ORDER
T.V. Rajagopala Rao, Judicial Member
1. As common questions are involved in all these appeals they can be taken up together and disposed of by a common order for the sake of convenience. Except ITA Nos. 834, 863, 866, and 870 which relate to assessment year 1980-81 the rest of the IT As relate to assessment year 1979-80 for which the previous year ended by 31-3-1979.
2. The assessees herein are foreign technicians belonging to three countries, viz., Italy, West Germany and Czechoslovakia. Bharat Heavy Electricals Ltd. (for short BHEL), Hyderabad, which is a Government of India undertaking had entered into agreements with M/s. Siemens, West Germany on 21-6-1974. So also the said company entered into collaboration agreement with M/s. Nuovo Pignone of Italy for manufacture of high pressure compressors on 29-1-1971. So also BHEL entered into an agreement with M/s. Techno Exports, Prague, Czechoslovakia on 22-4-1965. Agreements entered into with the abovesaid three foreign countries were provided to us in paper compilation filed before us. It is an admitted case that the agreements entered into with the above-said three foreign collaborators were approved by the Government of India prior to 1-4-1976. It is also an admitted case that our country entered into Double Taxation Avoidance Agreements with West Germany, Czechoslovakia and Itlay and no such agreement was as yet entered into with Czechoslovakia,
3. At Article 4.1 of the agreement entered with M/s. Siemens of West Germany (for short W.G. company) it had undertaken to train BHEL-personnel at BHEL’s plants and to provide general technical assistance by active participation in designing in the initial stages and establishing production, quality control and testing at BHEL’s plant and erection and commissioning’ of Industrial Turbines at erection sites. At 4.2 of the agreement with W.G. company the delegation of the personnel to India shall be on terms and conditions to be mutually agreed upon.
4. The salient features of the agreement entered into with M/s. Nuovo Pignone of Italy (for short Italian Co.) as far as they are relevant for our purpose are as under :
3.1.6 : Upon written request by BHEL, PIGNONE is prepared to send its experts to BHEL’s office and plants where the product are designed and manufactured to assist in the designing in the initial stages and establishing production and commissioning of products. The conditions for the sending of these personnel to India shall be on terms included in Annexure-6.
Firstly, the BHEL should pay the Italian company the following rates for each calendar day of absence from normal place of work in Italy of each of the personnel deputed by PIGNONE to India :
For a Chief Engineer Italian Lira 50,000+Rs. 86 For an Engineer Italian Lira 43,000+Rs. 86 For a Technical Asstt. Italian Lira 32,000+Rs. 73 For a Foreman Italian Lira 30,000+Rs. 73
BHEL should provide a free-furnished accommodation at site for the experts and their families, if any. If the Italian delegated experts is/are taken ill full salary should be paid for all the time of sickness not exceeding 45 days. If the Italian company’s personnel have to stay longer than one year they shall be entitled to yearly vacation of 30 days. BHEL should provide transport free of charge to Italian company’s personnel on official work. The Italian company’s personnel has to work 40 hours per week comprising of 6 working days. For overtime work, if any, on Sundays and holidays the rates shall be mutually agreed upon. The Lira portion of the daily rate shall be paid by BHEL within 30 days of presentation of the monthly invoices by the Italian company. The rupee portion of daily rates shall be paid by BHEL in advance to the technical personnel deputed by Italian compa.ny at the beginning of the month on the basis of estimated amount due for the month. The Italian company shall submit at the end of every month bill the actual amounts due for the services of its personnel every month and adjustments will be made against the advance. BHEL shall render all possible assistance in obtaining the appropriate exemption from any Indian tax which may be levied on the personnel of the Italian company stationed at site in India in connection with the agreement. In case such exemption from payment of tax is asked for by the personnel of the Italian company and is not granted by the Government of India under the provisions of the Income-tax Act all taxes shall be to the account of BHEL.
5. As stated already BHEL entered into collaboration agreement with Czechoslovakian company M/s. Techno Exports, Prague (for short Czech company). For our purposes the following clause of the agreement dated 22-4-1965 is relevant and is extracted as under :
For the carrying out of the consulting activities according to para I above, the Supplier shall depute to India a group of designing engineers, whose professions and functions, numbers, their time of deputation to India and the duration of their stay are indicated in the Enclosure No. 3 of the agreement and item Nos. 201 up to 216 under the conditions and terms according to Article 10 and in compliance with Enclosure No. 8.
In Article 10 para 3(e) it is agreed that for the deputation of the Supplier’s experts to India the conditions and rates indicated in Enclosure No. 8 of this Agreement shall be applicable, modified by any amendments to be agreed upon mutually. In Enclosure No. 8 it is stated that BHEL shall pay salary for the period of service in India including the periods spent in Czechoslovakia on business trips and for the times spent in transit from Czechoslovakia to India and vice versa to the experts of Czechoslovakia at the following rates :
Rs.
