1. These two appeals are directed against common order dated 6-11-1992 of the ld. CIT(A), Ranchi, whereby he confirmed the orders of the Assessing Officer taxing the assessee-company under section 143(3)/163(2)/251 for the assessment years 1978-79 and 1979-80 treating the assessee as Agent of TSVEMETPROMEXPORT, Moscow. The Assessing Officer held that the income of Rs. 1,96,957 for the assessment year 1978-79 would be deemed to have arisen in India by virtue of section 9(1)(vii) of the Income-tax Act. He observed that the payment of the amount in question by the assessee-company to the said foreign company was in respect of the Contract No. 05-022/30700 dated 17-9-1975 which contract had not been approved by the Central Government before 1-4-1976 and, as such, the proviso to clause (vii) of sub-section (1) of section 9 of the Act was not applicable in the case. Accordingly, he charged income-tax on the income of Rs. 1,96,960 for the assessment year 1978-79.
2. As for the assessment year 1979-80 the Assessing Officer determined the total income under section 143(3)/163(2)/251 at Rs. 28,69,460 and charged income-tax etc. on the same. This income was determined by him on the basis of the payments made by the assessee-company to the said foreign company under Contract No. 05-022/30801 dated 19-5-1977, Contract No. 05-022/60200 and 05-022/30300. Admittedly, the first contract, i.e., No. 05-022/30801 was executed on 19-5-1977 but the other two contracts were signed before 1-4-1976. However, the Assessing Officer observed that there was no evidence that these 3 contracts had been approved by the Central Government before 1-4-1976. He, therefore, held that the proviso to clause (vii) of sub-section (1) of section 9 was not applicable and the aforesaid payments were liable to be treated as deemed income under section 9(1)(vii) of the Act.
3.1 Aggrieved the assessee preferred first appeal before the ld. CIT(A) for both the years under consideration. It was argued before him on behalf of the assessee that the taxation of the amount of Rs. 1,96,957 under section 9(1)(vii) of the Act was unjustified and wrong because the relevant contract had been made and approved by the Central Government before 1-4-1976. Reference was made to the letter of the Central Government, copy of which was filed before the Assessing Officer in which it had been stated that all the contracts entered into by the CMPDI Limited with the foreign company/organisation had been approved. It was contended that this covered the aforesaid contracts.
It was, therefore, argued that the proviso to clause (vii) of sub-section (1) of section 9 of the Act was applicable and the aforesaid payments were not liable to be treated as income under section 9(1)(vii) of the Act.
3.2 It was further submitted before the ld. CIT(A) that all the agreements had been signed by the Joint Secretary to the Government of India, Ministry of Energy, (Department of Coal), on behalf of the appellant which. fact should also be considered as approval by the Central Government.
3.3 The ld. CIT(A) was not satisfied and convinced with the aforesaid submissions. He observed that from the correspondence produced it was not clear whether the aforesaid agreements had been duly approved by the Central Government. In the absence of any specific approval mentioning the date of approval, the ld. CIT(A) did not accept the claim that the contracts had been approved by the Central Government before 1-4-1976. He, therefore, confirmed the Assessing Officer's actions for both the years.
4. Aggrieved further, the assessee has come up in 2nd appeal before this Tribunal.
5.1 The ld. counsel submitted that the Assessing Officer was not justified in treating the aforesaid payments by the assessee-company to the said foreign company as income under section 9(1)(vii) of the Act, when the relevant agreements had been made and the same had been approved by the Central Government before 1-4-1976 except one contract bearing No. 05-022/30801 which was executed on 19-5-1977. He contended that the proviso to clause (vii) of sub-section (1) of section 9 of the Act was applicable in the case.
5.2 As regards the contract executed on 19-5-1977 the ld. counsel submitted that the proposal was prior to 1-4-1976 and hence the Explanation 1 to clause (viz) of sub-section (1) of section 9 of the Act was applicable in the case.
5.3 As regards the approval of the aforesaid contracts by the Central Government, the ld. counsel submitted that they had been approved by the Central Government. In this connection he referred to letter from the Director in the Ministry of Energy (Department of Coal) bearing No.CPP-14015/1/82 dated 5-4-1983, copy of which was filed before the Assessing Officer in which it had been stated that all the contract entered into by CMPDI with the foreign company/organisation had been approved by the Government. He added that the fact that the agreements were signed on behalf of the appellant by the Joint Secretary to the Government of India, Ministry of Energy (Department of Coal) also established and proved the claim that the Government's approval of the contracts was there.
5.4 The ld. counsel further submitted that admittedly the payment was made by the Government of India by adjustment in the account maintained on behalf of the Russian Government. He contended that unless the contracts were approved, the payment would not have been possible. He argued that these facts coupled with the aforesaid letter of the Ministry and other surrounding facts and circumstances of the case, should have been considered as enough proof of the approval by the Central Government.
5.5 The ld. counsel submitted that even otherwise the aforesaid amounts could not be treated as income because of the work had been done in Russia and there was no business connection in India and, as such, section 9(1)(viz)(c) was not applicable in the case. In this connection, he referred to article 2 of the Agreements and relied on the decision reported in Addl. CIT v. New Consolidated Gold Fields Ltd. [1983] 143 ITR 599/15 Taxman 201 (Pat.) and the Board's Circular No. 23 dated 23-7-1969.
6.1 The ld. DR, on the other hand, supported the orders of the authorities below. She submitted that since no evidence of specific approval of the aforesaid contracts by the Central Government had been furnished, the Assessing Officer was justified in holding that the said contracts had not been approved by the Central Government before 1-4-1976 as required under the proviso to clause (vii) of sub-section (1) of section 9 of the Act. She further submitted that the aforesaid Contract dated 19-5-1977 relevant to the assessment year 1978-79 was altogether out of the said proviso because the contract had not been made before 1-4-1976. She added that no evidence had been furnished that there was proposal for the said agreement before 1-4-1976 so as to bring it within the purview of Explanation 1.
