JUDGMENT
S. Sankarasubban, J.
1. These references are at the instance of the asses-see against the judgment of the Income-tax Appellate Tribunal, Cochin Bench, in R. A. Nos. 269 to 281/Coch of 1991, under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) by the Commissioner of Income-tax, Cochin. The following questions of law are referred for the opinion of this court:
“(1) Whether, the Income-tax Appellate Tribunal was right on the facts and circumstances of the case in holding that there was business connection between FACT and foreign collaborators, i.e., Societa-De-Prayon (formerly Engineering and Industrial Corporation) of Belgium, Davy Power Gas Inc., U.S.A. and Chemiebau Dr. A. Ziren GmbH and GoKG (now Davy Power Gas GmbH, West Germany) in the relative technical collaboration agreements entered into between FACT and the said companies ?
(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that rendering of services by the technical personnel deputed under the agreements to FACT amounted to rendering of services by the foreign collaborators in India ?
(3) Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in holding that there was no employer-employee relationship between FACT and the foreign technicians who were deputed to render services to FACT under the aforesaid technical collaboration agreement ?
(4) Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the Income-tax Officer was justified in treating the assessee as the agent of the non-resident collaborators and bringing to tax that part of the remittances attributable to the activity carried on in India by deployment of the technical personnel ?”
2. The assessee in this case is Fertilisers and Chemicals Travancore Ltd. FEDO Division, Udyogamandal (hereinafter referred to as “FACT”). The proceedings started in pursuance of an order passed by the Income-tax Officer under Section 201(1) of the Income-tax Act treating FACT Ltd., Udyogamandal, as an assessee in default for failure to deduct tax at source payments made to the non-resident under Section 195(1) of the Act and the assessments relevant to Income-tax References Nos. 481 and 482 of 1985 and Income-tax Reference No. 23 of 1990 were made on FACT as agent of the foreign companies under Section 163 of the Income-tax Act.
3. The question that arises in this case is whether the non-resident collaborators rendered services to the assessee in India. FACT Ltd. entered into collaboration agreement with three foreign companies. The agreement entered into by FACT with Engineering and Industrial Corporation of Luxumberg, Belgium (hereinafter referred to as “EIC”) on February 6, 1968, provided for furnishing of information and assistance necessary to enable FACT to quote for and build phosphoric acid plants in India and to supply services. EIC agreed to supply to FACT the necessary staff for supervision of erection and for commissioning of the plant. FACT remitted amounts to EIC towards the payments agreed upon in the accounting years relevant to the three assessment years 1972-73, 1973-74 and 1974-75. FACT entered into a similar agreement with Davy Power Gas Inc. of USA for the design and technical services for the construction of NPK fertilizer plant for its Cochin Division. The foreign collaborator agreed to make available to FACT technical personnel for engineering, construction and putting the plant in operation and verifying the performance guarantee thereof. FACT made payments to the non-resident company in the accounting year ending March 31, 1972. Another collaboration agreement was entered into with Chemiebau Dr. A. Sieren GmbH and CoKG, now known as Davy Power Gas GmbH of West Germany, for design and technical services for the construction of sulphuric acid plants for Travancore Titanium Products Ltd., Trivandrum, Hindustan Copper Ltd., Khetri and Cochin Fertiliser Project Phase II, Ambalamedu. This agreement contained a provision for deputation of engineers by the foreign company for supervision of the commissioning of the plant.
4. FACT remitted amounts to this foreign company during the accounting years relevant to the assessment years 1972-73 and 1973-74. No tax was deducted at source from the above payments to the non-residents under Section 195(1) of the Income-tax Act. It was so done on the basis that the non-resident collaborators had not rendered any service in India and so they had not earned or received any income in India liable to income-tax. The Income-tax Officer, on a perusal of the collaboration agreements, held that all the services by the foreign collaborators were not rendered outside India, that the deputation of technical personnel for services in India amounted to rendering services in India and that the income attributable to such services accrued to the non-resident in India. 15 per cent. of the total payments was treated as income accruing in India. As the payments were agreed to be made in India free of income-tax, the tax deductible at source from the income was on computation of “tax on tax basis”. Accordingly, the Income-tax Officer proceeded under Section 201(1) of the Act and treated FACT as an assessee in default in respect of the tax payable. Appropriate orders were passed on this basis. In appeal, the Appellate Assistant Commissioner held that the place of supply of the services was the foreign country, that no part of the income arose in India as the payments were made under the collaboration agreement and that there was no basis for working out the tax on “tax on tax basis”.