(i) Chief Engineer 4,350 per month (ii) Senior Designing Engineer, and/or Sr. Supervising Engineer and/or Sr. Advising Engineer 3,200 " (iii) Designing Engineer and/or Supervising Engineer and/or Advising Engineer 2,990 " (iv) Sr. Erector and/or Sr. Instructor 2,750 " (v) Erector and/or Instructor 2,460 " (vi) Interpreter 1,960 "
For the experts of Czechoslovakian company to join duty in India and at the time of their final departure to Czechoslovakia BHEL has to bear the first class passage for the expert and his family (his wife and children) by air, sea and/or train, including air-conditioned accommodation, from Czechoslovakia to the site of the work in India at the time of joining duty and likewise back to Czechoslovakia at the time of final departure. The traveling expenses for the family will be paid if the expert is likely to stay for a period of not less than one year. Clear cut provision is there prescribing on what conditions the business trips should be made by the experts of Czech company to Czechoslovakia and also for business trips within India. It is made clear that either when experts of Czech company were on business trip to Czechoslovakia or were sent on business trip to India no deduction shall be made from their monthly salary. Para 3 in Enclosure 8 enjoins on BHEL to offer a free-furnished accommodation for the experts and their families of Czech company. The accommodation which should be offered to them should include air-conditioning. Adequate provisions were made for medical attendance, leave, working time, transport, postal fees, office accommodation and termination of services and invoicing any payment. Condition No. 10 speaks of termination of services. It is agreed that if on mutual discussion between BHBL and Czech company that any expert deputed by Czech company is to be replaced after one year of his uninterrupted stay in India and expenses connected therewith for his replacement and for sending a new expert will be borne by BHEL. But if the expert is by mutual discussion to be replaced by another without the former expert not having completed the full term of one year then the expenditure connected with his replacement and sending of newly appointed expert in his place will be borne by Czech company. Para 11 of Enclosure No. 8 deals with invoices and payments as follows :
All payments towards salaries and allowances for the services of the experts will become payable on the first working day of the following month ; to ensure payments on the due date, the Supplier shall submit separately for salary and allowances monthly invoices recording particulars of the name of the experts, and the period and amount of their claim at least 14 days before the due date.
6. The agreement which BHEL entered into with Italian company was ratified by the Government of India by its letter dated 21-12-1970 and 23-11-1972. The agreement entered into with Czech company was ratified by the Government of India by its letter dated 22-4-1965.
7. Originally, in the cases of all these foreign experts belonging to either of the three companies mentioned above, income-tax returns were submitted by BHEL thereby they have returned positive income in the case of each and every expert for assessment years 1979-80 and 1980-81. However, while returning their income they have deducted the expenses and also deduction available under Section 10(6)(vi) of the IT Act. Subsequently, BHEL filed revised returns disclosing nil income on behalf of each and every expert in these appeals along with an enclosed letter. In the said letter it is mentioned that on re-examination of taxability of various items included in the original returns BHEL came to the view that the returned amounts were not taxable for the following reasons :
(a) Salary paid in foreign currency and this was claimed to be exempt from Indian Income-tax in view of the Gujarat High Court’s decision in the case of CIT v. S.G. Pgnatale [1980] 124 ITR 391 ;
(b) Daily allowance paid in Indian rupees in India was claimed to be exempt under Section 10(14) of the I.T. Act ; and
(c) Perquisites by way of facilities were claimed as exempt since there was no relationship of an employer and employee of BHEL and each of these assessees and so the valuation of such perquisites should not be made under Section 17 following the decision in Addl. CIT v. P.R. Parthasarathy [1979] 118 ITR 869(AP).
8. The Income-tax Officer, A ward, Salary Circle, Hyderabad, in his assessment order dated 21-3-1983 passed under Section 143(3) of the IT Act, 1961 (hereinafter called the Act), accepted the revised return filed showing nil income holding that payments made by BHEL to the three foreign collaborators for services rendered by the assessees in India were exempt from taxation as the agreements were entered into prior to 1-4-1976 and also in view of the decision of the Gujarat High Court in 124 ITR 391 cited supra.
9. The learned Commissioner felt that the Hon’ble Gujarat High Court decision in S.G. Pgnatale’s case (supra) gave a broad meaning to the words ‘earned in India’. They held that so long as the liability to pay the amount under the head ‘Salaries’ arises in India, Clause (ii) of Section 9(1) of the Act can be invoked. But if the liability to pay arises outside India and the amount is also payable outside India clause(ii) of Section 9(1) cannot be invoked. The learned Commissioner found that an Explanation was newly added under Section 9(l)(ii) by the provisions of Finance Act, 1983, with retrospective effect from 1-4-1979 which reads as under :
For the removal of doubts it is hereby declared that income of the nature referred to in this clause payable for services rendered in India shall be regarded as income earned in India.
