ORDER
Sikander Khan, A.M.
1. These four appeals have been filed by the assessee. The appeals pertain to the asst. yrs. 1987-88, 1988-89, 1989-90 and 1990-91. The appeals are directed against the consolidated order dt. 22nd May, 1992, of the learned CIT(A) for the asst. yrs. 1987-88, 1988-89 and 1989-90 and his order dt. 17th September, 1992, for the asst. yr. 1990-91. In all these four appeals the bone of contention is the validity of the orders of the AO passed under s. 163(2) of the IT Act treating the assessee as an agent of TSVETMETPROMEXPORT, Moscow, USSR.
2. The assessee had wrongly paid appeal fee of Rs. 250 only. Subsequently he deposited the balance amount of Rs. 1,250 towards the total appeal fee of Rs. 1,500. In its written submission dt. 11th August, 1997, the assessee explained that the appeals filed were in time but due to short-payment of the appeal fee originally the appeals were considered as time-barred. It was explained that the appeals were in time and the appeal fee of Rs. 250 was paid originally under the mistaken belief that it was the proper fee but on coming to know that the proper appeal fee was Rs. 1,500 the balance amount was deposited. In the written petition it is contended that there was reasonable cause and the appeals should be considered in order and decided on merits.
3. After considering the petition and hearing both the parties the appeals are treated in order.
4. The assessee entered into an agreement through its holding company, Coal India Ltd., Calcutta, with TSVETMETPROMEXPORT, Moscow, USSR, for rendering technical assistance in preparation of design, drawings and project report. In terms of the contract the assessee had to reimburse to the aforesaid foreign company expenses containing of sending of specialists and their salary. It was also required to make payments in connection with the training of the Indians in USSR and payments in connection with the preparation of the appraisal report and the project report. The AO observed that the aforesaid payments by the assessee to the non-resident company was chargeable to tax under s. 9(1)(vii)(b) of the IT Act. He required the assessee to show-cause why it should not be treated as agent of the foreign company under s. 163 of the IT Act. A reply was filed by the assessee to the AO stating as under:
“1. That we have no business connection with the foreign company excepting that they are the seller or supplier and we are the buyer or their customer. Our relation with the foreign company were not of “business connection” as mentioned in s. 163(1)(b) of the IT Act, 1961.”
2. It is further submitted that proceedings for the asst. yrs. 1987-88 and 1988-89 are beyond the reasonable time by which a decision to consider the proceedings under s. 163(1) should have been taken as such, it will be unreasonable to consider us as an agent for asst. yrs. 1987-88 and 1988-89. This we mention without prejudice to our objection on merits.
3. It may be further mentioned that, to the non-resident company, no income has accrued or arisen or deemed to have accrued or arisen in India as such your suggestion to appoint us as agent, is illegal.”
5. The AO considered the reply and heard the assessee. He then observed that the objection of the assessee-company regarding the business connection was not acceptable because the assessee did have business connection with the non-resident company. He also observed that even if it was assumed that the assessee did not have any business connection with the foreign company, the income arising to the foreign company was chargeable to tax under the IT Act and as per the provisions of s. 163(1)(c) of the IT Act the assessee was liable to be treated as agent of the foreign company because the non-resident company was in receipt of income whether directly or indirectly from or through the assessee. He added that the person who could be treated as agent as per the provisions of s. 163(1) of the IT Act, did not include only the person who had any business connection with the non-resident. There were 4 types of persons who could be treated as agent in relation to the non-resident. These 4 categories of persons have been listed under s. 163(1) of the IT Act. Further, the list of persons who could be treated as agent in relation to the non-resident was only inclusive but not exclusive. Therefore, even if the person might not fall in the listed 4 categories yet he could be treated as agent in relation to the foreign company considering the facts of the case.
6. Regarding the objection of the assessee on the point of reasonableness of time within which a decision to consider the proceedings under s. 163(1), the AO observed that the objection was not tenable because there was no time-limit for passing order treating the assessee as agent under s. 163(2) of the IT Act.
7. As regards the third objection of the assessee mentioned above, the AO observed that the objection was not tenable because as per provisions of s. 9(1)(vii)(b) of the IT Act income by way of fees for technical services payable by a person who is resident in case of services utilised in business or profession carried on by the resident in India, is deemed to have accrued or arisen in India since the income by way of fees for technical services had been paid in pursuance to an agreement made after 31st March, 1976.
