The Commissioner Of Income Tax, Hyderabad v. $ M/S.krupp Plysius A.g.rep. Bym/S.coromandel Fertilisers Ltd.,Secunderabad

* THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.268 of 1996 % 30.12.2011 The Commissioner of Income Tax, Hyderabad VERSUS ...Petitioner $ M/s.Krupp Plysius A.G.rep. byM/s.Coromandel Fertilisers Ltd.,Secunderabad. ...Respondents < GIST: > HEAD NOTE: ! Counsel for Petitioner: Sri S.R.Ashok ^Counsel for Respondents: Sri A.V.Raghuram ? Cases referred 1. [1999] 238 ITR 861 (AP)2. [2011] 330 ITR 470 (SC)3. [2000] 243 ITR 519 (Karn) THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.268 of 1996 30.12.2011 Between: The Commissioner of Income Tax,Hyderabad … Petitioner and M/s.Krupp Plysius A.G.rep. byM/s.Coromandel Fertilisers Ltd.,Secunderabad. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.268 of 1996 ORDER:(Per Hon’ble Sri Justice V.V.S.Rao) The Revenue as well as assessee moved applications beforethe appellate Tribunal for referring the questions of law under Section256(1) of the Income Tax Act, 1961 (the Act, for brevity). Theappellate Tribunal referred the following questions at the instance ofthe Revenue as well as the assessee. Questions at the instance of the Revenue: 1.“Whether on the facts and in the circumstances of the case,the ITAT was justified in holding that the fees for technicalservices would be fees payable as per agreement dated18.5.1981 alone and it does not include expenditure towardsreimbursement of subsistence allowance, medical expensesand traveling expenses of the employee of the foreignprincipal?”the ITAT was justified in holding that the fees for technicalservices would be fees payable as per agreement dated18.5.1981 alone and it does not include expenditure towardsreimbursement of subsistence allowance, medical expensesand traveling expenses of the employee of the foreignprincipal?” 2.“Whether on the facts and in the circumstances of the case,the ITAT was justified in holding that Rs.64,93,580/- only wasfees for technical services for the assessment year 1985-86and would be deemed as income under Section 9(1) (nil)?”the ITAT was justified in holding that Rs.64,93,580/- only wasfees for technical services for the assessment year 1985-86and would be deemed as income under Section 9(1) (nil)?” Question at the instance of the assessee: 1.“Whether on the facts and in the circumstances of the case,the ITAT was right in holding that interest under Sections139(8) and 217 of the Income Tax Act, 1961, is leviable forassessment years 1984-85 and 1985-86”?the ITAT was right in holding that interest under Sections139(8) and 217 of the Income Tax Act, 1961, is leviable forassessment years 1984-85 and 1985-86”? Question at the instance of the assessee: 1.“Whether on the facts and in the circumstances of the case,the ITAT was right in holding that interest under Sections139(8) and 217 of the Income Tax Act, 1961, is leviable forassessment years 1984-85 and 1985-86”?the ITAT was right in holding that interest under Sections139(8) and 217 of the Income Tax Act, 1961, is leviable forassessment years 1984-85 and 1985-86”? The assessee, namely, M/s.Krupp Polysius A.G., is a non-resident company. Its Indian agent M/s.Coromandel FertilisersCompany filed the return of income for the assessment years 1984-85 and 1985-86 on behalf of the respondent company. During thesaid assessment years, there were twenty-two foreign technicianswho worked for different periods. These foreign technicians werepaid subsistence allowance, medical expenses and travelingexpenses besides providing rent free accommodation, cars as perthe service agreement dated 18.05.1981. This remittance made bythe Indian agent was not treated as income on the ground that therewas no such element therein in the expenses vis-à-vis the assesseeor technicians. The assessing officer rejected the contention andadded back these amounts to the income. On appeal, the CIT(A)upheld the assessment order for 1984-85 holding that they wereconstructive receipts and taxes payable thereon for 1985-86. TheCIT (A), however, deleted the addition relying on the decision of theBombay Bench of the Tribunal in Zuari Agro Chemicals Limited v ITO(I.T.A.Nos.3834 and 3835 of 1984 (Bombay)). The assessee and therevenue filed further appeals before Income Tax Appellate Tribunal.They held that the reimbursement of expenses and provision of freeaccommodation and cars would not amount to fees for technicalservices as per the Double Taxation Avoidance Agreement (DTAA)and could not be added to the income of the assessee. The order of the CIT(A) for 1984-85 was reversed and the one for 1985-86 wasupheld, whereupon, the reference was sought to this Court. Insofaras the levy of interest under Sections 139(8) and 217 of the Act, theappellate Tribunal held that the assessee – the Indian agent – havingtaken upon on itself is liable to pay the tax in furtherance of theagreement, dated 18.5.1981 and also in view of the fact thatvoluntary returns were filed, there is a liability to pay interest underthese two provisions. As noticed supra, the assessee as well asrevenue sought reference as the questions referred to above to thisCourt. The questions 1 and 2 at the instance of the revenue involvethe question as to whether the fees for technical services notincluding the expenditure towards reimbursement of subsistenceallowance, medical expenses and traveling expenses of theemployees of the foreign principal cannot be deemed as incomeunder Section 9(1)(vii) of the Act. The counsel for revenue and thecounsel for assessee addressed this Court on this aspect and madesubmissions. The decision of this Court in Clouth Gummiwerke v Commissioner of Income Tax[[1]]and Joint Commissioner of Income Tax v Rolta India Limited[[2]]are relied on by the counsel. I n Clouth Gummiwerke, this Court considered the questionwhether the fees for technical services would be deemed as incomeunder Section 9(1)(vii) and whether the amount of