So if salary is payable outside India for services rendered in India then also it shall be regarded as income earned in India. In view of the Explanation, the learned Commissioner felt that the acceptance of the assessees’ contention that they are not liable to pay income-tax on any part of the salary, daily allowance and perquisites is erroneous and prejudicial to the interests of the revenue. Further, the amount paid to each of the foreign technicians per diem by BHBL while they were in India should not have been exempt under Section 10(14) of the IT Act as each of these assessees was deputed to work with BHEL at Ramachandrapuram which should be considered as their ordinary place of work while they were in India. Similarly, he felt that perquisites provided by BHEL to these assessees during their deputation period should have been assessed to tax. The list of the assessees, the amount paid as technical fee, the amount paid as salary, the amount paid as daily allowance, the type of facilities provided to each of these assessees were all shown in the table given at p. 513:
The learned Commissioner intended to exercise his powers of revision under s. 263 of Income-tax Act called upon the assessees’ agent BHEL by his letter dated 15-3-1985 as to why he should not set aside the assessment order as being erroneous and prejudicial to the revenue.
10. On behalf of the assessees the following objections were raised :
1. The agreements entered by BHEL with foreign collaborators before 1-4-1976 and they were approved by the Government of India and accordingly under the proviso to Section 9(l)(vii) fees for technical services paid by BHEL to its foreign collaborators should not be taken as accruing or arising in India and therefore fees for such technical services are exempt from Indian Income-tax.
2. BHEL paid consideration for provision of services of technical personnel to foreign collaborators, and not to their foreign technicians like the assessees working in India and accordingly the amounts paid for such services cannot be assessed under the head ‘Salaries’. Such being the case Section 9(l)(ii) has no application.
3. There is no employer-employee relationship between BHEL on the one hand and the technicians deputed by the three foreign collaborators on the other, who happen to work in India at the instance of their masters. The remuneration received in foreign currency by the assessees the foreign technician being an employee of a foreign collaborator deputed to work in India
Sl. No.
Name of the Assessee
Asst. year
No. of days
Amount paid as technical fee by BHEL to Foreign Collaborator
Amount paid as Salary to Technician by
Foreign Collaborator
Daily allowance paid by BHEL to Technician
Facilities provided
1.
Flores Gunther
1979-80
22
47,195.00
—
2,750.00
Free accommodation in guest house
2.
Antonio Santaro
1980-81
12
19,380.00
4,264.00
1,980.00
-do-
3.
Enzo Guerri
1979-80
198
84,960.00
53,938.00
32,670.00
-do-
4.
Gerardo Baicci
1979-80
197
2,25,090.00
52,792.00
32,505.00
-do-
5.
Ettore Giribaldi
1979-80
102
1,67,503.00
34,732.00
16,830.00
-do-
6.
Grassl Vilam
1979-80
155
31,098.00
—
—
-do-
7.
Antonio Micholotti
1979-80
109
1,01,434.00
40,657.00
17,985.00
-do-
8.
Miloslav Becka
1979-80
138
21,853.65
—
—
-do-
9.
Mauro Ticci
1979-80
168
2,49,234.00
54,920.00
27,720.00
-do-
10.
Vaclav Rada
1979-80
94
17,450.00
—
—
-do-
11.
Rogger Hoppe
1979-80
121
2,30,328.00
—
14,625.00
-do-
12.
Jaromir Ratislav
1980-81
36
8,751.78
—
—
-do-
13.
E. W. Widersphann
1979-80
42
69,366.76
—
7,175.00
-do-
14.
Ridel Werner
1979-80
91
1,13,574.31
—
10,875.00
-do-
15.
Miroslav Vodak
1980-81
138
46,630.00
—
—
-do-
16.
Antonio Santaro
1979-80
118
1,77,557.00
40,966.00
19,470.00
-do-
17.
Elio Brugloni
1979-80
92
1,19,281.00
27,889.00
15,180.00
-do-
18.
Antorio Spano
1979-80
92
1,07,804.00
28,281.00
15,180.00
-do-
19.
Guiseppse Pierro
1980-81
24
32,280.00
7,098.00
3,960.00
-do-
should not be assessed to tax in view of the decision of the Calcutta High Court in the case of N. Sciandra v. CIT [1979] 118 ITR 675.
4. Alternatively the Explanation under Section 9(l)(ii) was added with effect from 1-4-1979 and therefore it would be effective only from assessment year 1980-81 onwards but it does not apply to assessment year 1979-80.
5. The Income-tax Officer passed these assessments on 21-3-1983 and the time limit of two years from that date for taking action under s. 263 expired on 20-3-1985. The extended time limit brought about by Taxation Laws (Amendment) Act, 1984 into s. 263 would apply only for orders passed after 1-10-1984.