8. Regarding the quantum of income which had accrued or arisen to the non-resident company, the AO observed that as per s. 115A of the IT Act the assessee was required to pay income-tax at certain percentage on the total payment at flat rate. There was separate provision for computing income by way of royalty and technical services fee in case of a foreign company which was governed by s. 44D of the IT Act. He added that this section was applicable to the agreements which were approved by the Government of India before 1st April, 1976. He also referred to the Departmental Circular No. 202, dt. 6th July, 1976, which clarified the position in this regard.
9. After detailed discussions the AO finally treated the assessee as agent under s. 163(2) of the IT Act in respect of the aforesaid foreign company for all the four years covered under the present appeals.
10. In the first appeal, the learned CIT(A), Ranchi, by his order dt. 22nd May, 1992, upheld the orders of the AO for the asst. yrs. 1987-88, 1988-89 and 1989-90. Again by his order dt. 17th September, 1992 he upheld the order of the AO under s. 163(2) of the IT Act for the asst. yr. 1990-91.
11. It was argued before the learned CIT(A) on behalf of the assessee in all the aforesaid 4 years that from the nature of the contracts between the assessee and the non-resident it could not be clearly stated that the assessee was the agent of the non-resident company. The learned CIT(A) did not accept the argument. He observed that in his order dt. 25th July, 1991, in appeals for the asst. yrs. 1982-83, 1983-84, 1984-85 and 1985-86 his learned predecessor had confirmed the order of the AO treating the assessee as an agent of the foreign company. He added that he did not find any reason to differ with the views expressed by his learned predecessor in his order.
12. Aggrieved further, the assessee has come up in second appeal in all the 4 years under consideration before this Bench.
13. The learned counsel submitted that the AO was not justified in treating the assessee as agent of the foreign company because there was no business relation between the assessee and the foreign company. He contended that unless it was established that an Indian party was having business connection with the foreign company, the Indian party could not be treated as agent of the foreign company. Since the AO had failed to establish that the assessee had business connection with the foreign company, he was not justified in passing order under s. 163(2) against the assessee.
14. He argued that the provisions of ss. 9(1)(vii)(b), 163(1)(c), 115A and 44D, relied upon by the AO were not applicable to the facts of the present case.
15. The learned counsel further submitted that the learned CIT(A) was not justified in confirming the orders of the AO merely relying on the order of his predecessor in appeal for the asst. yrs. 1982-83, 1983-84, 1984-85 and 1985-86. He added that the learned CIT(A) should have gone into the facts and merits of the case and decided the issue in a judicious manner giving speaking order. He added that no second appeals were filed against the orders of the learned CIT(A) for the asst. yrs. 1977-78 to 1980-81 because no tax liability was arising in those years even after the learned CIT(A)’s orders. He, therefore, urged that the appeals for the assessment years in question should not be decided merely considering the fact that no second appeals were filed by the assessee for the asst. yrs. 1977-78 to 1980-81.
16. The learned counsel further submitted that the foreign company was a Russian Government company which provided the services of its specialists in mining, research and operation under the contracts. There was direct purchase and sale of services and there was no relationship of agent and principal between the assessee and the foreign company. He referred to the Tribunal’s order in the assessee’s case for the asst. yrs. 1978-79 to 1980-81 in respect of the contract with Kopex of Poland and the learned CIT(A)’s order dt. 22nd May, 1992 quashing AO’s orders treating the assessee as agent of the foreign company Kopex of Poland for the asst. yrs. 1987-88 to 1988-89 under s. 163(2) for the asst. yrs. 1987-88 and 1988-89 whereby the AO’s orders were set aside.
17. The learned counsel cited the following decisions in support of his arguments:
(1) Carborandum Co. vs. CIT (1977) 108 ITR 335 (SC);
(2) CIT vs. R. D. Aggarwal & Co. (1965) 56 ITR 20 (SC);
(3) CIT vs. Fried Krupp Industries (1981) 128 ITR 27 (Mad);
(4) Messey Ferguson Perkins Ltd. vs. CIT (1987) 165 ITR 612 (Mad);
(5) CIT vs. Hindustan Shipyard Ltd. (1986) 158 ITR 158 (AP);
(6) VDO Tachometer Werke vs. CIT (1979) 117 ITR 804 (Kar);
(7) CIT vs. Goodyear Tyre & Rubber Co. (1990) 184 ITR 369 (Del);
(8) CIT vs. Hegde & Golay Pvt. Ltd. (1987) 163 ITR 635 (Kar);
(9) T.I. & M. Sales Ltd. vs. CIT; and
(10) CIT vs. Fact Ltd. (1994) 206 ITR 644 (Ker).
