entered into an agreement dated June 22, 1955 with M s Carborandum Universal Ltd. hereinaf ter called the Indian companypany, having its registered office at Madras.
The results of the research are incorpo rated in pamphlets prepared from time to time.
95,762/ from the Indian companypany as its service fee.
The Judgment of the Court was delivered by UNTWALIA, J. This is an appeal by certificate from the decision of the Madras High Court in a Reference made by the Income tax Appellate Tribunal under section 66 1 of the Income Tax Act, 1922 hereinafter referred to as the Act.
During the year of account relevant to the assessment year 1957 58 the assessee companypany received a sum of Rs.
It has specialized in the manufacture of bonded abra sive and companyted abrasive products.
For the improvement and advancement in the line of its manufacture, it has a Re search Wing also.
As per the terms of the agreement the American Company was to render and did render to the Indian Company certain technical and know how services of the following nature furnishing of technical information and know how with respect to the manufacture of bonded abrasive and companyted abrasive products providing technical management including factory design and lay out, plant and equipment production, purchase of mate rials, manufacturing specifications and quali ty of product 4 502 SCI/77 furnishing companyprehensive technical information of all developments in the manu facture of the special products providing the Indian companypany With a resident factory manager for starting the plant and superintending its operations during its initial production stages, as also other technical personnel necessary for the operation of the plant training Indian personnel to replace the foreign technical personnel as quickly as possible.
183 of 1967 .