11. The learned Commissioner did not find any force in any of the objections raised on behalf of the assessees and by his impugned orders dated 26-3-1985 held that the assessment orders dated 21-3-1983 in the case of these assessees are erroneous insofar as they were prejudicial to the interests of the revenue and hence he had set aside the assessments and directed the Income-tax Officer to redo the same according to law.
12. Aggrieved against the impugned similar orders passed by the learned Commissioner in each of the assessees’ cases the assessees came up in second appeals before this Tribunal and thus these and other sister matters came up for hearing before this Tribunal and they stand for consideration before us.
13. First contention raised before us on behalf of these assessees is about the question of limitation. It is stated that the assessment orders were passed by the Income-tax Officer on 21-3-1983. The period of limitation expired on or before 20-3-1985. However, the learned Commissioner passed his orders on 26-3-1985 and they were received fey the agent of the assessees on 28-3-1985. So, the revisional orders were passed much beyond two years from the date of the assessment orders. Section 263(2) was substituted by Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984 and it is as follows :
No order shall be made under Sub-section. (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
Originally before substitution by the new provision the old provision used to be as follows :
No order shall be made under Sub-section (1)
(a) to revise an order of reassessment made under Section 147, or
(b) after the expiry of two years from the date of the order sought to be revised.
On behalf of the assessees Circular No. 402 [F. 279/146/84-ITJ], dated 1-12-1984 was relied upon. The said circular was in the shape of a direction and it is as follows :
As a consequence of the amendment of s. 263 of IT Act, 1961, by Section 47 of the Taxation Laws (Amendment) Act, 1984 the limitation for passing an order under Section 263 will, in view of general principles of interpretation of statutes, stand extended in cases where the period of limitation originally laid down in that section had not expired before 1-10-1984. However, with a view to avoiding controversy and litigation in the matter it is desirable that orders under s. 263 of the Income-tax Act are passed as far as possible, within two years of the date of the order sought to be revised in cases where the order sought to be revised was passed before October, 1984.
It is argued that a Circular issued by CBDT is binding against the department, according to the binding decisions of the Supreme Court in Navnit Lal C. Javeri v. K.K. Sen, AAC [1965] 56 ITR 198 and Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 and a host of other cases. Two months did not elapse, from the date of the order dated 21-3-1983 to 1-10-1984, the date when the amendment took effect. But CBDT directed all its subordinate officers to complete the revisional orders within two years from the dates of assessment orders sought to be revised. In this case the direction was violated and hence the impugned orders of the learned Commissioner were all vitiated as they went against the directions contained in the CBDT Circular.
14. The learned Departmental representative countered this argument stating that the impugned orders did not suffer by bar of limitation and inasmuch as by the date of amendment (1-10-1984) the power to revise the assessment order did not exhaust. The question of limitation is not a substantive right conferred on a litigant. It is always procedural in nature and therefore retrospective in operation. In all cases in which the power to exercise revision was not exhausted by 1-10-1984 they were all saved and the new period of limitation commencing from the close of tho financial year in which the order sought to be revised was passed should be taken to be the starting point for question of limitation and from that date two years’ time limit should be computed. That means, in our case limitation should be computed from 1-4-1983 and the time would be available up to 31-3-1985. In support of the proposition that a provision regarding limitation always represents a procedural law reliance was placed upon the decision of the Full Bench of Andhra Pradesh High Court in Addl. CIT v. Watan Mechanicals Turning Works [1977] 107 ITR 743. In that case it is held that no one has a vested and substantive right in the procedure and limitation has to be considered as a part of the procedural law as distinct from substantive law. The liability for tax and penalty would always remain on the assessee ; but if the time prescribed under the Act expires, the liability cannot be imposed by the authorities, the reason being that the assessee should not be subjected to unending hardship. However, before the limitation prescribed expires, if the same is enlarged, the limitation being a procedural one, the extended period of limitation will apply to such proceedings. The learned departmental representative submitted that the CBDT circulars are no doubt binding against the income-tax authorities but they do not bind either the Tribunal or the High Court. This Tribunal is bound to decide the question according to law. We accept the contention of the learned Departmental representative. The Tribunal is not at all bound by the CBDT circular. We hold that by 1-10-1984 the time did not run out for exercising the revisional powers by the learned CIT. Therefore, even before the time expired the period of limitation was enlarged by the amendment to the Act. The amendment to the period of limitation is to be treated as part of procedural law and in the facts and circumstances of these cases extended period of limitation will apply to the proceedings and therefore we hold that the impugned orders are not time-barred. Further, we also agree with the contention of the learned departmental representative that the circular of CBDT merely mentioned that for the purposes of avoiding controversy it is better to complete the revisional powers within two years from the date of the assessment orders. Therefore, there is no clear-cut direction that every order of revision should be made only within two years of the assessment order.
