1985-VIL-53-ITAT-DEL

Income Tax Appellate Tribunal DELHI

Date: 30.03.1985

AGLAND INVESTMENT SERVICES INC.

Vs

INCOME-TAX OFFICER

R.N. Dawar for the Appellant.
J.S. Rao for the Respondent.

BENCH

S.P. KAPUR, JUDICIAL MEMBER AND B. GUPTA, ACCOUNTANT MEMBER

JUDGMENT

Per Kapur - The assessee-appellant is a non-resident company. The assessment year involved is 1980-81 while the previous year ended on 31-3-1980. The assessment has been framed under section 143(3) of the Income-tax Act, 1961 ('the Act').

2. Facts briefly stated are that the assessee is a leading walnut production expert and has acquired considerable experience and know-how in general agro-business management and operation of walnut growing, hulling and processing technologies, etc. The assessee entered into a technical service agreement with Jammu & Kashmir Horticultural Produce Marketing and Processing Corpn. Ltd. ("the Corporation') on 23-10-1980 at San Francisco, USA, whereby the assessee was to give to the Corporation the expertise and technical assistance of its consultants and also technical assistance in connection with construction and assembly of hulling, drying and processing factories (plants) and management services thereof. It was agreed upon that the company will be paid in US dollars through IDA in accordance with Schedule I, attached to the agreement. During the year the assessee was paid $ 8,436 equivalent to Rs. 69,190 for rendering services regarding plant management operation and training in India and $ 10,675.42 equivalent to Rs. 84,456 for rendering services regarding engineering and bid evaluation in USA. It has been claimed in Part III of the return that the payments earned and received in USA at Rs. 84,456 are exempt from income-tax.

3. On the above facts the stand of the assessee was as under :

That the fee received at Rs. 84,456 is not taxable since :

 (i)there is no business connection between the assessee-company and the payer;

 (ii)section 9(1)(vi) or else section 9(1)(vii) of the Act is not applicable;

 (iii)account received with regard to engineering and bid evaluation, etc., has been received outside India; and

 (iv)services rendered were in pursuance to an agreement which was outside India.

All the contentions raised on behalf of the assessee stood negatived and Rs. 84,457 treated as income received and subjected to the assessment and charge of tax at the assessment stage. The assessee met failure at the first appellate stage, hence, is in appeal.

4. The short point for our decision is, whether fee received in lieu of 'engineering and bid evaluation' is not taxable under section 9(1)(vii) when read with Explanation 2 attached thereto or not ? The case of the assessee is that it is a consideration for construction and, as such under Explanation 2 attached to section 9(1)(vii) the amount is not taxable while the revenue's stand is to the contrary.

5. The assessee has placed before us extracts from various dictionaries (international editions) to prove that 'construction' implies and includes engineering and bid evaluation since it is a step-in-aid to construction. The assessee also contends that 'construction' is not a mere physical activity or laying bricks and mortars to include something more, viz., mental process of step-in-aid and it includes engineering and bid evaluation. He also contends that bid evaluation and engineering amounts to a formulation and 'construction' includes formulation among other activities like erection, fabrication, fashioning, shifting devicing and creation also. The learned departmental representative, on the other hand, supports the stand of the revenue and contends likewise as has been reasoned in the impugned orders of the lower authorities.

6. In our opinion, on the facts and in the circumstances of the case, the assessee must succeed, since section 9(1)(vii), when read with Explanation 2 attached thereto, makes it clear and postulates a situation where fee for technical services is taxable as income but any consideration for any construction, assembling, mining or like project undertaken by an assessee is excluded from the purview of the said assessment and construction, assembling, mining or like project does include a step-in-aid thereto. The assessee, as has been stated above, entered into an agreement with the corporation and it provided for two separate activities, viz., to give to the said corporation the expertise and technical assistance of consultants and technical assistance in connection with construction and assembly of hulling, drying and processing factories and plants and also for management services thereof. The bid evaluation and engineering services are said to be connected with inviting tenders and for other process but the ultimate aim for those tenders and process is the construction of the corporation processing factory and plant and in this view of the matter, the step-in-aid included in these services, viz., engineering and bid evluations, has to be held as a step-in-aid for construction of factories and plants of the Corporation, hence, under section 9(1)( vii) read with Explanation 2 attached thereto the income is not taxable. We hold and direct accordingly. Rs. 84,456, as such, stands deleted from computation. The appeal succeeds and stands allowed.

 

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