18. The learned counsel for the assessee also submitted that the orders under s. 163(2) were passed after a lapse of reasonable period of time and, as such, the orders were time-barred. He added that the orders should have been passed within the relevant financial year so that the assessee could be aware of the decision of the IT authorities.
19. The learned Departmental Representative on the other hand, supported the orders of the CIT(A). She dwelt upon the facts of the case and took us through the provisions of ss. 9(1)(vii)(b), 163, 115A and 44D. She submitted that the income by way of fees for technical services payable by a person who is a resident except where the fees are payable in respect of the services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India, have to be deemed to accrue or arise in India under s. 9(1)(vii)(b) of the IT Act. She added that there was no mention of business connection so far as this provision was concerned. She, therefore, contended that the argument of the learned counsel that the AO had to establish business connection between the assessee and the foreign company for considering the income under s. 9(1)(vii)(b) was not correct and acceptable. She added that the judgments referred and relied upon by the learned counsel pertained to the provisions of s. 9(1)(i) and not to s. 9(1)(vii)(b) and, as such, the decisions relied upon by the learned counsel were not applicable to the facts of the present case.
20. The learned Departmental Representative further submitted that as per the provisions of s. 163(1)(c) for the purposes of the Act an agent in relation to a non-resident included any person in India from or through whom the non-resident was in receipt of any income whether directly or indirectly. She added that the words ‘any income’ occurring in s. 163(1)(c) had to be interpreted in the light of the provisions of s. 44D of the IT Act. Sec. 44D gives special provision for computing income by way of royalty or fees for technical services, etc. in case of foreign companies. Sec. 115A provided for the income-tax payable by a foreign company on royalty or fees for technical services @ 30 per cent. She, therefore, contended that there was no ambiguity about the provisions of the IT Act regarding the computation of income by way of royalties, fees for technical services, etc. and the deduction of tax thereon. She added that the nature of the contracts clearly indicated that the assessee had paid to the foreign company fees for technical services, etc.
21. She further submitted that the decisions of the Tribunal and the learned CIT(A) in respect of Kopex of Poland referred to by the learned counsel, were not applicable to the present case because the facts were distinguishable and also because the aforesaid provisions of law were not fully and correctly appreciated by them.
22. We have given careful consideration to the facts of the case, the materials on the file including the paper-book filed by the assessee and the submissions and contentions of the rival parties. We are of the view that the orders of the AO for all the 4 years in question were proper, legal and valid and the learned CIT(A) was justified in upholding the same. We have gone through the copies of the contracts filed in the paper-book. There is no denying the fact that the contracts were for rendering technical assistance in preparation of design, drawings and project reports and that the payments made to the foreign company were of the nature of fees for technical services rendered. The reimbursement of the expenses of the foreign company connected with sending of specialists and their salary, the payments in connection with the training of Indians in the USSR, the payments in connection with the preparation of appraisal report and project report, etc. were all of the nature of fees for technical services rendered. These payments and fees, therefore, clearly fell within the mischief of the provisions of s. 9(1)(vii)(b) of the IT Act and not under the provisions of s. 9(1)(i). Sec. 9(1)(a) and 9(1)(vii)(b) provide as under :
“9. (1) The following income shall be deemed to accrue or arise in India :
(i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India…. or through the transfer of a capital asset situate in India.
xxxxx xxxxx xxxxx
(vii) income by way of fees for technical services payable by :
(a) xxxxx xxxxx xxxxx
(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 the purposes of making or earning any income from any source outside India; or
(c) xxxxx xxxxx xxxxx
As will be seen from the above, there is no mention of the words ‘business connection’ under s. 9(1)(vii)(b). Hence, there is no requirement for the AO to establish the existence of business connection. Sec. 9(1)(i) is of general and wider connotation whereas s. 9(1)(vii)(b) is applicable only to income by way of fees for technical services. Therefore, there is no mention of the words business connection in s. 9(1)(vii)(b). In the present case the nature of payment was undoubtedly of fees for technical services. Hence, the AO was justified in considering the payments in question as falling under s. 9(1)(vii)(b). The learned Departmental Representative is right in pointing out that the decisions cited and relied upon by the learned counsel were not applicable to the present case because those decisions were based on the issue of the existence of business connection. In those decisions the specific provisions of s. 9(1)(vii)(b) in respect of the income by way of fees for technical services had not been considered.