15. Nextly it is contended on behalf of the assessees that the amount paid to foreign collaborators was covered by Section 9(l)(vii). The foreign technicians were deputed by the three foreign collaborators belonging to West-Germany, Italy and Czechoslovakia and it is not denied that all the agreements were made before 1-4-1976 and the income by way of fee for technical services was payable in pursuance of the agreements adverted to with the above three foreign collaborators and all those agreements were approved by the Central Government. It is argued that if under collaboration agreements like those before us foreign technical service was offered by the collaborator to an Indian company like BHEL then the income by way of fee for technical services was governed by Section 9(l)(vii). Section 9(l)(ii) comes into operation when there is direct service contract between the technicians sent by the foreign collaborator and the BHEL. So long as such privity of contract for service is not existing between the foreign technician deputed and the Indian company there is no scope to argue that any of the amounts received by the foreign technicians from BHEL under the stipulation of the agreement constitutes salary. When the amounts received by foreign technicians cannot be considered as salaries then Section 9(l)(ii) does not come into operation and the value of amenities enjoyed by foreign technicians or the daily allowance to which they are entitled cannot be deemed to be perquisites. In support of this contention reliance was placed upon the Gujarat High Court decision in S.G. Pgnatale’s case (supra), P.R. Parthasa-rathy’s case (supra) and N. Sciandra’s case (supra). Alternatively it is argued that assuming without admitting Section 9(l)(ii) applies then each of these assessees are entitled to Section 10(6)(vi) exemption. Section 9(l)(vii)(b) along with proviso and Explanation (ii) thereunder so far as they are relevant to our purpose read as follows :
9(1) The following incomes shall be deemed to accrue or arise in India-
** ?* ** (vii) 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 in a business or profession carried on by such person outside India or for purposes of making or earning any income from any source outside India :
Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.
Explanation 2 : For the purposes of this clause, ‘fees for technical services’ means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or jike project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head ‘Salaries’.
Section 9(l)(ii) along with the Explanation thereunder reads as follows :
9(1) The following incomes shall be deemed to accrue or arise in India-
** ** ** (ii) income which falls under the head 'Salaries' if it is earned in India.
Explanation : For the removal of doubts, it is hereby declared that income of the nature referred to in this clause payable for service rendered in India shall be regarded as income earned in India.
It may at once be stated that the Explanation was inserted under Section 9(l)(ii) by Finance Act, 1983, with retrospective effect from 1-4-1979. Except in four cases, i.e., ITA Nos. 834, 863, 866 and 870 the rest of the appeals before us pertain to assessment year 1979-80 for which the previous year ended by 31-3-1979. That means 15 out of 19 appeals before us are not governed by the Explanation to Section 9(l)(ii) which came into effect from 1-4-1979. Therefore, the Gujarat High Court decision in S.G. Pgnatale’s case (supra) especially the interpretation put by the Gujarat High Court on the words ‘earned in India’ holds good. The Gujarat High Court held that the word ‘earned’ used in a wide sense meant as income earned only if the assessee has contributed to its accrual or arising by rendering services and in respect of which a debt is created in his favour. Unless there is a debt in favour of the assessee by reason of his rendering services it cannot be said to be ‘income earned’ in the wide sense. They have followed the Supreme Court decision in E.D. Sassoon & Co. Ltd. v. CIT [1954] 26 ITR 27 and held that it is clear for them that the words ‘earned in India’ in Section 9(l)(ii) must mean arising or accruing in India and not from services rendered in India. If the liability to pay arises out of India and the amount is payable outside India Clause (ii) cannot be invoked. In order to know whether the liability to pay arose out of India or in India the wording used in some of the clauses of the agreements may be of major help.
16. In the agreement dated 29-1-1974 entered into with the Italian company in Annexure No. 6 para 1 it is clearly known that the normal place of work of each technocrat which the Italian company deputed to BHEL is Italy and the rates mentioned in Annexure No. 6 were payable for each calendar day’s absence of those technocrats from their normal place of business they having been deputed to India. The agreement with the Italian company does not disclose the names of the technocrats whom the Italian company agreed to depute to Indian company, BHEL. Only the designations of the technocrats are mentioned in the Annexures. The Italian technocrats were to be paid daily allowance for their absence in their ordinary place of work the amounts mentioned against each of their designations both in Italian Lira and in rupees. Para 8(a) and (b) disclose as to how the invoicing and payments are to be placed and made respectively :
(a) Lira portion of the dally rate shall be paid by BHEL 30 days of presentation of the monthly invoices of Pignone.
(b) The rupee portion of the daily rates shall be paid by BHEL in advance to personnel deputed by Pignone at the beginning of the month on the basis of estimated amount due for the month.
