JUDGMENT
Arijit Pasayat, C.J.
At the instance of the revenue, the following question has been referred for the opinion of this court under section 256(1) by the Income Tax Act, 1961 (hereinafter referred to as “the Act”), by the Appellate Tribunal (hereinafter referred to as “the Tribunal”) :
“Whether, on the facts and in the circumstances of the case on the interpretation of clause (vii) of sub-section (1) of section 9 and clause (vi) of sub-section (9) of section 10 of the Income Tax Act, the Income Tax Appellate Tribunal was justified in holding that 1897 paid by BHEL to NEL represented remuneration for services rendered by two of NEL’s experts and was exempt under section 10(6)(vi) of the Income Tax Act and did not constitute technical fee taxable under section 9(1)(vii) of the Income Tax Act ?”
The factual position in a nutshell is as follows :
2. The assessed, Bharat Heavy Electricals is a Government of India undertaking, manufacturing heavy electrical equipment. It needed two experts of National Engineering Lab UK (hereinafter referred to as the “NEL”), for certain experimental and analytical projects at Energy System and New Product division at Delhi. The said division requested NEL UK to make available the services of two consulting engineers in connection with the development of heat transfer equipment. Accordingly, two experts of NEL rendered services in India for seven days from 6-8-1977, to 13-8-1977. The Government of India, Ministry of Industry (department of Heavy Industry), conveyed their approval vide letter dated 4-6-1977, to the assessed for requisitioning the services of the two experts and for release of foreign exchange which included remuneration of the two experts, i.e., 1897 and 80, for meeting incidental expenses. The assessed approached the Income Tax Officer (hereinafter referred to as “the Income Tax Officer”), requesting for determination of the appropriate portion of remittance of 1909 which was chargeable to tax. The assessed contended that no part of the remittance was chargeable to tax as it was remuneration paid to foreign experts for the services rendered in India as per conditions set out in section 10(6)(vi) of the Act. The Income Tax Officer rejected the claim and held that the amount remitted was not actually paid to the employees of the foreign concern as remuneration but was paid to the foreign concern itself directly for technical services rendered by the foreign experts and the amount was taxable. The determination was made under section 195(2) of the Act. Against the decision of the Income Tax Officer, the assessed preferred an appeal before the Commissioner (Appeals). The said authority was of the view that the amount remitted to the foreign company represented fee paid for technical services rendered. However, the appeal before the Tribunal was accepted and it was held that the amount was not taxable. For coming to the aforesaid conclusion, the Tribunal recorded the following findings :
“5. The question for our consideration is whether the said amount of 1897 was taxable as technical fee paid to the foreign concern or whether it was exempt in terms of section 10(6)(vi). It is true that the foreign concern, in their letter dated 13-4-1977, had stated that assistance was to be provided on consultancy basis and for that the amount that was to be charged was also stated. If this letter alone is taken into account, it could be said that the amount paid to the foreign concern was fee paid for technical services and was therefore taxable under section 9. But, it is quite clear from the material before us that 1897 out of the total amount payable to the foreign concern represented remuneration for services rendered by the two experts for the period of seven days. Section 10(6)(vi) specifically exempts from tax, the remuneration for services rendered received by the foreign national provided the conditions laid down in that provision are satisfied. There is no doubt that those conditions were satisfied. It is also clear as already stated that the amount of 1897 represented remuneration of the two experts for the services rendered by them on behalf of the foreign concern. Section 10(6)(vi) does not require that there should be contract between the Indian company and the foreign experts and remuneration be paid directly by the former to the latter on the basis of the contract. It only requires that remuneration must have been received by the foreign expert as employee of the foreign concern for services rendered in India. The two experts were employees of the foreign concern, which was not carrying on any business activity in India. Their stay in the country was for seven days only. Whether the remuneration was directly paid to them by the assessed-company or it was received by them from their own concern is not material for the purpose of section 10(6)(vi). Since all the conditions laid down in section 10(6)(vi) appear to us to be satisfied, we hold that the amount of 1897 was exempt from tax. The Income Tax Officer and the learned Commissioner (Appeals) were not justified in holding tax was to be deducted at source by the asses see-company. We allow the appeal of the assessed-company.”
On being moved for reference, the question as set out above has been referred for the opinion of this court.
3. We have heard learned counsel for the revenue. There is no appearance on behalf of the assessed despite service. Learned counsel for the revenue submitted that there being no employee and employer relationship between the assessed and the two foreign experts, section 10(6)(vi) had no application and the amount was normally taxable under section 9(1)(vii) of the Act. Reference was made to certain observations of the Commissioner of Income Tax (Appears) to the following effect :
“The assessed negotiated with NEL for the services of its experts. NEL quoted charges for rendering the services in terms of number of days of consultancy. In this connection, the deputy general manager of the corporate office of the assessed in a letter dated 23-4-1977, as follows : ‘Standard NEL practice is to charge for time away from Glasgow, which results in their estimate based on a seven day absence.’ The invoice was sent by NEL for consultancy fees and the payment was made directly to NEL and not to the individual employees who came to India. It was for NEL to remunerate its employees for the services rendered by them in India in pursuance of the contract with the assessed-corporation. So far as the assessed was concerned it was NEL which rendered the technical services, albeit through two of their employees. There was no privity of contract between the assessed and the two employees. It may here be mentioned that the assessed agreed to meet the cost of subsistence of the two employees in India for seven days, the payment for which is not included in the remittance now under consideration . . .”
Sections 9(1)(vii) and section 10(6)(vi) at the relevant time read as under :
“9. Income deemed to accrue or arise in India.(1) The following incomes shall be deemed to accrue or arise in India-. . .
(vii) income by way of fees for technical services payable by
(a) the Government ; or
(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) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in 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 1-4-1976, and approved by the Central Government.”
“10. Incomes not included in total income.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 fulfillled
(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 ;”
4. From the factual position we find that the two persons who came to India were employees of the foreign concern, NEL. This is amply borne out from the observations of the Commissioner (Appeals) on which learned counsel for the revenue placed strong reliance. From the documents on record, more particularly letter dated 13-4-1977, from NEL, it is clear that the payment was made by the assessed to NEL for rendering services by two of its employees. In fact, in the letter of the Government of India, Ministry of Finance, Department of Heavy Industry, there was approval of the government to release foreign exchange in favor of the assessed to enable it to meet the expenses in connection with the visit of the two experts. The Tribunal, as a matter of fact, noted that the two experts were employees of the foreign concern which was not doing any business in India. The amount was not paid to the foreign concern for technical services and, on the other hand, as the factual position would go to show, the same was for payment to the two experts whose services were requisitioned while seeking guidance as well as consultation services. That being the factual position, the conclusions of the Tribunal are in order. The question is answered in the affirmative, in favor of the assessed and against the revenue.