5. In second appeal filed by the Revenue, the Appellate Tribunal held that the terms and conditions of the three collaboration agreements with the above three foreign companies were more or less similar to the one considered by the Madras High Court in CIT v. Fried Krupp Industries [1981] 128 ITR 27. The Appellate Tribunal followed the decision of the Supreme Court in Carborundum Co. v. CIT [1977] 108 ITR 335 and the decision of the Madras High Court aforesaid and held that there would have been no operations carried on in India by the foreign companies and that the services rendered by the technical personnel are not attributable to any operations of the foreign companies, that the supply, deputation or making available such personnel or work in India along with the supply of engineering know-how or documentation have been outside India and that the further operation in India were the responsibility of the Indian company. The Tribunal also held that the terms of the agreement showed that the technical personnel made available to FACT became their employees. In effect, it was held that no operation attributable to the foreign companies which can give rise to any profits being earned in India arose and so FACT was not bound to make any deduction at source at the time of making payments to the foreign companies. Thereafter, the questions of law were referred to the High Court and the references were I. T. R. Nos. 446 to 451 of 1985. These references were disposed of by judgment dated March 27, 1990, and is reported in CIT v. Fertilisers and Chemicals Travancore Ltd. [1990] 185 ITR 398 (Ker). After considering the judgment and the various agreements, this court was of the view that the Appellate Tribunal failed to pose for consideration the appropriate question that arose before it and from an appropriate angle. This court further held that (page 406): “the approach or perspective in which the matter was viewed did not bring home the aspect or basis on which the Revenue based the order impugned, or assailed by the assessee. Under Section 195(1) of the Income-tax Act, if any person is responsible for paying any sum chargeable under the Act to a foreign company, he shall, at the time of payment thereof in cash, deduct income-tax thereon at the rates in force. Under Section 201 of the Act, if any person so responsible fails to deduct the income-tax, he shall be deemed to be an assessee in default. The above aspect did not receive direct or proper consideration at the hands of the Tribunal in disposing of the appeals. The said aspect could be evaluated or analysed only if the basic question, whether the foreign collaborator rendered any service in India in terms of the agreement on the basis of which it could be said that a portion out of the payments made to the foreign collaborator is income that accrued to such collaborator in India is answered. That will in turn depend on whether the agreement envisaged rendering of any service in India by the foreign collaborator for which payment was provided for. These aspects which necessarily arose for consideration were not adverted to ; nor is any definite finding entered by the Appellate Tribunal on the basis of the agreement executed between the assessee-FACT Ltd. and the foreign collaborator. Absence of a finding on that score vitiates the order of the Appellate Tribunal. It cannot be said that the final fact-finding authority–the Appellate Tribunal –disposed of the appeals before it in accordance with law. We are constrained to hold so. On this basis, the only course left us is to decline to answer the three questions referred to us in Income-tax References Nos. 446 to 451 of 1985 and at the same time direct the Income-tax Appellate Tribunal to restore the appeals (I. T. A. Nos. 243 to 248/Coch/1977-78) to the file and consider the matter afresh in accordance with law”.
6. Thus, the cases were remanded to the Appellate Tribunal. The appeals were restored and the Tribunal was directed to consider the matter afresh. Subsequently, the Tribunal decided the matter by a consolidated order dated August 30, 1991. The Tribunal went through the agreement executed between the assessee and the non-resident and after analysing the various clauses in the agreement, held as follows : “It is not as if the agreement evidences instances of stray transactions. It is understood in Clause 4 of the agreement that ‘EIC remains free under special circumstances to sell phosphoric acid plants to the private sector of Indian industry subject in each case to the approval of the project by the Government of India. EIC remains free to collaborate with and grant licences to non-Indian companies operating from outside India for the sale of phosphoric acid plants in India. In case any pray on process phosphoric acid plant is supplied by a non-Indian company, EIC shall make its best efforts to the effect that FACT services are used for this plant as far as possible. When FACT shall obtain an order for a phosphoric acid plant, FACT will make their best efforts to ensure that the services of SEULCHRE may be used to the maximum by themselves or by their customers’. Thus, under the agreement, business connection in India with FACT is established in the realm of training Indian engineers or other employees of FACT or even the employees of customers of FACT”. Various decisions were referred to by the Tribunal. The Tribunal allowed the appeal and held that the assessee had defaulted payment of tax under Section 195(1) of the Act. It is against the above order that these references are made.
7. We heard learned counsel for the assessee and learned counsel for the Department.
8. Various clauses in the agreement particularly Clauses 6.1, 6.2, 9, 10, 10.1, 10.2, 12, 19 and 21, show that services have been rendered by the foreign company and the employees under them. There is nothing in the agreement to show that the employees of the foreign company, who rendered services here had rendered services as employees of FACT. Clause 6.2 says thus : “The services of the necessary staff for supervision of erection if such supervision is desired by FACT and for commissioning of phosphoric acid plant as agreed by both parties”. Regarding payments, Clause 9 states as follows: “For the services of the supervising engineers referred to 6.2 in accordance with EIC’s scale of daily rates current at the time and in accordance with standard EIC terms for the loan of such engineers set out in Schedule B to this agreement ; provided that the rates may be varied from time to time by mutual agreement while taking into account the relevant information obtained from the competent authorities in Luxemburg or in Belgium”. Clause 10.1 says that all payments to EIC for services rendered under the agreement shall be made in Belgian Francs in Luxemburg, except for expenses incurred in India by or on behalf of the supervising engineers referred to in Clauses 6.2 and 9 above. Thus, it is clear that the assessee is not entitled to any consent of technician in respect of services rendered in India. Thus Clause 9 is clear that the services of the engineers were only loaned to FACT. There are no separate service agreements between the foreign technicians and FACT. The foreign collaborators have agreed to assist the company in several ways such as by providing know-how, technicians services, commissioning of the plant, etc. Though the contract, etc., originated in the foreign country, pursuant to such contracts the services of the foreign technicians were loaned to the Indian company ; such foreign technicians did not themselves become employees of the Indian company. The foreign company spelt out the terms and conditions for the services of such technicians in India. The Indian company did not have any control over such technical personnel. The loaning of the services of the foreign technicians was incidental to the main activity of the sale of the knowhow, etc. Therefore, the foreign collaborators rendered services in India through their technical personnel for certain specified periods and thus carried on some activity which contributed directly or indirectly to their earning of income.
9. In the above view of matter, we agree with the view taken by the Tribunal
and we answer the question in favour of the Revenue and against the assessee.