Further, Pignone shall submit at the end of every month bill the actual amounts due for the services of its personnel, every month and adjustments will be made against the advance payments. The other important clauses in the agreement with the Italian company were already extracted in the prior paras of this order. Article 12 (para 12.1) of the agreement with Italian company is as follows:
In addition to the reimbursements and payments elsewhere provided for herein, BHEL shall pay to Pignone for the transfer of ‘know-how’ under the terms of this Agreement, the sum of Lit. 9,00,000,000. The said sum will be paid by BHEL to PIGNONE in several installments as follows :
A comprehensive reading of the terms of the agreement which BHEL entered into with Italian company more particularly para 12.1 of the agreement would clearly show that apart from payment of fees for transfer of technical know-how the payment which BHEL is obliged to pay under Annexure 6 are all payable to Italian company and the whole payment is towards technical know-how fee.
17. Now let us see the terms of the agreement dated 21-6-1974 which BHEL entered into with the West German company. Article 4 of the agreement deals with delegation of their personnel to India. 4.2 states that the delegation of these personnel to India shall be on the terms and conditions mutually agreed upon. Article 10.1.1 states that in consideration of the technical assistance rendered in Germany comprising the supply of information as per Articles 2.1, 2.1.10, 2.1.11, 2.2, 5, 6.2 and 7.2 of this agreement. BHEL shall pay to Siemens a lump sum payment of DM 1.5 million (Deutsche Mark) in the following installments in Germany. The rates agreed upon between BHEL and the West German company while the West German company had sent its technical personnel to BHEL are not furnished to us. The agreement with Czech company was entered into on 22-4-1965 and the Government of India by its letter dated 22-4-1965 agreed BHEL concluding a contract with Czech company for the design and technical documentation and other technical services to be rendered by the latter up to the end of 1976, during construction and production at the heavy power equipment plant Hyderabad on the basis of payment not exceeding Section 175 lakes as follows :
Rs
(in Lakhs)
(1) For technical co-operation a lump sum
payment of 134.40
(2) For overheads for Czech experts
coming to India, up to the middle of
1969, payment of 40.60
175.00
Article 1 of the agreement deals with the subject matter. The other important terms of the agreement are already extracted in the prior paras of this order.
18. All these three agreements were concluded prior to 1-4-1976 and the Government of India approved each of these agreements. For instance, the agreement with Czech company was approved by the Government of India on 22-4-1965. The agreement with the Italian company was approved on 23-11-1972 whereas the agreement with West German company was approved on 12-7-1974. Just like in the case of Italian company the payment for the absence of their technicians from their ordinary place of work and also their daily allowance should be paid to Czech company according to the terms of the agreement. A reading of the agreement with Czech company would show that the payment to it was made towards fee for imparting technical know-how. The question would be whether the technicians deputed by these three foreign companies to assist and advise, technicians at BHEL would be considered as employees of BHEL and whether during their stay in India they became the employees of the BHEL and received salary from it. BHEL did not treat these personnel as its employees and did not deduct tax at source while making advances to them. In fact the advances made by BHEL to these technicians are to be adjusted with the bill submitted by each of the three foreign collaborators. There is no privity of contract between the technocrats sent by each of the three foreign collaborators on the one hand and the BHEL on the other. For instance, the service contracts entered into by each of these assessees with their respective employers are not with us nor any certificates from three foreign collaborators were ever secured either by the Income-tax Officer or by the CIT. It is clearly mentioned in the agreements that the ordinary place of work of these assessees is either Czechoslovakia (Prague), Itay or West Germany. There is no material before the learned Commissioner to hold that the foreign technicians working in India, though employees of foreign collaborators, yet the remuneration received by them for services rendered in India is assessable to tax in the hands of the assesseea under the head ‘salaries’. In our considered opinion unless there is an employer-employee relationship between the technicians on the one hand and the BHEL on the other, the assessees cannot be stated to be receiving salaries. In N. Sciandra’s case (supra) the Calcutta High Court is clear on that point. In that case the Fertilizer Corporation of India entered into an agreement with an Italian company for erecting an ammonia plant in Durgapur. The name of the Italian company was Ansaldo. For deputing its technicians the Italian company prescribed certain rates just like in this case. There also it is contended by the revenue that the assessee, a technician deputed by the Italian company had earned income under the head ‘salaries’ and it was immaterial whether he was paid salary pursuant to an agreement between the FCI and the Italian employers. It is enough if the assesseo had received salary and allowance for services rendered in India. The Calcutta High Court reversing the decision of the Tribunal held that the agreement between the FCI and the Italian company is not an agreement between the assessee and his employer. The agreement provided that all payments had to be made by the Fertilizer Corporation to the Italian company and the Corporation had to pay to the Italian company a stipulated amount on account of the services of the assessee. The certificate issued by the Corporation does not specifically state that the assessee is an employee of the Corporation. All that it had stated is that the assessee had been engaged by the Corporation. The certificate also does not record by whom the remuneration is payable to the assessee. No deduction on account of salary payable to the assessee was made by the Corporation. The relationship of employer and employee has not been established between the Corporation and the assessee. Therefore, having regard to the stipulations of the agreement we hold firstly that the foreign technicians’ ordinary place of work was their respective countries but not India as sought to be contended by the learned departmental representative.