expenditureincurred towards airfare is income in the hands of the assessee.These questions were answered in favour of the revenue and against the assessee. This Court laid down as under. Commissioner of Income Tax[[1]]and Joint Commissioner of Income Tax v Rolta India Limited[[2]]are relied on by the counsel. I n Clouth Gummiwerke, this Court considered the questionwhether the fees for technical services would be deemed as incomeunder Section 9(1)(vii) and whether the amount of expenditureincurred towards airfare is income in the hands of the assessee.These questions were answered in favour of the revenue and against the assessee. This Court laid down as under. ... From the above, it is clear that any fees paid fortechnical services is income within the meaning of section 9 ofthe Act and, therefore, it is taxable. Under Explanation 2, asstated above, fee offered for technical services means anyconsideration paid for technical services and excludesconsideration paid for any construction, assembling, mining orlike project undertaken by the recipient. In other words, any feestechnical services is income within the meaning of section 9 ofthe Act and, therefore, it is taxable. Under Explanation 2, asstated above, fee offered for technical services means anyconsideration paid for technical services and excludesconsideration paid for any construction, assembling, mining orlike project undertaken by the recipient. In other words, any fees paid for technical services is income, if it does not include anyconsideration paid for any construction undertaken by therecipient. ... Section 2(24) defines “income”. Section 2(24),clause (iii) says “income” includes the value of any perquisite orprofit in lieu of salary taxable under clauses (2) and (3) of section17. Under section 17(2)(iii)(c) of the Act the value of any benefitor amenity granted or provided free of cost or at concessionalrate by an employer to an employee is a perquisite. Therefore,the air fare provided by the NMDC falls within the meaning of“perquisite” and, therefore, income and accordingly it is taxable. In this case, no doubt that the assessee entered intoagreement on 18.05.1981 with the service receiver (Indian Company)for providing technical services and under the agreement, the latteris required to pay not only the annual fees and technical servicesand also reimburse all the amounts spent on the technical personnelwho are placed at the disposal of the Indian company. Therefore, itwould be certainly an income as laid down by this Court in ClouthGummiwerke. Insofar as the liability to pay interest under Sections 139(8)and 217 is concerned, the issue is squarely covered by theJudgment of the Supreme Court as noticed supra. In Rolta India, thequestion was whether the assessee was liable to pay interest underSection 234B on the tax calculated on the book profits under Section115JA of the Act. The assessee furnished the return of income. Itwas taken up for scrutiny and an order was passed under Section143(3) determining the total income at Nil, after set off of unabsorbedbusiness loss and appreciation. Tax was however levied on the bookprofit as worked out in the assessment order. The appeal by theassessee was dismissed by the appellate Tribunal holding that thecase fell under Section 115J of the Act. Subsequently, in the reviewfollowing the Judgment of the Karnataka High Court in QualityBiscuits Limited v Commissioner of Income Tax[[3]], the appellateTribunal held that interest cannot be charged on tax calculated onbook profits. The Supreme Court reversed, observing that when there is no exclusion of Section 115J or 115JA, the levy of interestunder Section 234B, even if a return is filed showing the book profit,the interest is chargeable if the advance tax is not paid as requiredunder the Act. The relevant observations read as under. there is no exclusion of Section 115J or 115JA, the levy of interestunder Section 234B, even if a return is filed showing the book profit,the interest is chargeable if the advance tax is not paid as requiredunder the Act. The relevant observations read as under. Thus, it can be concluded that interest under Sections234B and 234C shall be payable on failure to pay advance tax inrespect of tax payable under Section 115JA/115JB. For theaforestated reasons, Circular No.13 of 2001 dated November 9,2001 issued by the Central Board of Direct Taxes reported in[2001] 252 ITR (St) 50 has no application. Moreover, in anyevent, para 2 of that Circular itself indicates that a large numberof companies liable to be taxed under the MAT provisions ofsection 115JB were not making advance tax payments. In thesaid circular, it has been clarified that section 115JB is a self-contained code and thus, all companies were liable for paymentof advance tax under section 115JB and consequently theprovisions of section 234B and 234C imposing interest on defaultin payment of advance tax were also applicable. There is no dispute that the assessee had taken upon by itselfthe liability to pay tax pursuant to the agreement and indeed forassessment year 1983-84, they paid the tax. However, admittedly fortwo subsequent assessment years, advance tax was not paid andreturns were not filed as per the provisions of the Act. The Tribunal,therefore, held against the assessee concluding that interest ischargeable under Sections 139(8) and 217 of the Act. The decision inRolta Indiatherefore applies to this case. The questions at the instance of the revenue quoted supra areaccordingly answered in the negative in favour of the revenue andagainst the assessee, and the question at the instance of theassessee is answered in the affirmative against the assessee and infavour of the revenue. The reference case is accordingly disposed ofwithout any order as to costs. _______________ (V.V.S.RAO, J) 30.12.2011pln [1][1999] 238 ITR 861 (AP) [2][2011] 330 ITR 470 (SC)[2011] 330 ITR 470 (SC) [3][2000] 243 ITR 519 (Karn) _____________________ (B.N.RAO NALLA, J)