23. Now coming to s. 163 of the IT Act we find that this section provides that for the purpose of this Act agent in relation to a non-resident included any person in India :
(a) who is employed by or on behalf of the non-resident; or
(b) who has any business connection with the non-resident; or
(c) from or through whom the non-resident is in receipt of any income, whether directly or indirectly; or
(d) who is the trustee of the non-resident;
and includes also any other person who, whether a resident or non-resident, has acquired by means of a transfer, a capital asset in India;………
It is clear from the above that the assessee was treated as agent of the foreign company under s. 163(1)(c) of the IT Act. Clauses (a), (b) and (d) of s. 163(1) were not applicable in the case but cl. (c) was applicable. Clause (c) of s. 163(1) provides that agent in relation to non-resident includes any person in India from or through whom the non-resident is in receipt of any income whether directly or indirectly. Here again because the AO had not treated the assessee as agent under cl. (b) of s. 163(1) there was no requirement of law to establish the existence of business connection. It is only when cl. (b) of s. 163(1) is applied that the existence of business connection with the non-resident was required to be established. Therefore, the argument of the learned counsel that because there was no business connection the assessee could not be treated as agent of the non-resident was not correct and acceptable.
24. In cl. (c) of s. 163(1) it is provided that any person in India from or through whom the non-resident is in receipt of income whether directly or indirectly can be treated as agent in relation to non-resident. The question arises what was the income arising to the non-resident from or through the assessee. It has been argued by the learned counsel that there was no income arising to the non-resident from or through the assessee because the assessee had only made the aforesaid nature of payments and the non-resident had not received income from the assessee as such. It has been further contended that the income, if any embedded in the aforesaid payments could not be determined. These contentions of the learned counsel are not satisfactory and convincing. The word any ‘income’ occurring in cl. (c) of s. 163(1) has to be understood in the light of the provisions of s. 44D of the IT Act. In order to see the relevance of s. 44D to s. 163 it can be observed that s. 44D gives a special provision for computing income by way of royalties or fees for technical services received from the Government or an Indian concern in pursuance of an agreement made by the foreign company with the Government or with the Indian concern before the 1st day of April, 1976. Sec. 44D provides as under:
“44D. Notwithstanding anything to the contrary contained in ss. 28 to 44C, in the case of an assessee, being a foreign company :
(a) the deductions admissible under the said sections in computing the income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or with the Indian concern before the 1st day of April, 1976, shall not exceed in the aggregate twenty per cent of the gross amount of such royalty or fees as reduced by so much of the gross amount of such royalty as consists of lump sum consideration for the transfer outside India or, the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade-mark or similar property;
(b) no deduction in respect of any expenditure or allowance shall be allowed under any of the said sections in computing the income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or with the Indian concern after the 31st day of March, 1976;
(c) xxxxx xxxxx xxxxx
(d) xxxxx xxxxx xxxxx
Explanation:-For the purposes of this section, –
(a) “fees for technical services” shall have the same meaning as in Expln. 2 to cl. (vii) of sub-s. (1) of s. 9;
(b) xxxxx xxxxx xxxxx
It will be seen from the above that s. 44D provides very clearly how to compute income by way of royalties or fees for technical services. Explanation to s. 44D also provides that fees for technical services shall have the same meaning as in Expln. 2 to cl. (vii) of sub-s. (1) of s. 9. Thus, there could be no ambiguity about the income embedded in the aforesaid payments by the assessee to the foreign company. We, therefore, reject the contentions of the learned counsel for the assessee in this regard.
25. Again s. 115A give specific provision for the deduction of tax on dividend, royalty and technical services fees in case of foreign companies, for deduction of tax @ 30 per cent on the income by way of fees for technical services.
26. Thus, the provisions of ss. 9(1)(vii)(b), 163(1)(c), 44D and 115A of the IT Act as mentioned above, were very clear and specific about the determination of the income in respect of the fees for technical services paid and the rate of tax at which the tax had to be deducted. The AO had rightly treated the assessee as agent of the foreign company under s. 163(1)(c). The order passed under s. 163(2) was proper and valid. The learned CIT(A) was justified in upholding the order of the AO for all the four years in question.
27. We also hold that as there was no time-limit prescribed the order under s. 163(2) was not time-barred.
28. In the result, the assessee’s appeals are dismissed.