19. The learned departmental representative contended that the companies having global contracts ordinarily would employ technical personnel who agree to work anywhere in the world when exigencies require. When the services of the foreign technicians with their masters were governed by their respective service contracts the general submission made by the learned departmental representative cannot of any help to revenue. In the absence of the production of service contracts or at least certificates from Czech, Italy and West German companies we are not prepared to accept that the foreign technicians who are the assessees before us agreed to adopt India as their place of work on temporary basis or agreed to receive their salaries from their masters in India. On the other hand, the agreement with Italian company would clearly show that their place of work was Italy and the Lira payment was charged as compensation for the absence of each of its technicians deputed to India from their ordinary place of work, viz., Italy. In the face of such a categorical stipulation in the agreement itself we are not prepared to accede to the contention advanced by the learned departmental representative that each of the assessees should be considered as an employee earning salary income in India. We are also of the opinion that when once there is no employer-employee relationship between the BHEL on the one hand and the assessees on the other, there is no question of any perquisites to be considered in the hands of each of these assessees. In S.G. Pgnatale’s case (supra) it is specifically held that living allowance received by a, foreign technician cannot be considered to be a_ perquisite. The perquisite according to the Gujarat High Court in that case is something which arises by reason of a personal advantage. A mere reimbursement of a necessary disbursement would not amount to a perquisite. The Gujarat High Court also held that it is not salary because it was neither a fee, commission, or perquisite nor profit in lieu of or in addition to salary or wages. Either it is a payment which the assessees are entitled to for their absence from their ordinary place of work or the daily allowance or the free accommodation which they are entitled to or a free transport which they are entitled to which BHEL had agreed to pay under the terms of agreements with three foreign collaborators, formed part of the technical know-how fee or the royalty fee agreed to be paid by BHEL to the three foreign collaborators, under the specified agreements already adverted to supra. The payments agreed to be made to the foreign collaborators on account of the assessees having been deputed to India to work in BHEL cannot be segregated and cannot be considered in isolation. It should be considered only as part of payment made under the respective agreements. In our opinion, the payments made to these assessees were all to be considered either as technical know-how fee or as royalty agreed to be paid by BHEL to the three foreign collaborators. In such a situation, according to us, Section 9(l)(vii) which is already extracted above would come into operation. Section 9(l)(vi) which deals with royalty payment is almost on the same lines on which fee for technical services is payable. Either if it is royalty payment or if it is payment of fee for technical know-how then in case the agreement under which either royalty or fee for technical know-how is payable happened to be in pursuance of the agreement made before 1-4-1976 and approved by the Central Government then the whole royalty or the fee for technical services should not be considered as income which accrued or arose in India. What is meant by fees for technical services is already defined in Explanation 2 to Section 9(l)(vii) and it included the provision of services of technical or other personnel. Therefore, it is clear that if under an agreement term technical or other personnel were deputed by a foreign collaborator and the payments stipulated for such deputation was agreed upon under the terms of the agreement such payment should also be considered as fee for technical services. As already stated the agreements with the three foreign collaborators were entered into prior to 1-4-1976 and they were also ratified by the Government of India. Hence, whatever amount that is payable under the terms of those agreements cannot be considered as income which accrued or arose in India.
20. It is argued by the learned departmental representative that there is no scope for our above construction after the Explanation under Section 9(1) (ii) was inserted by the Finance Act, 1983 with retrospective effect from 1-4-1979. This argument is also not appeasable to us. We have to construe all the provisions in Section 9 in a harmonious way, in a way in which all of them are workable and effective and a construction under which one provision comes into conflict with another should be avoided. In our opinion Section 9(l)(vi) and 9(l)(vii) cover only limited number of cases, for those provisions to apply the collaboration agreements should be executed prior to 1-4-1976 and they should be approved by the Government of India. It is only for other agreements Section 9(l)(ii) along with Explanation may apply. Firstly we hold that the amounts sought to be charged to income-tax in the hands of the assessees are not salaries earned in India under Section 9(l)(ii). In all the appeals relating to assessment year 1979-80 the interpretation put by the Gujarat High Court on the words ‘earned in India’ would apply. Even after the Explanation came into statute book and even in cases before us relating to assessment year 1980-81 they do not come under Section 9(l)(ii) as they fall under Section 9(l)(vi) or Section 9(l)(vii). In either case the amounts sought to be assessed are not taxable. Assuming without admitting that our reasoning ultimately is not found to be in accordance with law even then the provisions of Double Taxation Agreements which our country has entered into with Federal Republic of Germany and Government of Italy come into play. Copies of the Double Taxation Agreements are furnished to us in a paper compilation Article No, XII(l) and (3) of the Double Taxation Agreement with Federal Republic of Germany is as follows :
XII(l) Profits or remuneration from professional services (including services as a director) or from services as an employee derived by an individual who is a resident of one of the territories may be taxed in the other territory only if such services are rendered in that other territory.