6.2 The ld. DR further submitted that the case was covered under section 9(1)(vii)(b) and not under section 9(1)(vii)(c) and, as such, there was no required condition for the existence of business connection. She added that this point had already been decided by this Tribunal in this very case earlier. She further submitted that the decision in New Consolidated Gold Fields Ltd.'s case (supra) was not applicable in the case because there was no question of business connection in the present case. She further added that the Board Circular referred to above, was also not relevant in the case.
7.1 We have given careful consideration to the facts and circumstances of the case, the materials on the appeal file and the submissions and contentions of the rival parties. We are of the view that the Assessing Officer was not justified in taxing the payment of Rs. 1,96,960 in the assessment year 1978-79 in respect of Contract No. 05-022/30700 dated 17-9-1975. Admittedly, this contract was made before 1-4-1976. As for the approval of the contract we are not inclined to accept the plea that the letter from the Director in the Ministry of Energy (Department of Coal) bearing No. CPP-14019/1/82 dated 5-4-1983 in which it had been stated that all the contracts entered into by the assessee-company with the ,foreign company/organisation in the past had been approved, covered the contract in question. This letter considered alongwith the fact that the Joint Secretary to the Government of India had signed the Agreements on behalf of the appellant and that the payments had been cleared by the Government, Reserve Bank of India, etc., threw sufficient light on the approval of the contracts by the Central Government. Therefore, we hold that the contract had been approved by the Central Government.
7.2 Now the question arises whether the contract had been approved by the Central Government before 1-4-1976 because both the Assessing Officer and the ld. CIT(A) had held, that there was no evidence that the contract had been approved by the Central Government before 1-4-1976. Close reading of the proviso to clause (viz) of sub-section (1) of section 9 of the Act shows that while the requirement was there that the agreement must have been made before 1-4-1976 there was no requirement under the proviso that the contract must have been approved by the Central Government before 1-4-1976. For the benefit of clear and quick reference we quote the proviso below : 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 - (a) to (c) ** ** 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." 7.3 A close reading of the aforesaid proviso would show that the words "before 1st day of April, 1976" are placed after the words "in pursuance of an agreement made" and before the words "and approved by the Central Government". If the words "before the 1st day of April, 1976" had been common both to the words "in pursuance of an agreement made" and "approved by the Central Government" then the words "before the 1st day of April, 1976" should have come at the end. Therefore, the words "before the 1st day of April, 1976" are specific and relevant to the agreement and not to the approval by the Central Government. This point may be considered in another way also. If the agreement was made on 31-3-1976, then how would it be possible to obtain the approval of the Central Government also on 31-3-1976 to qualify for the application of the said proviso. Therefore, even on the point of logic and practicability the words "before the 1st day of April, 1976" would not be applicable both to the making of the agreement and the approval by the Central Government. In this view of the matter we hold that the said proviso does not require that the agreement must be approved by the Central Government before 1-4-1976. It only required that the agreement must be made before 1-4-1976. Since the aforesaid agreement relevant to the Assessment year 1978-79 was made before 1-4-1976 and we have held above that in terms of the aforesaid letter of the Government, the contract should be treated as approved by the Central Government, we direct the Assessing Officer to delete the aforesaid income in the assessment year 1978-79.
7.4 As regards the assessment year 1979-80, our findings above will hold good in respect of the two contracts bearing Nos. 05-022/60200 and 05-022/30300 which were admittedly made before 1-4-1976. These two contracts should also be treated as approved by the Central Government in terms of the aforesaid letter of the Central Government and other relevant facts mentioned hereinbefore.
7.4-2 We, therefore, direct the Assessing Officer to delete the income taken under contract Nos. 05-022/60200 and 05-022/30300.
7.5 Now the only contract which remains for consideration in the assessment year 1979-80 is Contract No. 05-022/30801 which was executed on 19-5-1977, i.e., it was not made before 1-4-1976. The ld. counsel for the assessee, as mentioned above, argued before us that the proposal for this agreement was prior to 1-4-1976 and hence, it was covered under Explanation 1. This matter requires verification.
Explanation 1 to clause (vii) of sub-section (1) of section 9 provides as under : "Explanation 1. - For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.' According to above Explanation 1, if the agreement made on or after 1-4-1976 was in accordance with the proposals approved by the Central Government before 1-4-1976, then the agreement shall be deemed to have been before 1-4-1976 and the same would be covered under the proviso to clause (viz) of sub-section (1) of section 9 of the Act. Hence, the crucial point for verification here is the date of approval of the proposal which ultimately led to the execution of the contract No.05-022/30801 on 19-5-77. If the proposal for this contract was approved by the Central Government before 1-4-1976 then this contract shall be deemed to have been made before 1-4-1976 and it would qualify for exemption under the proviso to clause (viz) of sub-section (1) of section 9 of the Act. We, therefore, direct the Assessing Officer to verify this crucial fact of the date of approval of the relevant proposals by the Central Government and decide the issue accordingly.
7.6 So far as the rival contentions on the point whether the case falls under section 9(1)(vii)(c) or section 9(1)(vii)(b) we hold that it falls under section 9(1)(vii)(b) as decided by this Tribunal in this very case earlier vide Order dated 24-11-1997 in ITA Nos. 731, 732, 733 & 1323/Pat./1992 for the assessment years 1987-88, 1988-89, 1989-90 and 1990-91. However, the present appeals have been decided in the light of the provisions of the proviso and Explanation 1 to clause (viz) of sub-section (1) of section 9 of the Act as per above discussions.