(3) An individual who is a resident of the Federal Republic shall not be taxed in India on the profits or remuneration referred to in paragraph (1) if
(b) services are rendered for or on behalf of a resident of the Federal Republic,
(c) the profits or remuneration are subject to Federal Republic tax.
It is admitted by the learned Commissioner that the technocrats are deputed only by the foreign collaborators and therefore Art. XII(3)(b) and (c) clearly apply to the technocrats deputed by West German company. An extract of the Double Taxation Agreement with Italy is provided at page 13 of the paper compilation. Article 16 of the Double Taxation Agreement with Italy is as follows:
Article 16 – Dependent Personal Services – 1. Subject to the provisions of Articles 17, 18 and 20, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.
2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if :
(a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the fiscal year concerned, and
(b) the remuneration is paid by or on behalf of, an employer who is not a resident of the other State, and
(c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.
Even in case of technocrats deputed by the Italy company it is not denied that they were no doubt working under the Italian company in India. Out of 10 Italian experts before us only two stayed more than 183 days and the rest less than 183 days. As far as Czechoslovakia is concerned, it is agreed that no Double Taxation Agreement was entered into by our country with that country. There are 5 Czech experts who are assessees before us. Out of them one expert remained only for 36 days in our country and the rest of them stayed beyond 90 days. As far as remaining four Czech experts are concerned, their case should succeed or either fail on the basis of our finding that their case is governed by either Section 9(l)(vi) or Section 9(l)(vii) of the IT Act and also that they did not earn their salary income in India as clarified in the Gujarat High Court decision in S.G. Pgnatale’s case (supra). Even assuming that all our above findings are not acceptable or found to be against law even then in some cases of these assessees Section 10(6)(vi) comes to their rescue. The said provision reads as follows :
10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-
(6) in the case of an individual who is not a citizen of India-
(vi) the remuneration received by him as an employee of a foreign enterprise for services rendered by him during his stay in India, provided the following conditions are fulfilled-
(a) the foreign enterprise is not engaged in any trade or business in India ;
(b) his stay in India does not exceed in the aggregate a period of ninety days in such previous year ; and
(c) such remuneration is not liable to be deducted from the income of the employer chargeable under this Act.
It is not the case of the revenue that any of three foreign collaborators with whom we are concerned here are either engaged in trade or business in India or are assessable to income-tax and therefore, we hold that either Clause (a) or Clause (c) of Section 10(6)(vi) does not apply and therefore the foreign technicians to whom the foreign collaborators had sent to India and whose stay did not exceed 90 days in the previous year are entitled to exemption from income-tax. There are five assessees before us whose stay in India was less than 90 days and they would be entitled to exemption under Section 10(6)(vi) of the Income-tax Act.
21. It is contended by the learned departmental representative that the Income-tax Officer did not apply his mind to Section 10(6) (vi) of the IT Act. So, also it is his contention that the Income-tax Officer did not consider whether Double Taxation Avoidance Agreement is applicable or not. The learned departmental representative cited Zdzizlaw Skakuz v. CIT [1986] 158 ITR 420 (AP) at 423 for the proposition that if it is not taxed as salary income there is scope to construe the income as one derived from other sources. He also cited Martin Burn Ltd. v. CIT [1978] 114 ITR 939 (Cal.) for the proposition that the Tribunal had the power to sustain the order on a different ground than what is contained in CIT’s order and the Tribunal also had the power to remand the matter. He also cited CIT v. J. Jenkin Thomas [1975] 101 ITR 511 (Mad.) and argued that the place of duty of the foreign technician was Ramachandra Puram and so whatever was paid to Mm becomes part of salary and Section 10(14) does not apply.
22. In reply, on behalf of the assessee, it is stated that the Income-tax Officer dealt with Section 10(6)(vii) and also the provisions of Double Taxation Agreement. He also held that there is no employer and employee relationship between the BHEL and foreign technicians. Copy of the Income-tax Officer’s order dated 21-3-1983 is also filed before us and we found that the submissions made by the learned counsel for the assessee are correct. Therefore, having regard to our above discussion, we allow the appeals and set aside the orders of the learned Commissioner.